This is a guest blog post from Plaid to help our users better understand the ins and outs of bank account authentication. Hear more from the Plaid Team here.

Bank account verification made simple with Plaid and Dwolla

You may have heard that Dwolla and Plaid recently partnered to offer a tokenized method for facilitating ACH payments—making the process simpler and faster than ever before.

But what is bank authentication, why is it necessary, and how does the Plaid solution differ from alternatives?

The many models of authentication

Before it can be used to initiate an ACH transaction, a bank account needs to be authenticated to prevent problems ranging from user error to fraud. Just like you wouldn’t be able to make a credit card transaction without providing your signature, you can’t initiate an ACH payment without the proper authentication.

The originator of the transaction or a third-party ACH processor is responsible for conducting this authentication. Nacha, the governing body for ACH, approves of five different ways to perform this authentication, with micro-deposits being the most common.

Other methods include check verification, pre-notification entry, account verification, and debit card number authorization.

The problem is these authorization methods are far from instantaneous. Micro-deposits can take up to two business days to post and require multiple follow-up actions from you and your end users. Worse yet, micro-deposits are insecure—in 2008, a man opened 58,000 accounts using fake names and Social Security numbers, raking in $50,000 from businesses’ micro-deposits, less than a dollar at a time.

Plaid works to alleviate this problem by using account verification, or login credentials, to authorize accounts within seconds—not days. Plus, for added security, the process is tokenized from end to end.

Credential-based verification makes for a seamless experience

Today’s consumers expect a painless, seamless onboarding process from any app they use. By allowing users to enter the login credentials they’re already familiar with, Plaid makes the authentication and onboarding process simple and secure.

bank account verification with plaid and dwollaWhen users enter their login and password into an app, Plaid returns a token for the routing and account numbers associated with the user’s account. Authorization then takes place instantly, and users can onboard within 10 to 15 seconds without waiting for a micro-deposit to post.

Plaid’s instant-authentication approach can help drive adoption of ACH over other payment methods, saving you the costly processing fees associated with card-based payments, and reduce the errors associated with manually typing in the complex account and routing numbers.

In short, credential-based verification offers a frictionless, secure experience for both you and your users, saving time, money, and headaches. Happy building.


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