Unlike credit cards, which can be authorized in real time, the ACH world lacks a real-time authorization component. Credit cards allow merchants to authorize a sale at the time of the payment, so the merchant will know that they are definitely getting paid. A business knows that their customer has the requisite funds on their card to make their payment in real time, and the funds are reserved.
So, we can see how credit cards are validated, but how can we Verify Funds for a checking account?
Understanding How to Verify Funds online is a merchant’s best bet to reduce check acceptance risks, and verification tools reduce payment acceptance risk by validating the customer’s bank account in real-time.
The validation process helps merchants lower their risks when accepting checks through the use of real-time verification tools. Most third party entities that offer Bank Account Validation services include negative databases, routing account number validation, and ATM networks.
Negative databases exist as a history of checking account info, with many retailers contributing data to the network. Recency is an issue because the customer’s last written check at a participating retailer is the last data point. This means that data can be out of date. The bank routing number identifies the bank the check is drawn against, and these can be browsed in real time.
ATM networks are created by banks and Credit Unions contributing data. Daily uploads on account status are made to the network, and queries to the network can provide account insight. Check verification inquiries come with an almost immediate response. These responses can tell you:
- The account is in an NSF status
- The account # is invalid
- The account is closed
- The account is non DDA eg Home Equity checks
Implementing a Bank Account Validation Service to Verify Funds can dramatically reduce bad check acceptance and the workflow problems they create.