3 occasions when validating bank account data isn’t enough

When I joined Experian almost four years ago I remembered struggling to understand the difference between bank account data validation and verification  – weren’t they both checking that bank account numbers were correct?

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I now realise there are important differences and good reasons to make the distinction. Validation is a check of bank account data (sort code and account number) using algorithmic rules, it determines if an account could exist with those details. Verification however checks against actual bank account details to check factors such as account ownership and whether an account is open.

For many, validation is a fantastic tool.  It helps companies to sign up new customers and set up direct debit payments accurately by identifying error due to mis-keying or mis-hearing, problems that are easy to make where data is being entered into systems at a fast pace. There are however instances where the additional level of check that verification offers is necessary – here are my top three:

1. When setting up paperless direct debits

The paperless direct debit scheme is fantastic for businesses and consumers alike, no more sending paperwork out to be signed and waiting for it to be returned, no more hefty postal costs and no more lost customers and late payments when forms don’t get returned. The Bacs rules for paperless direct debit do however state “Prior to the origination of any Direct Debits the service user must verify the identity of the payer and his address, and ensure that the account details provided relate to the payer.”1 The verification of the bank account data presented is the most direct route to meeting this requirement.

2. When making payments to beneficiaries

Grants, annuities, insurance claim payments and customer account refunds, with all of these types of payment it’s important to ensure that the correct beneficiary is receiving the funds.  This ensures that those owed receive their money as soon as possible and it is not inadvertently sent to the wrong account. The simplest route to establishing this is to make the link between your customer and their bank account details.

3. When paying suppliers

Fake invoice fraud, as highlighted by the UK Audit Office2, occurs when invoices are submitted, or change of bank account detail letters sent, apparently from a supplier.  They are in fact from a fraudster and contain the fraudster’s bank account details. If this deception is not spotted, organisations risk making payments to fraudsters rather than their legitimate suppliers. By verifying that the bank account details provided in invoices and letters belong to your suppliers you will ensure that your organisation doesn’t become a victim

 

1Bacs: service users’ guide and rules to the Direct Debit scheme v3.9 December 2013
2http://www.actionfraud.police.uk/fraudsters-target-organisations-by-invoice-aug12