How to Collect and Verify Bank Accounts for ACH?

ACH or Automatic Clearing House is the most used money transfer method in the USA. Ever since the ACH went online, it has created a whole new environment of sending and receiving checks. Online payment processing methods of today are replacing the old and somewhat outdated ACH Payment process. But with this new and improved method of payment processing comes the added risks of fraud. Be it online ACH payments or any other method of payment processing. This is why there’s a huge need for bank verification in the payments industry.

Millions of businesses that send and receive payments using the ACH Network in real-time have to implement a series of safeguards to protect themselves from fraud. Without a proper and seamless bank account verification process, businesses can manage and mitigate the risk of fraud. In this article, we’ve outlined the steps on how to verify bank accounts for ACH payments.

Challenges of ACH Payment Method

Payment processors that accept credit card payments authenticate the account every single time. This is a continuous process, banks need to do this every time a user uses credit cards for payment. Be it payments during a point of sale transaction or online payment. This credit card authentication process guarantees that there are sufficient funds on the card to meet the transaction amount. 

But NACHA (National Automation Clearing House Association), the organization that manages ACH networks, doesn’t provide a guarantee of safety for ACH payments. This is why bank verification is a must for ACH payments. 

Some other challenges of ACH payment methods include:

1. U.S. Only

ACH payments are limited to accounts within the US, on the other hand, Wire Transfers or other payment methods can send money anywhere you want. There are other networks similar to ACH that allow you to make international payments at a fraction of the cost of ACH payments. 

2. Processing Time

Almost everyone knows that ACH payments take a lot of time to process. All the ACH payments are processed by the clearinghouse in batches at fixed times, this means they don’t happen instantly. Compared to ACH payments, wire transfers happen in real-time, so the receiver can access the money instantly. 

ACH Debit card transactions must be processed the next business day, while other ACH payments, like an AC credit transaction, could take up to three days. 

3. Amount Limits

Some banks set limits on how much money you can transfer via ACH payment. This might be a daily limit that may differ depending on the type of ACH transaction. If you’re making a larger payment, it’s important to first check with your bank to ensure it’s possible to do so via the ACH network.

4. Payroll Fraud

Businesses using ACH for payment processing need to be wary of the potential for fraud, especially payroll fraud. Because the payment process is automated, it is easier for employees to trick the system by providing fake or incorrect information such as excess hours. Or even to create fraud accounts for nonexistent employees. 

It’s important for businesses to have the ideal bank verification safeguards in place, and for individuals to be careful about to whom they make payments. 

Why Do You Need to Verify a Customer’s Bank Account?

There are several advantages that businesses can capture by leveraging third-party digital verification services. These benefits include:

  • The first and foremost reason to verify a customer’s bank is to save money on the traditional method of check processing. Traditional methods are harder to follow through on compared to the digital bank verification method. 
  • It reduces the number of bounced checks as the ACH bank verification process tells businesses if the payer’s checking account is full of bounced checks. 
  • Reduces the risk of declined payments. The most commonly used ACH verification process happens online, and the risk of mistakes is high.

How to Verify ACH Bank Accounts?

There are multiple ways to verify an ACH bank account, here are some best ways to follow through:

1. Manual Account Collection

One of the simplest methods to collect and verify bank account details is to ask your customers or vendors about their bank account information. Without an additional verification process, you have no idea if the other party can be trusted or not. You can trust businesses and individuals with past relationships, but the same cannot be said for other entities. 

2. Voided Checks

One of the oldest methods of collecting bank account information for ACH payment is by asking for a voided check. A check contains all the necessary information for making the payment, the account number, the routing number, and the account holder’s name.

While this is a traditional method and provides the necessary information, it can also be tedious as it requires voiding and scanning a check. Moreover, fraudsters can easily doctor images and increase the risk of fraud. 

3. Micro-Deposit Verification

Millions of financial institutions verify bank account ownership using micro-deposit verification. It’s a very common practice of verifying bank accounts. Using this method, the institution sends small amounts of money to the bank they’re verifying. 

Most businesses use the approach of sending two different transactions to the account, both of them under $1. It’s crucial to send two separate amounts as banks may flag duplicate tiny transactions as an instance of fraud. 

4. Online Bank Account Verification

The newest and the latest addition to bank account verification is the online bank account verification technology that’s supported by DIRO (a FinTech company). The online bank account verification solution collects and verifies bank account data by verifying account statements. The technology does this by fetching data directly from the issuing source and eliminating the use of fake and stolen documents.

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