How to Use Open Banking Powered Account Verification for Consumer Onboarding

Account verification is a necessary component of the onboarding process for any business’s product to ensure compliance with regulations and prevent financial fraud. But despite being a critical part of onboarding, account authentication is where many merchants end up losing customers. 

Lengthy and complicated timelines combined with tedious account verification steps discourage many consumers from completing their onboarding process.

Open Banking helps remove the drawn-out steps of account verification by directly connecting merchants to consumer bank accounts. This allows merchants to retrieve and verify information, such as account and routing numbers, account names, and more. The result is a more accurate and simplified onboarding experience and, therefore, a reduction in user drop-offs. 

In this guide, we’ll take a closer look at why account verification is important, the different methods used, and how Open Banking makes this process seamless and pain-free for merchants and consumers.

What is Bank Account Verification?

Bank account verification is necessary for consumers to access financial services, including opening new accounts and filing loans. The main purpose of this authentication is to ensure that the client is the real account holder and is not using their funds illegally. This step is critical because it ensures that merchants/businesses stay compliant with financial regulations.

Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements are mandatory for financial institutions and businesses with monetary transactions. These processes require retrieving and verifying consumer bank account information to prevent fraud, money laundering, or terrorism financing. Beyond compliance, bank account verification helps guarantee confidence and security in any financial transaction after a consumer is onboarded.  

Bank verification is also in the best interest of merchants. In 2022, the global e-commerce industry lost roughly $41 billion due to fraudulent transactions. One of the most prevalent and expensive forms of fraud was account takeover (ATO), where a criminal gets access to a legitimate consumer account. 2023 did not fare any better when it came to fraudulent activities. During the first quarter alone, the attempted fraud rate for global payments increased 18% year-over-year.

3 Outdated Account Verification Methods

Traditionally, there are three ways to verify accounts. However, these methods generally require a minimum of two to three days to complete, barring any revisions or requests for additional documentation. In addition, they're prone to human error.

1. Bank statements: While some banks offer digital services for obtaining these statements, many still require clients to go to their branch and request this document, which includes the customer name and account number.
2. Microdeposits: Also known as Penny Drop Verification, this method involves merchants sending a few cents worth of deposit to the client’s bank account. The client then checks to see if the deposit went through and gives the merchant the confirmation code included with the transaction. Sometimes, this can go the other way around.
3. Credit checks: Credit bureaus share historical information, such as credit accounts and transactions, to provide an overview of the client’s financial health and habits. However, merchants might have to pay extra for this reporting service.

How Open Banking Solves Outdated Verification Methods

According to a 2022 survey, 29% of businesses cited lengthy processes as the main reason for consumer drop-off at onboarding. In addition, 26% stated that manual input involved in this process is a root issue in drop-off.

Roughly half of all consumers surveyed by PwC said they would shop elsewhere if it meant a more frictionless experience during onboarding and at checkout. The fact is consumers now consider frictionless experiences to be the rule and not the exception.

Open Banking provides merchants a convenient solution that significantly lowers drop-offs because consumers don’t have to go through time-consuming processes: 

1. Automated, digital verification: Streamlined processes with Open Banking Application Programming Interfaces (APIs) allow consumers to skip credit checks, paperwork, and bank statements. Instead, vendors can connect directly with consumer bank accounts to verify them, making the whole process significantly faster and more accurate.
2. Instant transactions through connected accounts: Through apps or digital portals, customers can log in to their online banks and immediately initiate transactions. Third-party software providers also use a tokenized method that enhances security and privacy. 
3. Financial data sharing: Customers consent to share their payment data/habits through APIs or digital wallets, allowing merchants and other financial institutions to gather insights, monitor transactions, and flag irregular/abnormal patterns.

Aside from making customer onboarding even more efficient and painless, Open Banking provides these additional features: 

• Multi-factor authentication (MFA): Customers verify their account ownership with additional security measures such as one-time passwords or pins sent to registered emails or mobile phone numbers. This multi-layer approach to identity verification can also work with biometrics as an added security. 
• Risk engine: Trustly’s Open Banking APIs utilize artificial intelligence (AI) and machine learning to provide a risk assessment engine that can identify suspicious behavior and ensure that accounts are or remain in good standing.

3 Major Steps in Account Verification

Open Banking improves account verification for merchants by streamlining the following steps:

1. Obtaining user consent to source relevant data: All data necessary for verification gets permissioned by the consumer, so full consent is obtained to source data from their bank of choice, allowing for data privacy control, transparency, and trust.
2. Accessing financial data securely via APIs: App connectivity allows bank-grade data to be sourced securely and quickly from the consumer bank account. No more manual entry or fat-finger mistakes.
3. Data validation and verification: The data is then utilized to validate and verify a consumer to ensure compliance with AML/KYC standards.

With direct bank account connectivity, there’s no need for the middleman or antiquated verification processes. All data comes securely without human input, such as manual entry. Best of all, verification happens in real-time, taking less than a minute.

Expedite Onboarding With Trustly Connect

Account verification during onboarding is essential to maintain KYC/AML compliance, prevent fraud, and build confidence in financial transactions. To combat the slow and error-prone verification methods, merchants can leverage Trustly Connect to make the user experience pain-free.

With industry-leading connectivity, Trustly Connect can quickly and reliably pull account information in real-time, effectively reducing churn and modernizing consumer activation.

Request a demo today.