What You Need to Know About Payment Verification
Payment verification is crucial for preventing fraud and reducing errors. It offers increased security, reduced chargebacks, and improved customer trust. A payment processor that offers robust verification tools is critical for ensuring the safety of transactions and the trust of customers.
Verification is essential to prevent fraud and secure payments, whether you're being paid or paying someone. While you may not need to verify your client's bank accounts, having a PCI and AML portal that validates accounts helps to reduce risk and paperwork.
The fact is that fraud is on the rise. The AFP reported that 78% of B2B businesses experienced payments fraud in 2019. This ballooned with the rise of eCommerce and online purchasing during the pandemic.
Verification processes help reduce potential fraud. They also help track customer account information and ensure compliance with regulations. However, the main reason for payment verification is to safeguard funds and keep clear records.
Traditional Methods of Payment Verification
There are several ways to verify payments, but most are time-consuming or expensive. Here are the top three ways people have been verifying payments for decades:
While this method of bank account verification is phasing out, voided checks are used to verify payment options. They're popular because paper checks contain the verification process information: bank account, routing number, and account holder's name. It's a straightforward payment method proof.
Today's technology allows one to photoshop a few numbers here and there to have money wired into a different bank account. But you need to void and scan the check for this to work — checks are not secure. There are easier ways of payment verification, so voided checks are falling out of use.
Microdeposits are a significantly more secure method. They consist of sending minimal amounts of money to verify that the account is active. Then, the person receiving the funds will confirm the amounts. At this point, the bank account is verified.
This payment verification method is prevalent, as the verifiable amounts sent are all under $1, so the risk is minimal. The main issue for accounting is that it takes up to three or five days to complete the entire process.
You may also need to shoulder ACH transaction costs, which can be more than the amount sent. Besides, this isn't a fraud-proof method. Individuals have found ways to con the system, though it's rare.
A prenote is a $0 ACH transfer. If unsuccessful, the RDFI will send a Notification Of the Change (NOC) that needs resolution. This process takes about three days to complete but can sometimes take up to four weeks.
While this is a secure payment processing and verification method, it's pretty time-consuming.
The Rise of Instant Payment Verification
Instant verification has taken the B2B payments world by storm. Companies like Plaid link to your bank account and confirm the bank account information. Usually, this process requires your bank login and supports most major banks. Each verification comes with a small fee.
But how does it work? The answer is simple—tokenization.
When a client enters their bank account login, the platform sends a token through the instant payment verification network. This token is used to pay the invoice and represents the bank account's routing and accounting number used to validate the account. The process takes about 10 seconds, a far cry from the typical 2-5 day waiting period for microtransactions.
The use of tokenization allows for more than fast payment verification. It also secures the client's data while in transit and storage.
Blockchain-Enabled B2B Payments
At Paystand, we have created a blockchain-based network that allows us to verify bank account information. Our platform covers over 90% of the US banking market and 98% of all commercial accounts.
As a result, AR teams can verify information in real time. That way, you can focus on more high-value tasks related to AR. We also watch for fraud and handle the complexities of payment processing.
Your customers win, too. The "pay now" portal allows them to save their payment information and make automatic payments easily. They also receive receipts for each transaction.
Learn how blockchain technology can benefit your business in our breakdown of the advantages of blockchain-enabled B2B payments.