Account verification allows companies to verify that a bank account really belongs to a specific user. Find out how open finance is helping zeroing out the risk of fraud and the propensity for manual errors during this process.
There are many reasons why a company might need a user’s banking information: opening a new bank account, linking a new payment method, or filling out a loan application. It can also be a key part of the onboarding process for many fintech products which require the user to prove that they can send or receive money in a bank account.
Historically, companies have relied on users to provide this information manually. For example, by submitting a bank statement, sending a micro-deposit or manually filling out forms. However, incredible as it may seem, people are prone to make mistakes or even try to commit fraud. Brazil currently holds first place in the Latin American ranking of identity theft crimes: yearly, the country faces a loss of $11 billion. Not to mention all the friction involved in the process: working with several applications at the same time or trying to take a picture of your ID.
This is where the world of open finance comes in: with instant access to the user’s reliable banking data, companies are able to easily verify their accounts, free from the risk of manual errors or fraud.
What does account verification have to do with open finance?
Thanks to open finance, data sharing becomes much more fluid, including basic information such as whether or not the user owns a certain bank account. So, after the user provides its consent, verifying whether a particular bank account belongs to the user can be done automatically, in a matter of seconds. All this without depending on any further authorization from the financial institution.
Open finance is basically a model that allows the user to be the owner of their own financial data and decide with whom they want to share it with – instead of it being tied up with the financial institution where it is hosted.
How can open finance account verification improve your business?
There are several benefits that businesses can derive from speeding up the account verification process, including:
- Improve the user experience when opening a new account, for example, in a neobank.
- Verify information instantly, for instance, when users are applying for a service like a loan.
- Increase conversion in onboarding processes, such as applying for an investment.
Save time and reduce manual processes, take an ERP’s for example.
Reduce risks
Account verification can help lenders reduce risks by providing a more complete and accurate picture of a borrower’s financial situation. It can also help them make more informed decisions and minimize default risks.
Verifying a borrower’s identity can help lenders acknowledge if the user is the account holder they claim they are and, therefore, preventing identity theft and fraud. A manual process ends up implying higher operational costs, both to ensure the security of the operation, and to monitor the process.
Also, by accessing additional financial information through open banking and open finance platforms, lenders can better assess their creditworthiness and ability to repay the loan. Using this type of data in the loan process can lead to reducing payment default risks by 50% for specific use cases such as ‘salary in advance’ models and increasing credit approval rates by up to 30%.
Improve user experience
Account verification is a powerful tool for digital banks, wallets or other types of financial applications. It offers a seamless and frictionless onboarding experience for everything related to moving money or activating and opening accounts.
When users have been approved by KYC processes, verifying accounts’ ownership can help these businesses to add an extra layer of security by only onboarding legitimate customers.
Additionally, the combination of account verification and open finance allows businesses to avoid having to ask their customers for banking details every time you move money with them.
It can also be useful for private pension and investment platforms, for example as in the case of Saks, reducing friction costs dizzyingly.
“The automated process [of verifying accounts] will make life easier for investors who feel it is very difficult to access the identification data of their pension plans”
Cristiano Falcone, CCO at Saks
Who can benefit from account verification with open finance?
Anywhere where you need to provide your banking data in order to receive a service, which includes many fintech and proptech services but also traditional businesses that operate online such as car selling platforms, insurance companies, e-commerces and marketplaces, banks, investment platforms… The size of the list depends only on your imagination!
Now that you know how account verification works, why not try it out?
