What Is Instant Account Verification? What to Know and Key Benefits

In this post, we will cover:

• What Is Instant Account Verification (IAV)?
• What Are Microdeposits?
• What Is Instant Identity Verification (IDV)?
• Benefits of IAV
• How Does IAV Work?
• OAuth Connections
• Non-OAuth Connections

What Is Instant Account Verification (IAV)?

Instant account verification (IAV) is a method businesses use to quickly verify that a financial account number and account details are valid.

In financial services, this typically takes place during the account opening process when a consumer is establishing a new account or setting up a method to fund an account. Other use cases include account verifications for recurring ACH payments, merchant payments, and paying bills like utilities or a car loan using Pay by Bank, also called “account-to-account payments” or “bank-based payments”. 

IAV can validate bank account or other financial account information in a matter of seconds, compared to manual verification processes that can take days, weeks, or months as financial providers gather documentation to validate information. It’s also faster than leveraging microdeposits.

What Are Microdeposits?

Microdeposits, or micro deposits, are when two small deposits are made in a financial account to verify ownership. This requires the customer to wait anywhere from 1 to 3 days for the deposits to appear and then remember to log back into the new account to validate the microdeposit amounts to complete the verification process. 

Relying on microdeposits to verify an account is a cumbersome and slow experience for the consumer and is expensive for the organization. Verification during account opening has a critical impact on a business's bottom line.

IAV is the perfect alternative to microdeposits. For example, if anything goes wrong during the onboarding process, customers are quick to bail without returning. According to Cornerstone Advisors, “the abandonment rate for financial institutions that do not require micro-deposits for ACH funding was 13% — in contrast to the 27% abandonment rate for institutions that do require micro-deposits.”

What Is Instant Identity Verification (IDV)?

In addition to IAV, many organizations also rely on Instant Identify Verifications (IDV) to verify the identity of an account owner. Identity verifications are just as important as they ensure that a bank account or other financial account belongs to the account owner that is attempting to use it to open a new account or fund an account or payment.

Account owner verification allows organizations to access the information required to properly identify an account owner such as the account owner’s name, as well as phone number, email, and mailing address.

Benefits of Instant Account Verification

Here is an at-a-glance comparison of microdeposits versus Instant Account Verifications:

• Faster Time-To-Verify: 1-3 business days (microdeposits) vs 5-10 seconds (IAV)
• Lower Costs: Up to $1 to verify an account (microdeposits) vs ~$0.60 cents (IAV)
• Drop-off Rates: Up to 49% (microdeposits) vs as low as 1% (IAV)

Instant Account Verifications provide a multitude of benefits over microdeposits and manual verification processes:

1. Instant: Verifications can be completed in less than seconds versus days, weeks, or months as consumers don’t have to wait for microdeposits to appear in their account or for manual processes to be completed. 
2. Cost Effective: While a single microdeposit transaction costs a business around $1, IAV typically costs nearly half that. Additionally, organizations are charged even if a customer initiates the microdeposit process but doesn’t complete it. This means, if an organization pays $0.85 to verify an account and connect 50,000 users, a drop-off rate of 49% means the organization is left with a net loss of $17,701.25. IAV also reduces the time that internal resources may spend ensuring microdeposits are verified or conducting manual documentation reviews to verify information. 
3. Secure: Today’s IAV can be completed using tokenized, credential-free connections that avoid human error and ensure usernames and passwords aren’t shared. Leveraging IAV also reduces risk for businesses by providing instant validation that an account is accurate before processing an ACH payment.
4. Seamless:  Consumers can easily connect their bank accounts without extra steps added to the process. This is huge as research shows, “in the banking context, every additional 10 seconds added to an application process directly correlates to a 5% increase in application abandonment.” 

How Does IAV Work?

The fastest and most secure method for IAV is to leverage OAuth connections.

OAuth Connections

OAuth is an open-standard authorization framework that is used to give applications secure access to users’ data. By leveraging Open Authentication (OAuth) connections, businesses can improve both speed and security.

These API connections leverage tokenized credentials that allow consumers to login directly with their financial institution, eliminating the need to share their usernames and passwords or other private information directly with a third party.

This process safeguards sensitive data such as primary account numbers (PAN) and customer information by replacing it with a token that shields access to a customer's financial data. As a result, consumer financial data stays safe because your business partners can only interact with the tokenized version of that information. Once the consumer has logged in, the third party business is given a token that authorizes them to access and validate the consumer’s financial account data.

Non-OAuth Connections

When OAuth connections are not available, businesses can rely on non-OAuth connections. The process is much the same however usernames and password, or account information, are no longer masked by a token. 

In addition, businesses can continue to leverage microdeposits as a verification option when OAuth connections are not available. 

Learn more about MX’s Instant Account Verification solution.