Why Account Validation Changes When Banks Say Yes

The convergence of ACH, open banking and account validation has the potential to make transactions more secure — and faster — as instant payments gain ground in the U.S. The consumer-permissioned data from those payments, in turn, gives banks the insights they need for better risk/underwriting processes to tailor products and services to fit financial needs.

But if he had to choose between fast and secure, you’d have to believe Scott Brackin, EVP, bank account and payment intelligence at ValidiFi, would choose secure. As he told PYMNTS, bank account validation, done instantly, is an effective tool against fraud.

“You’ve got 53 million credit card users,” he told PYMNTS. “You’ve got same-day ACH transactions topping a billion [payments] and the number of check fraud incidents are increasing — so you’ve got a perfect storm out there.”

Open banking, he said, has been a game-changer for financial institutions, who no longer have to rely on a single source of information to determine risk at the point of enrollment. Consumers have traditionally relied on their credit cards for commerce, as those cards have had backstops in the form of fraud protection. The firms themselves, which had embraced microdeposits to confirm account validity, are now pivoting to examine checking account data and cash flow insights to help them with decisioning.

The regulatory environment is still being hammered out, but Brackin said banks and the firms enmeshed in traditional and online commerce are going to find new ways to use the consumer-level information gleaned from platforms such as ValidiFi’s. It’s the bank account and the payments intelligence fashioned from payment performance that will unlock those use cases, Brackin said. That’s especially true with new Nacha guidelines that mandate firms validate account details for first-time ACH payments (and any other changes to those accounts).

Real-Time Data and Insights

“Open banking enables real-time data sharing through APIs,” Brackin said, “and what businesses are looking for in consumers is a level of security that they have not been able to have before. Consumers expect to be able to share that information, in a secure fashion … and at the end of the day it makes the consumers’ purchase, and the decision ecosystem a lot cleaner for both parties involved in the transaction.”

In terms of the mechanics, a lender can “reach into” a database, provide an ACH and routing number to ValidiFi, which in turn validates that data in real time with its Omni Platform, rather than the several-day process that would otherwise have been in place. That speedy response replaces the monolithic systems relied upon by banks that pull in a limited number of data sources or a credit report. Cash flow insights, he said, give a holistic view of the consumer before the transaction is made and enable payment providers to send payments and for the consumer to transact more quickly.

“What you’re trying to do,” he said, “is provide a high degree of confidence in that banking transaction.”

Looking ahead, Brackin said open banking principles will have “a lot of impact” on the pay-by-bank space, where consumers provide ACH and routing numbers to pay for everything from gym memberships to utilities. Pay by bank, he said, will make inroads into and transform healthcare and insurance, marked by high exchanges of consumer sensitive data.

“We feel like we’re sitting in a good position to work in the new open banking environment,” he said, and “having this type of ecosystem supported by open banking principles is going to make it easier for commerce in the business-to-business market and to provide a smoother experience for the business-to-consumer market.”