What You Need to Know About Payment Verification

Jun 14, 2022 by Kelsey Banerjee

Whether you’re getting paid or paying someone else, payment verification is essential for preventing fraud and securing payments. While you may not need to verify your client's bank accounts, having a PCI and AML complaint portal that validates accounts is a great way to reduce risk and paperwork down the road.

The fact is, fraud is on the rise. The AFP reported that 78% of businesses experienced B2B payments fraud in 2019, and that figure ballooned with the rise of eCommerce and online purchasing during the pandemic.

The verification process helps reduce potential fraud. But it also ensures you have a clear audit trail of verifying customer account information and aids in maintaining compliance. However, the main reason for payment verification is safeguarding your funds and keeping 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:

Voided checks

While this method of bank account verification is slowly phasing out, voided checks were commonly used to verify payment options. The reason voided checks have been popular for so long is simple: A paper check contains all the information you need for the verification process. Every check has the bank account number, routing number, and account holder's name printed on the front, so it's a straightforward payment method proof.

However, you need to first void and scan the check for this to work — and checks are not necessarily secure. WIth today’s technology, someone could easily photoshop a few numbers here and there and have money wired into a different bank account. When combined with the fact that there are easier ways of payment verification, voided checks have widely fallen out of use.

Microdeposits

A significantly more secure method is microdeposits. In this case, an organization should have the bank account details and send minimal amounts of money to verify that the account is active. The person receiving the funds will then confirm the amounts. At this point, the bank account is essentially verified. This method of payment verification is prevalent. Generally, the verifiable amounts sent are all under $1, so the risk is minimal. The main issue accounting has with this method is that it's time-consuming. It can take 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. In addition, this isn't a fraud-proof method. Individuals have found ways to con the system, though it’s relatively rare.

Prenotification

A prenote is essentially a $0 ACH transfer. If the prenote is unsuccessful, the RDFI will send a notification of change (NOC) that needs to be resolved. This process typically takes about three days to complete, but it can take up to four weeks in some cases. And while it's a secure payment processing and verification method, it's ultimately quite time-consuming.

The rise of instant payment verification

Instant verification has taken the B2B payments world by storm. Companies like Plaid essentially link to your bank account directly and validate 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 to pay their invoice into the instant payment verification network, the platform sends back a token. This token represents the routing and accounting number of the bank account, which are used to validate the account. The entire process takes about 10 seconds, a far cry from the typical 2-5 day waiting period for microtransactions.

The use of tokenization doesn’t just allow for fast payment verification. It also secures the client’s data while in transit and storage.

Blockchain-enabled B2B payments

At Paystand, we have created an extensive blockchain-based bank network that allows us to verify bank account information rapidly. Our innovative platform covers over 90% of the US banking market and 98% of all commercial accounts.

As a result, AR teams can securely verify information in real-time, and our bank network is built for PCI, AML, and KYC compliance. We also often monitor for fraud and handle the complexities of payment processing. That way, you can focus on more high-value tasks related to AR.

But your customers win, too. The seamless “pay now” portal offers a superior experience, and clients can save their payment data securely through tokenization, so you can pull payments effortlessly every billing period and send automatic receipts.

Check out our breakdown of the advantages of blockchain-enabled B2B payments to learn how blockchain technology can benefit your business.