Active vs. Passive Bank Account Verification

Active vs. Passive Bank Account Verification

In today’s digital age, ensuring the accuracy and security of bank account information is paramount. As a business, you’re likely to encounter two primary methods of account verification: Active Account Verification and Passive Account Verification. Understanding the differences between these methods, along with their benefits and drawbacks, can help you optimize your financial processes to minimize risk and ensure compliance.

What is Active Account Verification?

Active Account Verification is an approach to validating bank account information that requires  input from the account holder (bank account username and password) and a connection to the participating financial institution to confirm the accuracy and validity of the account details.

Key features of Active Account Verification include:

  1. Real-time communication: With Active Account Verification, account details are verified instantly by reaching out to the account holder or their financial institution.
  2. Additional Account Data: Active Account Verification can provide additional information such as available funds and statement history. 
  3. Accurate and up-to-date information: By directly contacting the relevant entities, this method ensures the most current and accurate account details.
  4. Fraud prevention: Active Account Verification helps detect and prevent fraudulent activities by confirming the account’s legitimacy.

For instance, if a consumer applies for a consumer loan Active Account Verification can be used to confirm historical funds availability and past transaction history. . 

What is Passive Account Verification?

Passive Account Verification,  is a method that relies on  historical data contributed by financial institutions to verify account details without direct communication with the account holder or their financial institution.

Critical features of Passive Account Verification include:

  1. National Database: Over 80% of all bank account holders are present in the database
  2. Efficiency: This method eliminates the need for manual intervention, making it a time-saving and efficient process
  3. Secure: Does not require the handling of sensitive account holder data such as username and password
  4. Passive: Account holder input is not required to verify the account information

For example, a financial institution can use Passive Account Verification to maintain compliance with the NACHA WEB Debit Account Validation Rule and confirm account ownership details..

Active vs. Passive: Which One to Choose?

Both Active and Passive Account Verification methods have their advantages. Active verification offers real-time, accurate results but requires proactive engagement and has few participating financial institutions. On the other hand, Passive verification has a larger network of participating financial institutions and may be more cost-effective, but does not provide real-time balance data.

Drawbacks of Active Account Verification:

  1. Increased Friction: Active Account Verification requires the account holder to input a bank account username and password can add extra steps to the onboarding process, potentially causing friction for customers and leading to drop-offs.
  2. Data Privacy Concerns: Active Account Verification requires customers to provide sensitive bank account information, raising concerns about data privacy and security.
  3. Limited Network: Not all financial institutions participate

Drawbacks of Passive Account Verification:

  1. Historical Data: Passive Account Verification relies on existing data sources and, depending on the vendor, may not always provide real-time or up-to-date information, leading to potential inaccuracies in account verification.
  2. Increased Risk of Fraud: Without real-time verification, Passive Account Verification may be more susceptible to fraudulent activities, as it may not promptly detect changes or discrepancies in customer account information.
  3. Higher Return Rates: Due to the limited accuracy of some Passive Account Verification systems, organizations may experience higher return rates for ACH or check payments, resulting in additional costs and operational inefficiencies.

Partnering with a reputable vendor capable of providing robust monitoring and security above and beyond industry standards and guidelines will help eliminate the drawbacks and pitfalls that may arise with Passive Account Verification systems.

Take Account Verification to the Next Level with Lyons Commercial Data

Financial institutions, payment processors, insurance agencies, healthcare providers, educational institutions, and retail businesses have relied on Lyons Commercial Data to fortify their organizations against fraud since 1989. Our  iBankRegistry™ Account Verification solutions empower our clients to instantly verify bank accounts in the United States and Canada, ensuring accurate customer data for seamless onboarding and efficient processing of ACH or check payments.

Ready to take account verification to the next level?

Connect with us today to book a demo for your team.