Verify Before you Onboard, Validate Before you Pay

Around 7400 fraud bank cases were reported by the Reserve Bank of India in the financial year 2021, amounting to an astronomical 1.4 trillion rupees.

Published on 14 JANUARY 2022 | 4 mins read
blogs

Bank account verification solution is designed to reduce fraud by identifying the legitimate account and uncovering illicit accounts that do not belong to the user, or have been frozen due to illegal activity, or have been dormant for an extended period of time.

Due to global social-distancing rules and lockdown, face-to-face interaction and subsequent authentication and validation are uncertain in this unprecedented COVID period. Online bank account verification helps onboard employees and vendors remotely by depositing a penny in their accounts and receiving the accountholder's name as per bank records for further authentication and validation before disbursing salary or payments, without any manual intervention. 


This is just a glimpse of the importance of bank account verification. Let’s deep-dive and understand this potent tool for onboarding and fraud mitigation in this time of crisis.



What is Bank Account Verification?


Verifying bank accounts is a critical part of the due diligence process. The purpose of checking bank accounts is to ensure that they are legitimate sources of funds. 


Bank Account verification is the primary due diligence process to establish the validity and authenticity of a bank account. Account verification is an essential part of acquiring financial products requiring client verification, such as loans, or for engaging with organizations or simply opening an account, as with cryptocurrency exchanges and buy now pay later platforms.


Dealing with financial institutions and banks involves constant inflows and outflows of funds. Since a bank account is used as the platform for transferring or storing funds, it is imperative that the account be identified and validated prima facie. 



Penny Drop Verification used by Karza Technologies


Karza has devised and designed an ingenious Bank Account Verification API, it verifies the existence of the bank account using the bank account number and IFSC code. These input details trigger a credit transaction of Re 1 to the beneficiary account. On a successful transfer, the name of the account holder is returned as per the bank records of the customer.


The name of the account holder extracted from the output under which the account was historically created can then be compared to the name provided in the application form to verify the veracity of the application, thereby completing the verification process.



Features of the Bank Account Verification Solution


Bank account verification solution by Karza covers all banks operating under the Payment network services provided by NPCI. We have tied up with multiple banking partners to address any unforeseen server downtime issues subject to source availability at NPCI.


The average latency period is 2.5 seconds from the time the API has been called to the time the account holder name is returned as output, it takes only 2.5 seconds!


A cap is placed on the number of transactions that can be handled by the API. One beneficiary account may make up to eight successful and two unsuccessful API transactions over a rolling 24-hour period. A feature like this has been incorporated into the API to prevent misuse by miscreants by continuously crediting Re 1 to their account inordinately many times. 


If the account is blocked or closed, either at the discretion of the user or when a government agency freezes it due to suspected fraudulent activity. The account may also be NRE or NRO account. In that case, the response will succinctly indicate the nature of the account and Re 1 would not be credited to that account.



Karza Bank Account Verification Advanced


We have “Bank Account Verification Advanced”, where the required fields to be filled with commensurate values are IFSC code, Account Number and Account holder’s name.


Similarly, Re 1 would be credited to the customer's account, and based on the extensive response received from the NPCI, all details such as account number, IFSC code, and account holder name would be validated and authenticated. 


Likewise, a matching score is calculated based on the matching of the entered name and the one received from the response. Account holders' names are validated and authenticated based on the name match score denoted in percentages. The name match score must meet a minimum threshold to qualify the account as valid; if it does not meet that threshold, it is deemed invalid, which will impel the authorities to investigate further for any trace of fraudulent and suspicious activity. 


Furthermore, the extra layer of authentication ensures that the account does not become invalid for reasons such as inconsequential changes made to the user's name, which might happen unintentionally. Thus, if the name of the accountholder entered is Yash Shah, however, the account was created under the name of Yash S, the account will still be declared valid and belonging to the same individual, despite the name match score in such circumstances not being 100% but still very close, providing sufficient credibility.   


Use cases for Bank Account Verification


Following are the use cases for Bank Account Verification


Customer Acquisition 


When it comes to customer acquisition, the bank account needs to be validated for loan disbursement during loan acquisition. The bank account needs to be validated before the lending bank is able to proceed with the amount disbursement at their end. 


So the lending bank will validate the bank account before they’re able to set up the automated clearing house payment (ACH) system that facilitates the electronic transfer of funds directly from the bank to the borrower’s account, or any other payout system at their end. In case it's a valid account, then it can initiate the ACH payment or any other payment necessary. And in the case it’s not a valid account, the journey will stop there. 


Also, you can set up NACH payments by NPCI to pay recurring bills like mobile bills, electricity bills, subscription fees where the amount would be automatically deducted from the customer’s account and credited to the company’s account without any hassles or manual intervention. In such cases, penny drop verification is used to verify the customer’s account before NACH payments are set up and implemented.



Merchant Onboarding 


In terms of merchant onboarding, multiple NBFCs and payment systems offer POS-point of sale as part of their platform. The point of sale system is where the customer uses the payment method to pay for goods and services, the point where the customer is directed to the checkout page and is expected to pay for the goods and services via a specific payment system offered by the payment company. 


In such cases, the payment company will be required to validate the bank account of the customer - a pre-requisite to settle pending payments later. This is where bank account verification will step in. Hence, bank account verification is majorly used for onboarding merchants, distributors or mere customers.



Applicant’s details


Similarly, if a company wants to verify an applicant’s details that have been mentioned on some sort of a form that has the bank account name and account number mentioned in the form. If it wants to do some sort of a profile match, it can hit the Bank Account Verification API, get the name of the account holder from it, and in turn match those two details with each other.



Fraud Mitigation


By verifying bank accounts accurately, fraud can be mitigated. You might be able to deal with frauds arising from customers attempting to accept funds in illicit accounts, for example. In the event there is a suspicious account or an account where fraud has been detected by NPCI or any applicable governmental body, or the account has been frozen for illegitimate usage of funds, bank account verification can immediately stop such acts at the source.



Employee Account Verification


Validation and authentication of the employee's bank account is required prior to disbursement of salary and other incentives. The purpose of this verification is to ensure that the salary is paid to the right employee. 


Once the employee's bank information has been acquired, the IFSC code and account number can be entered into the system and accordingly, the employee's name can be matched against the employee name registered in the bank's records. Bank account verification is thus an integral part of the onboarding process since it confirms and validates the information provided by the employee.



Conclusion


The verification of a bank account is an essential part of any due diligence as the bank serves as the repository for funds flowing in and out that constitute the very basis for any transaction. As a result of Karza Technologies, bank account verification which traditionally took weeks can be accomplished in mere seconds with its penny drop verification.


To know more about Karza’s Bank Account Verification solution write to us at connect@karza.in or call us at +91 9819802177