Bank Account Validation Service

Like the relationship between an area code and a phone number, every bank has an assigned routing number and every bank account has its own assigned account number. The combination of the two number sets creates a coding system that uniquely identifies every single bank account and allows monetary transactions to be easily directed to and from accounts.

The speed of electronic transactions not only allows for seamless commerce but also lightning-fast fraud. Bank Account Validation Services (or AVS) is a fraud protection tool that offers financial institutions and other related entities the ability to verify information such as the status or ownership or beneficiaries of an account in near-real time. This can be used in cases including prior to the issuing of a payment or a disbursement in order to prevent payment fraud or other losses, such as payment delays.

Who uses Bank Account Validation Services?

The most common AVS methods are those involved with Automated Clearing House (ACH) transactions. Top industries using AVS include payroll companies and direct sales, especially those with large funds transfers or high fraud risk. 

ACH micro-transactions might be sent by a person-to-person sales app, such as an online marketplace, to verify that the recipient is a legitimate person and that the account is active and correct. After the recipient confirms receiving the test deposits, typically a few cents each, the originator will typically then debit the same transfer amounts. 

ACH pre-notifications, or pre-notes, are $0 transfers that verify account details. They are similar to micro-transactions except that the recipient does not need to confirm receiving them nor do they need to share personal or financial information to do so. The verification is considered complete if there are no errors or change notifications. Pre-notes are commonly used for direct deposits, such as payroll.

Validation via wire would involve sending a test wire and requesting manual confirmation. Validating via ACH would accomplish the same end result for less cost but is a slower overall process.

Why are Bank Account Validation Services important?

Bank Account Validation Services play a crucial role in minimizing fraud, internal errors, payment delays, and other costly business disruptions. By validating an account prior to a significant transaction, the chances of errors or missed payments are significantly reduced. This provides both the sender and recipient with peace of mind in knowing that the involved parties are legitimate and having a higher level of assurance that unexpected complications won't arise.

Frequently asked questions

Can bank account validation prevent fraud?

While there is almost never a guarantee against fraud, bank account validation is the leading method of verifying that accounts are real and that a known individual created each account.

How long does bank validation take?

An ACH transaction can take 1-3 days or longer if the recipient has to respond to requests for manual confirmation or take other steps. Validating via wire can take a matter of seconds or minutes if the recipient is prepared to respond immediately.  

Can bank account validation services integrate with other financial systems?

Integration with other financial systems is now common. Third-party commercial services can remove the manual step of verifying receipt of a test transaction if logons and passwords are provided.

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