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What Is Bank Verification and How to Choose a Method for a Lending Business

Jun 29, 2023 MicroBilt News

What Is Bank Verification and How to Choose a Method for a Lending Business

What if the cornerstone of your business practices was a complete mystery to you?

If your business uses ACH transactions, then your business relies on bank verification. And if you are a lender, then bank verification is even more important to your daily operations.

Sadly, most businesses don't fully understand what bank verification is and how it affects their business. But our comprehensive guide will tell you everything you need to know, including how to choose the best verification method.

What Is Bank Verification?

Our guide will walk you through all of the important details about this verification process. First, though, we need to answer the obvious question: what is bank verification, anyway?

The truth is that "verification" doesn't have a fixed reference or even a fixed definition. Instead, the term broadly refers to products and services that help a business verify important financial data about customers.

For example, basic verification might help you determine that a customer's bank account is real and valid, that the account belongs to them, how much money is in the account, and so on. 

Verification is important for most businesses that need to do things like verify customer checks. And for lending business, this process is even more important because it helps you determine whether you should loan someone a certain amount of money or not.

Getting the Right Info

Obviously, a key element of account verification is getting information from the customer. And there are two basic ways to do this: with credentialed verification and with non-credentialed verification.

With credentialed verification, the customer must provide their username and password. After they have done so, you can access important information about account balance, consumer transactions, account ownership, and more.

With uncredentialed verification, the customer does not need to provide a username and password. And this account verification process can provide information about account balance, account ownership, and more.

These different verification processes each come with a tradeoff. For example, credentialed verification provides access to more information. But uncredentialed verification usually creates a speedier and more seamless process for customers.

Types of Verification

As we touched on earlier, "bank verification" is not a one size fits all model. There are actually multiple types of account verification that you should be aware of.

The first is a simple funds verification (also known as balance verification). As the name implies, this helps you verify the amount of money in a customer's account.

The second type of verification is bank account status verification. This helps you assess how risky someone's bank account is and how likely a payment is to clear. And that includes making notes of negative transactions in order to create a bigger picture of their overall financial reputation.

The final primary type of verification is account ownership verification. This helps you verify that the bank account that a customer gives actually belongs to them. While credentialed verification makes this easier, you can still assess the likelihood that someone does or does not own a bank account with uncredentialed verification.

Choosing Between Credentialed and Non-Credentialed Verification

Now you know a bit more about both credentialed and non-credentialed verification. But there are a few more factors you should consider when it comes to choosing the most effective verification process.

The biggest factor is that credentialed verification provides more coverage than uncredentialed verification. This is an important factor when it comes to dealing with both your customers and the banks they work with.

With that being said, you don't necessarily have to choose between solely relying on credentialed verification or solely relying on non-credentialed verification. When you use a third party to help with account verification (more on this later), then you can use a mixture of the credentialed and uncredentialed processes to get as much information as you need with as much coverage as possible.

Onboarding New Clients

While account verification plays a major role with all of your customers, it is arguably the most important when it comes to new customers. That is because your onboarding process involves determining the safety and reliability of doing future business with this client.

If you're not careful, then you might run into problems with rejected checks. Other times, you might encounter problems with customer information that has been entered incorrectly. These scenarios make it harder to discover problems and can make it even more difficult to onboard a new customer.

Long story short? Accurate bank verification can help you establish new customers while also keeping things running smoothly for existing customers.

Watch for Red Flags

So far, most of the verification process we have outlined deals with checking objective facts. This includes things like a customer's financial balance and the ownership of the account.

However, there is still a subjective human component to the verification process. And this mostly comes down to monitoring for red flags and dealing with problems as they occur.

Customers who seem desperate for money are likelier to try to write a fake check. To combat this, you should verify the different security features of the check and also look for the microprint to make sure the check is valid.

Don't be afraid to say "no" to a prospective customer if you think they are exhibiting red flags or acting suspiciously. And make sure the rules you have in place for consumer financial protections anticipate and mitigates as many problems as you can think of.

What's Next?

There are many aspects of bank verification you can handle on your own. However, for maximum safety, you need a third party to help verify the bank details of your customers.

At Microbilt, we offer a suite of features to assist with account verification. We can help screen candidates, verify bank details, assess customer risk, and so much more.

However, you won't understand the full potential of Microbilt until you experience it yourself. To see what we can do for your own verification process, simply contact us today to get started!