Bank Account Verification

Platforms that conduct online transactions, such as electronic funds transfers, bank-to-bank transfers, and other financial activities, need to use bank account verification for security reasons. Some high-risk industries, like money services businesses (MSBs), fintech, cryptocurrency, or insurance, need to check their clients’ bank accounts before the onboarding process to comply with mandatory KYC requirements. 

Bank account verification is vital not only for regulatory compliance reasons but also to minimize fraud as much as possible. Online payments have accelerated complex schemes, where fraudsters use AI, automation, and other methods to steal personal data from consumers and open new accounts under stolen, forged, or synthetic identities. 

However, by verifying account ownership, these risks can be managed more effectively, reducing breaches and ensuring smooth operations for financial institutions.

Mandatory bank account verification is linked to these regulations:

• Anti-money laundering (AML). Detects money laundering activities and other fraudulent practices through a set of measures, such as screening and ongoing monitoring, as well as setting up procedures for reporting suspicious activity. 
• Customer due diligence (CDD). Assesses the risks of new business relationships and ensures monitoring to detect suspicious activity and AML red flags. 
• Know Your Customer (KYC). Verifies the customer’s identity and bank account details, as well as other information, based on the level of risk and the platform’s industry. For example, crypto platforms also conduct address verification. 
• Other country-specific laws that are applicable globally. For example, the US Bank Secrecy Act (BSA), sets out rules for identifying, monitoring and reporting money laundering activities for regulatory authorities for further inspection.

However, it depends on the operating jurisdiction, the industry, partnerships, market scope, and other factors, but there are key regulatory requirements that banks and other financial institutions need to follow to stay compliant. 

Bank account verification happens when the financial institution first transacts with a new customer. However, banks and other regulated entities are also required to conduct monitoring processes throughout the whole customer journey, not just the first stage. Additionally, customer risk profiles change and new doubts about a client’s intent can emerge. So, the user can be asked to verify their bank account again. For example, before a large, atypical transaction. 

More traditional verification methods include manually assessing paper-based documents. In banking, this document-based verification process includes verifying the account holder’s provided information, which in this case can be bank statements or a voided cheque, as well as government-issued ID documents, such as a passport or a driver’s license, for the KYC part. Other industries, like mortgage loan service providers or car dealerships, also use document-based verification.