Account Verification Becomes Critical Factor in Cross-Border Payments

Money movement across borders promises to speed the flow of funds between consumers and corporations if done digitally.

But commerce is marked by complexity and the specter of fraud on the global stage.

The basic principle behind cross-border payments — namely that the payee information is accurate — is a pain point, indeed a point of vulnerability, Nium Chief Payments Officer Alex Johnson told PYMNTS.

She said 10% to 15% of payments sent across borders end in failure due to a lack of simple and secure ways of making sure that funds are flowing into legitimate and verified accounts.

Roughly 70% of those failures are tied to account information errors. The errors themselves are manual in nature, as “fat finger” syndrome gets in the way of entering the right account number or other details, Johnson said.

“And there’s always the potential of fraud in mismatched payment information,” she said.

The cost is as much as $120 billion when it comes to managing those failed transactions, she said. It’s not just the dollar amount — there’s the cost to investigate where the money’s gone, the cost of unwinding the transaction, and the operational and personnel costs incurred in the back office.

“There’s a pretty big risk when we talk about making these global payments,” Johnson said.

Penny Tests No Longer Pass Muster

Against that backdrop, we’re no longer able to be reliant on the old penny tests — micro deposits to verify accounts’ identities, Johnson said. Depositing and withdrawing a penny into a bank account has been a way to ensure the validity of a payee address. However, those methods can take time — days, even — to settle.

“But this does not accurately tell you account ownership,” said Johnson, adding that “it just, at the end of the day, tells you that the account is open and that it can accept a transaction.”

The risk of fraud is still there, no matter if the use case for international payments involves consumers or enterprises (where large-ticket transactions are the norm).

There’s some precedent as to what all stakeholders expect in a transaction. The consumer who’s sending a Zelle payment, for example, knows that when they enter a phone number, the recipient’s name will “pop up” automatically, offering a sense of security that the account is tied to the right person, she said.

“Why shouldn’t businesses expect the same thing?” asked Johnson.

Nium, with enhanced connectivity and APIs, seeks to eliminate that fraud and streamline account verification while mitigating the costs that come with unwinding the 15% of failed payments. The connectivity and real-time nature of the firm’s new Verify solution (which is directly linked to real-time payment networks) are critical as payments move globally to real-time — and irrevocable — status.

Verify instantly ascertains account ownership before the transaction is sent. Upon onboarding a recipient into a customer management system, the company can link the account and the name/account number, “matching” them instantaneously, she said.

At the time of the conversation with PYMNTS Oct. 9, Nium had completed more than 10,000 verifications with the Verify solution, newly live — and was seeing a 58% reduction in payment return rates and a 78% reduction in customer queries recorded by one Nium client firm, she said.

“When you think about it,” because it is the banks verifying the accounts in real time, and Nium has 95% coverage across banks, “you’re reducing that $120 billion cost by nearly half,” Johnson said.

That 78% statistic on the reduced customer queries is proof positive of a better customer experience, she said. Nium also said earlier this month that its extant connection to Swift, the international financial messaging network, lets financial institutions send and receive funds to more than 3 million mobile wallets across the globe.

“You get the confidence that the payment is going where you think it’s going,” she told PYMNTS, adding “we already have validations in place for accuracy of account details.”

As Johnson told PYMNTS, “we’re getting to a place where account verification is no longer an option — it will be a requirement from a user’s perspective … and we’re at the forefront and leading the charge on that.”