Bank account verification is a necessary part of the ACH transaction process that ensures funds are coming from and going to legitimate bank accounts. Also known as funding source verification, this confirms that the account being attached is a valid bank account.
As more businesses begin offering electronic ACH payments as an alternative payment method to credit cards and paper checks, having a reliable bank account verification method ensures a pleasant user experience for both sides of the ACH transaction.
Verifying a bank account can help mitigate the risks of ACH returns and potential fraudsters. Unauthorized returns occur when the originating depository financial institution (ODFI) requests the amount debited from the bank account of the buyer to be returned to the account that it was withdrawn from. These actions can come with significant financial impacts for a business experiencing the returned payment, which is why having a reliable bank account verification method is an important factor to keeping a low ACH return rate.
Having a high number of returned transactions can come with financial penalties and even lead to losing access to the ACH Network. Businesses can take steps to avoid this possibility by choosing a reliable bank account verification method.
Reliable Bank Account Verification Methods with Dwolla
Before initiating an ACH transaction, verification of each funding source is required. When integrating Dwolla’s programmable payment platform, a business has several options for bank account verification.
Dwolla.js is a client-side Javascript library that features a seamless Instant Account Verification (IAV) option for users to securely add and verify their funding source. A business can add this library to their application using only a few lines of code.
In addition to instant account verification, Dwolla.js offers two other bank account verification methods that keep sensitive financial information stored with Dwolla.
Initiating Micro-Deposits for Verification
Micro-deposits are deposits of less than ten cents transferred from one financial institution to another that verify a specific bank account is valid. If a bank does not offer online banking—or the user cannot remember their online banking credentials—initiating and verifying micro-deposits provides a self-contained bank verification process.
When using the micro-deposit method to verify a funding source, the user will input their bank account and routing information. Two small credits go to the customer’s bank account that can be found in one to two business days. These amounts are used to confirm the user can access the account. The deposits sent via bank transfer will show the company name on the deposit in the customer bank account so they know exactly who the deposit came from.
The specific amounts are then inputted by the user into the application to verify the funding source.
Attaching Unverified Funding Sources
Businesses that need to send funds and are wanting to avoid sending the user to a third party for account verification can have users add an unverified funding source by collecting their account and routing information.
Dwolla.js provides the ability to submit a user’s bank details directly to Dwolla via a form that can be embedded into an application or platform and branded to match the user experience.
It’s important to remember that with this approach, there is an increased risk for returned payments; however, it does provide a streamlined onboarding experience to users.
Dwolla Instant Account Verification (IAV)
The fastest method for a business’s users to attach and verify a bank account is with Dwolla IAV. With the instant bank account verification option, a user is prompted to select their banking institution and enter their online banking credentials to verify the account.
In seconds, the funding source is verified and the user can begin transacting.
Third-Party Bank Account Verification Methods
Dwolla offers a third-party option for bank account verification, with only minor differences from Dwolla.js and micro-deposits.
Dwolla’s Partner Ecosystem provides access to additional, complementary services. An example of this is Dwolla’s integration with Plaid, allowing a Dwolla customer to quickly and securely add a bank account verification method without sharing sensitive financial information. Using Plaid, a user can authenticate their bank account information with their financial institution—while behind the scenes a unique token is used to create a funding source within Dwolla’s payment API.
Within this integration, Plaid protects the data but allows distribution of important information to Dwolla—without requiring a business to store it.
Next Steps
The ACH Network is a great way for businesses to electronically transfer funds while avoiding the costly fees and outdated processes that are associated with credit cards or checks. And with Dwolla.js, sensitive financial information is kept with Dwolla.
With a reliable bank account verification method, users can trust their funds are going to or coming from legitimate bank accounts—giving businesses peace of mind knowing they are being proactive in the fight against fraud.
