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Instant account verification (IAV) is a method used to fund new accounts and set up recurring payments. It enables businesses to verify whether a customer’s source of funding is valid in a matter of seconds.
One organization might call the process “onboarding,” while another calls it “account opening.” In either case, it’s essentially about a consumer who wants to start a relationship with an organization, opening an account or using a financial product that has to be funded with account verification.
Similarly, instant account verification is also about someone who already has a relationship with an organization and wants to move money into their account. For example, a consumer might want to move money from ACME Bank into Epic Bank. They'll likely want to do that with instant account verification. Other use cases include setting up verification for recurring payments such as Venmo’s cash app, as well as merchant payments such as GrubHub, and bill pay such as paying utilities or a car loan. In all these cases, IAV saves on processing fees and speeds things up.
To use instant account verification, a customer enters their username and password for the account they need to verify. A financial aggregator then logs in on behalf of that customer, securely returning the institution’s account number, routing number and balance — as well as (if available) first name, last name, addresses, phone numbers, email addresses, and date of birth and marks the data as verified. Account types for personal and business accounts may include checking, savings, money market, etc. In addition, once a customer has been verified they’re good to go unless the institution that ran the job originally has business rules that require re-verification.
To fully understand the value of instant account verification, it helps to contrast it with the cumbersome, outdated, and expensive process of verifying an account via microdeposits. In that situation, two small deposits are made into the chosen financial account. The customer then has to wait anywhere from one to three business days for the deposits to hit their account, at which time they have to log into their financial account as well as the business asking for verification to validate their account.
Customers who have to verify via microdeposits often forget to check back in, and by the time they do, their enthusiasm for signing up is often diminished or gone — resulting in a devastating blow to the bottom line. For instance, a study of 2,000 consumers by Signicat found that 40% of people opening an account online have given up, citing the fact that the process took too long as their number one reason.
The truth is that if anything goes wrong with the onboarding process, customers bail and don’t return. Those few moments of onboarding are in some ways like the first few moments of an interview or a first date: They can make or break the experience. They’re the most essential moments in defining whether a business succeeds or fails.
That’s why instant account verification is so essential. By streamlining the onboarding process, you ensure that your customers ride their initial enthusiasm for your offerings through to finishing the transaction. Anything that shortens the time between wanting to make a purchase and actually making the purchase increases a business’s bottom line. It’s one reason that Amazon’s one-click ordering patent is worth billions.
To get specific, according to data we’ve gathered from a range of financial institutions as well as internal data, the onboarding drop-off rate for businesses using the micro-deposit process is as high as 49% while the onboarding drop-off rate for businesses using instant account verification is as low as 1%.
Finally, instant account verification is far cheaper than microdeposits. Whereas a single micro-deposit transaction costs a business around $1, instant account verification typically costs nearly half that. What’s more, in many cases if a customer initiates the micro-deposit process but doesn’t complete the process, you’re still hit with the cost since each drop-off is money lost. For example, if on average you pay $0.85 to verify an account and look to connect 50k users, with a drop-off rate of 49% you have a net loss of $17,701.25.
Benefits for Online Account Opening and External ACH Transfers
When contrasted with using microdeposits to verify an account, instant account verification is clearly an all-around winner.
Here’s a comparison at a glance:
When looking for an IAV solution, it’s optimal to find one that privileges Open Authentication (OAuth) connections. These API connections use tokenized credentials, which means that accounts can be verified without giving credentials to any third parties. In other words, the users submit credentials directly to the bank via the bank login screen and then the bank sends a token to the third-party aggregator.
This approach brings benefits such as:
Beyond this, we recommend providers who don’t sell user data, who rotate keys every 20 minutes, who offer premium support, and who make the setup process seamless.
In the event that OAuth connections aren’t possible, it’s ideal to use a financial aggregator that implements multi-sourced aggregation. This way if an account connection becomes deficient, it can be rerouted so the connection remains viable and customers are able to still verify their account. As a last resort, the verification provider should also be able to use microdeposits in the event that the superior methods aren’t available, leading to 100% coverage for US accounts. (Note that there will be a small percentage of connections where microdeposits will be in play for all providers — almost exclusively for very small institutions, where micro deposits continue to be required.)
In addition, you’ll want an instant account verification process that not only validates each customer’s credentials but also corroborates that information — plus first and last name — with any Know Your Customer (KYC) data you have on file.
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