Category: Bank

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Common Bank Account Data Errors and Solution

bank account data error

Bank account errors can be costly for both the institute and the customers. Financial institutions, banks, and other businesses must ensure that all accounts and reference numbers are formatted correctly before any payments happen.

Bank account errors happen when there are any issues with this information. Sometimes they happen because financial institutes and banks fail to comply with compliance standards. The most common one is the BACS requirement, to ensure the bank account details exist and are associated with the payee.

To make sure payments happen without any errors, there have to be no mistakes in the input data. Even the smallest error in a bank account number can lead to payment failures, wrong transactions, and more.

Fortunately, banks, financial institutions, and businesses can significantly reduce the amount of banking errors with a series of checks.

In this blog, we’ll be going over the root causes of transaction errors, and how businesses can take the first steps toward reducing them.

What Are Bank Account Errors and What Causes Them?

Businesses that want to minimize bank account errors need to understand what type of errors are mostly impacting payments, and how commonly they happen.

Here are the most common bank account errors, this allows businesses to investigate the root causes of failed transactions.

Businesses that want to minimize bank account errors need to understand what type of errors are mostly impacting payments, and how commonly they happen.

Here are the most common bank account errors, this allows businesses to investigate the root causes of failed transactions.

1. Account number & sort code errors

Errors such as invalid bank account numbers or sort codes typically happen when customers mis-enter data into payment systems or company forms. This also happens when customer reps mis-hear or mis-key account information.

One of the most common reasons for this type of error code is if data is being migrated or copied between systems, especially if teams have to manually enter information.

These kinds of mistakes have serious consequences, ranging from failed transactions to misdirection of funds. Both of which lead to financial losses for both the consumers and organizations.

2. Reference number errors

There are some cases where the bank account number and sort code are correct, but the reference number (supplier number or invoice number) is wrong. In these cases, payments may be suspended pending investigation by the payment provider.

As an additional challenge, the failed transaction may not be marked to the person or organization making the payment. On the other end of the failed transaction, the recipient will not receive the funds.

3. Changes that Result in Invalid Bank Codes

The financial industry is prone to changing regulations. Sudden changes such as bank mergers, acquisitions, or restructuring can result in changes to the bank’s routing numbers.

When these changes happen, customers need to make sure that the latest details are used for all payments and transactions. The direct debits and other automated payments and deposits and other information are updated with their new details.

This is essential in ensuring that transactions can be verified correctly and there’s a low risk of failed transactions and misdirected funds.

How do Bank Account Errors Impact Businesses?

Common bank errors can have serious consequences for both businesses and consumers.

As bank errors that result in failed transactions require additional investigations are also time and costly. Moreover, these kinds of incidents lead to poor customer experience and poor brand reputation. A lot of businesses have also found out that failed transactions are directly related to a high rate of customer churn.

For consumers, failed transactions and misdirected funds can also be super frustrating. Customers are left waiting for funds for a long time, the consequences can be even more severe, preventing the use of the funds for essential items and bills.

How are Bank Errors Usually Handled?

Every organization across the globe handles bank account errors differently. In the US, for example, invalid accounts with no corresponding account lead to a transaction being rejected instantly.

In Europe, payment providers try to resolve the transaction, generally without informing the payee. This can help fix the problem in the short term, but it can result in serious consequences if funds are misdirected.

These mistakes can come to light over time, causing long-standing resolution challenges and major inconvenience for consumers.

How Bank Accounts Minimize Bank Account Errors?

There are different ways to minimize bank account errors. Let’s go over them one by one:

  1. Ensure Bank Accounts are Genuine

First, banks need to use automated checks to verify bank accounts are genuine and exist or not. This immediately reduces the risk of failed payments due to mis-typing bank account information, either by consumers themselves or by customer support teams.

  1. Make Sure All Bank Account Information is Formatted Correctly

The formatting of bank account details needs to be checked consistently and appropriately to ensure that information is correct. The information should be presented in a way that payment systems can recognize.

This check also helps in getting rid of account errors before they result in failed transactions or misdirected funds.

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Bank

How to Prevent Account Takeover Fraud?

what is account takeover fraud

Account takeover fraud (ATO) happens when an unauthorized person takes over a normal user bank account. Fraudsters take every measure to try and control an account. Once they have an account under control, fraudsters apply for a new card or change basic account information. In this guide, we’ll be talking about account takeover fraud, and how big of a threat it is for financial service providers.

Most of the time, individuals are the victims of account takeover fraud. Sometimes, fraudsters take over the business and small business accounts as well. Compared to 2019, 2021 saw a 21% increase in account takeover fraud. Out of all types of fraud, three-quarters of cases are account takeover fraud.

Old and New Ways of Account Takeover Fraud

Account takeover fraud is one of the oldest types of fraud. In the past, criminals relied more on manual ways to collect enough knowledge about a victim to access the account and eventually take control. 

They could access this information by going through people’s trash, stealing mail, and bribing or blackmailing. In today’s time, the way of accessing information has changed completely. Cybercrime has become the primary method of acquiring information for account takeover fraud.

Moreover, fraudsters can buy information for dirt cheap from the dark web to allow them to take over financial accounts. 

The dark web has multiple marketplaces that specialize in selling personally identifiable information (names, account numbers, addresses, social security numbers, national IDs, and more). 

As most people reuse their passwords for multiple accounts, it makes it easier for fraudsters to take over multiple accounts at once. 

When fraudsters have access to this much data with ease, they test it out. There are both old-school, and new-age methods to try these techniques. They can use automated tools to mount mass attempts to access these accounts with credentials stuffing. 

There are other ways. According to reports, around 44% of account takeover fraud instances happen using telephone channels. This suggests that call centers are the weak link in the process.

What Do Fraudsters Do With Taken-Over Accounts?

There are multiple parties involved when it comes to fraud. The criminals that commit data breaches to access accounts, are not the same criminals to use the data to determine if it’s usable. When accounts are found that are vulnerable, they’re sold to other fraudsters that actually take over the account. 

When an account is taken over, some fraudsters just want to make quick money. They simply transfer the available amount to some other account. Some fraudsters use these accounts to use them for money laundering.

Other fraudsters play the longer game, they use the account to get as much monetary gain as possible. This is done in several steps:

  • Fraudsters gain long-term control of the account. They change core account information such as an address, mobile number, and date of birth.
  • Fraudsters issue a new card for the account with the new details (new address, new mobile number, etc).
  • They keep using the account to maximize the funds available. They increase credit card limits or use the account as a gateway to getting more funds, such as a loan. Once a fraudster has maximized the amount they can obtain before the risk to them becomes too high, they cash out of the account under their control.

When this happens, it’s extremely difficult for the financial institutions to find the legitimate account holder from the fraudster, or which activity was done by whom.

How do Financial Institutions Handle Account Takeover Fraud?

To stop account takeover fraud from happening, financial institutions need to both prevent it and also detect suspicious activity so they can intervene. This can be done by employing multiple techniques:

1. Strong Customer Authentication

ID authentication is a major part of the account protection process. Several banks and financial institutions pay huge attention to the ID verification process. In the EU, PSD2 regulation is used more for checking a customer’s identity when they make a payment. That’s now all, PSD2 also includes authentication of account holders when they access or use payment accounts.

Any activity on a payment account that increases fraud risk requires strong customer authentication. Financial institutions have multiple methods to verify if the account holder is a legitimate user or not.

To meet the requirement of PSD2, financial institutions have to cover 2-3 categories:

  • Knowledge authentication – Something only the user knows (password, PIN, etc).
  • Possession – Something only the user possesses, such as a token, mobile, card, etc.
  • Inherence – Something that the user himself is (fingerprint, facial recognition, etc).

2. Customer Communications for Confirmation

Once a fraudster has access to an account, it’s not all over. The more details the fraudster may change on the account, the more control they have, but before they make changes the bank has the contact information for the real account holder. 

As well as authenticating customers wanting to make changes. To prevent account takeover fraud, banks can use real-time automated, and two-way communications with their customers to confirm, such actions are needed.

For example, if a change of address is needed, then a text message can be sent to the mobile phone number on record to confirm if this action is legitimate. 

3. Understanding Criminal Networks

Organized crime usually happens on a larger scale. Fraudsters try to take over as many accounts as they can. While this is a threat to financial institutions that have bad defenses, it can also be an opportunity to identify accounts that have been taken over. 

With application fraud, criminals have limited contact information that they can use to manage accounts. They recycle mobile numbers, emails, and addresses using the same contact information for multiple accounts.

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Using AI for Fraud Detection in Banking

al for fraud detection

In 2022 and after, more than 50% of all financial institutions plan to use AI to detect and prevent fraud. The use of artificial intelligence (AI) to detect and prevent fraud is not new. But, the fight has just gotten tougher as fraudsters have derived new methods to combat AI methods.

Especially after the Covid-19 pandemic fraud has become more sophisticated. So it makes sense that financial institutions would want effective AI solutions to detect and prevent fraud.

According to some data, the demand for AI seems more simple than ever:

  • More than 50% of financial institutions’ respondents plan to roll out AI solutions to tackle new cases of fraud.
  • Almost a third of financial institutions plan to invest in newer AI technologies to prevent fraud.

Banking institutions are aware of the downsides of not investing in AI capabilities. Fraud numbers hit an all-time high in 2020, and manual verification methods aren’t enough to combat new types of fraud.

Trying to uncover new types of fraud without using some AI is a heavy burden for analysts. Not just that, but human errors and rule-specific approaches can lead to a higher number of false positives. This leads to a negative impact on the customer journey.

Machine Learning in Banking Fraud Detection

Artificial technologies run on machine learning technologies. Machine learning algorithms are incredibly effective against fraud.

When implemented successfully, machine learning helps in detecting fraud, and uncovering complex financial crimes. They protect businesses from fraud losses and let businesses provide a frictionless experience to legit customers.

If you’re wondering how machine learning algorithms detect fraud, you’re not alone. Machine learning is a teachable system that can automate both front and back-office processes.

Instead of OS, or unchanging protocols, AI can learn from its experiences and evolve according to the situation. Machine learning systems also consider past transactions and also apply these rules to future transactions. 

The more data these systems go through, the more efficient they become in uncovering fraud. AI systems become familiar with techniques used by fraudsters to crack FIs systems. 

Investing in AI software, and machine learning technologies can be a great option for fraud detection and prevention.

Predictive Analysis for Banking Fraud Detection

Before machine learning technologies, there were predictive analysis technologies. While machine learning solutions are more flexible, and have more freedom, predictive analysis still has a firm place in the industry.

Unlike machine learning technologies, in which algorithms are asked to process supplied data without rules and regulations, predictive analysis finds patterns and behaviors. 

This is helpful when it comes to going through large sets of data to predict behaviors. Any activity outside of the predictive behaviors is likely to be considered a red flag. The predictive analysis relies on analyzing behaviors in the past and then converting them into fraud prevention methods today.

Next Steps in Automating Fraud Detecting

Automating fraud detection and prevention is a major challenge. With the focus on including AI in the financial industry, fraud prevention can be increased. Instead of using historical data, predictive analysis prevents fraud from happening.

While AI is not a sure-shot method of fraud prevention, when combined with instant document verification, human elements, it can lead to complete fraud detection. Over time, the inclusion of AI in the financial industry has become a vital part of the strategy.

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NeoBanks vs Traditional Banks – What’s the Difference?

Neobanks vs traditional banks

Have you noticed new companies popping out of nowhere, offering great credit cards, bank accounts, and other financial services? Companies with a massive digital footprint, but almost zero physical footprints.

Welcome to the world of digital banking. Digital banking or Neo-Banking is the next natural step that the financial industry will take, at least according to some industry experts.

Every now and then there’s someone who asks what are digital banks, how they operate, and how are Neobanks different from Traditional banks.

The word Neo comes from a Greek word that basically translates to “new.” So, Neobanks is a clever way of saying that this is the new age of banking. Similar to traditional banks, they offer savings accounts, current accounts, loans, money transfers, credit cards, and more.

So what’s the actual difference between the two? That’s what we’ll help you figure out.

Difference Between Neobanks and Traditional Banks

There’s a huge list of similarities between Neobanks and traditional banks, but they’re still fundamentally different. Let’s go over the list of differences between Neobanks and traditional banks.

1. Neobanks have no physical presence

Unlike traditional banks that have branches all over a location, neobanks have no physical locations you can visit. The entire infrastructure is online, and you can handle every setting of your account with an app.

This online-only model helps in saving thousands of dollars on operations costs, and costs that come along with running physical locations.

Traditional banks historically have had a physical presence, and in recent years they’ve started to get into digital banking more deeply. Compared to digital banking services offered by traditional banks, Neobanks’ services are more user-friendly and easy to use.

2. Neobanks are not regulated

While they’re called banks, neobanks are actually financial institutions. The difference between neobanks and traditional banks is that traditional banks need to have banking licenses. Neobanks are not recognized as an official entities by regulatory bodies, and thus they don’t have to follow regulations.

They utilize this saved money to provide better services at a lower cost to customers.

Some neobanks may have partial, full range, or a special banking license. A banking license allows neobanks to offer all kinds of banking services. 

3. Neobanks are more affordable

As neobanks have no physical operations to run, they can save more money, which allows them to be more affordable. They have no opening fees, low maintenance costs, no minimum requirements, no hidden fees, and they offer higher saving interest rates.

Neobanks also tend to be more transparent with their fees upfront. Traditional banks tend to have a lot of hidden charges that consumers may not understand at first.

4. Neobanks offer more flexibility

Compared to traditional banks, every single activity in neobanks is easier to do. Opening up a new account and signing up is far easier than traditional banks. It is also easier to borrow money from a neobank compared to a traditional bank.

Signing up for a credit card, or applying for a loan at a traditional bank means you’ll have to pass a range of checks. 

5. Traditional banks have more services

The biggest difference between a neobank and a traditional bank is the number of services offered. While Neobanks are faster more, user-friendly, and flexible, they often have one or 2 main services. 

Comparatively, traditional banks have a wider reach all thanks to their physical locations. People who don’t yet trust online banking, or haven’t had exposure to online banking services still prefer traditional banking over newer methods. 

6. Traditional banks are more accessible

The popularity of Neobanks has grown tremendously over the years. This is because of those who want the convenience of online banking. At the same time, traditional banks use their old-age methods of maintaining quality relations with their customers.

Neobanks are going through a great phase throughout the world. Millions of customers rely on their services, and industry experts are waiting for the future. Currently, the situation is that more users prefer traditional banks over neobanks as they’re more easily available and more reliable. 

Customers can actually go to a physical office or talk to a representative when they have a grievance. The same can’t be said for a neobank.

Frequently Asked Questions

1. Which bank is better? Neobank or traditional bank?

The better bank depends on your needs. Based on your service requirements, the better bank for you can differ greatly. Neobanks have lower fees, they’re easier to sign up with, and they’re great for tech-savvy people. 

Traditional banks are more reliable, have physical accessibility, and they’re regulated. But they’re more expensive, offer lower interest rates, and more.

2. What are the services of a traditional bank?

The most common traditional banking services include:

  • Providing a savings account
  • Providing a checking account
  • Issuing debit cards
  • Issuing credit cards
  • Wealth management
  • Giving out loans
  • Insurance

3. Which bank is safer, Neobank or a Traditional bank?

It comes down to the level of due diligence an institution has employed. Being more tech-friendly, neobanks generally offer better security. They have simpler onboarding, yet they do ID verification, and KYC checks.

However, traditional banks have huge infrastructure and years of experience under their belts. Moreover, they have to follow regulations set by regulatory bodies. 

In the end, it comes down to the level of customer due diligence an institution employs.

4. Do Neobanks have banking licenses?

No, most neobanks don’t have a banking license. Although, there are chances that some neobanks may have a partial, full, or special banking license. With these licenses, neobanks can offer services that a traditional bank can, with more focus on user experience, and affordability.

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What is Good Standing Verification and Why Does Your Business Need It?

verify good standing

Almost every business is asked to provide a good standing verification certificate. Only the state can issue the good standing certificate verification. It’s one document that every business should be able to provide when asked for it. 

Every business, LLC, or any other entity needs to have a good standing status in its records. This helps banks, financial institutions, and other businesses understand that the business is in good standing. A good standing verification certification can help in:

  • Maintain the limited liability that an entity provides.
  • Take their business into other states.
  • Acquire a loan on the basis of good standing.
  • Get rid of state-imposed fines and penalties.

Most of the time, a lender requires a good standing verification certification to offer a loan. Businesses can avoid delays in the loan approval process by maintaining good standing.

What is a Good Standing Certificate?

A certificate of good standing lets others know that the company is legally registered with the state and it complies with all the state laws, such as:

  • State registration fees
  • Required document filings
  • Legally permitted to conduct business in the state

A certificate of good standing usually contains an expiration date. This date suggests when the organizational registration is due. This renewal date could be at the end of a calendar year, or during some other time when the state’s laws require renewal or periodic filings.

This rule is similar for businesses formed somewhere else and registered as foreign entities in the state.

Most users confuse good standing as a business or occupational license, but it’s not. A company can also do business in the state it was formed, it does not need a good standing certificate to do so.

Which Businesses can Get a Good Standing Certificate?

As not all businesses need to register themselves with the state, they won’t be able to obtain a good standing certificate. Lenders, government agencies, and even other businesses can ask for a good standing certificate of a business.

If you want to get a good standing certificate, then there are two ways you can follow. The easiest ways are to register or qualify their company to transact business in another state and to open a business banking account. A good standing certificate acts as part of the compliance.

How to Obtain a Good Standing Certificate?

As mentioned above, the best way to get a good standing certificate is to register your business with a state. When you register your business, the state will offer a certificate of good standing.

The issuing entity is often the secretary of state or any one of their subdivisions. The agency has different names based on the state they are in:

  • Arizona: Arizona Corporation Commission
  • Massachusetts: Corporations Division, Secretary of the Commonwealth of Massachusetts
  • Michigan: Corporations Division, Department of Licensing and Regulatory Affairs
  • New Jersey: Division of Revenue and Enterprise Services, Department of the Treasury
  • Utah: Division of Corporations and Commercial Code, Utah Department of Commerce
  • Virginia: State Corporation Commission
  • Wisconsin: Department of Financial Institutions
  • Delaware: Division of Corporations
  • Hawaii: Business Registration Division, Department of Commerce and Consumer Affairs
  • Maryland: Department of Assessments and Taxation
  • Alaska: Department of Commerce, Community, and Economic Development

If you want particular information on how to obtain good standing certification from the state department, you’ll have to contact them for all details.

What do Businesses Need to get a Certificate of Good Standing?

Most businesses require a good standing certificate while going through a KYB verification process. Most financial institutions do incorporation verification before onboarding them. A good standing certificate is just one of the many documents that lenders ask for.

This happens when you try to open a business bank account, or set up a new credit card, or debit card. Some lenders also ask for a Good Standing certificate. If your business isn’t required to register with the state, it’s not possible for you to get a good-standing certificate. There is one absolute requirement for getting the certificate. Your business needs to be registered in the state for the good standing certificate.

When You May Need a Good Standing Certificate?

There are a number of situations when you may be asked to provide a good standing certificate. A good standing certificate even protects your business from a lot of things. Banks will want to see the certificate before onboarding you.

Here are the situations where you will need a good standing certificate:

  1. Opening a business bank account
  2. Establish business credit
  3. Applying for payment processing
  4. For improving your business credit score
  5. Securing an investor for funding your business
  6. Securing a lease for your office space
  7. To protect your business’s LLC status
  8. For renewal of business licenses and permits
  9. Applying for a loan
  10. For selling your business
  11. For getting business insurance

If you lose your good standing status, it impacts your business’s reputation and ability to do business.

Verification of Good Standing Certificates

Banks ask for good standing certificates to verify a business, and its ability to do business. But fraudsters globally have figured out a way to trick banks by forging good standing certificates. Verification of good standing certificates is really tough. For years, banks have been verifying documents manually.

Fortunately, DIRO’s document verification technology has changed that for good. DIRO helps banks, lenders, financial institutions, and other entities to quickly verify good standing certificates during incorporation verification. This leads to fewer false positives and an enhanced level of security for financial institutions.

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Benefits of Open Banking for Consumers

open banking service

Things have changed in how people handle their finances. This is because of the recent wave of modernization in banking. FinTech innovations are changing the way consumers think about their finances. The Covid-19 pandemic has accelerated digital banking transactions. The shifting reality of how finances are managed is growing. Bank branches and paper checks are second options to a lot of consumers. Eight in 10 Americans are linking their bank accounts digitally and using these services to automate their banking processes.

The sudden change in consumer expectations is met with robust technologies. With every leap in speed, security, and ease of use, open banking services have revolutionized banking. When it comes to personal finances, people want real data whenever they want to.

Here are some benefits of open banking services.

Benefits of Using Open Banking Services

1. Saving More Time

Probably the biggest benefit of open banking services is that it helps in saving time. Most people prefer using online banking services instead of cash, or credit and debit cards. With the widespread adoption of P2P payment apps, these antiqued processes are quickly becoming a thing of the past.

In real-time, payments can be split between friends with a few taps on the mobile screen. Digital wallets allow busy shoppers allow someone who wants to shop quickly without having to wait for card payments.

Encrypted credit card info auto-populates, saving time and reducing errors when shopping online.

2. Saving Money

65% of Americans don’t know how much money they’ve spent last month. Most people don’t know how to save money and online shopping has forced consumers to spend more. So much emphasis is placed on new and better ways to spend that saving has become just an afterthought.

AI and machine-learning engines do the heavy lifting of savings calculation, set goals, and projection, raising the level of users’ financial literacy. 42% of Americans surveyed that they wanted help saving their money, and trust technology to offer them the financial advantage they need.

Open banking technology powers some of the most effective FinTech apps for saving money.

3. Improvement of Financial Health

Open banking and AI are changing the world. Anyone can download a financial management app, provide permission to access their banking information, and be guided easily through opening accounts, investment suggestions, and loan applications. 

FinTech AI systems offer massive amounts of data in milliseconds. App and service developers can leverage this power to analyze a consumer’s subscription payments. Machine learning and AI can use this real-time data to offer smart financial planning and brilliant investment options. 

As a result, financial decision-making can improve their services dramatically. Consumers are seeing the positive results of adoption in their bank balances.

4. Automation

Another great reason for using online banking services is that it allows for a greater level of anticipation. Repetitive, time-consuming financial tasks can be automated to reduce the time-consuming process. Open banking offers easy setup and maintenance of connections to financial institutions and offers consumers to set a variety of monthly payments.

5. Better View of Finances

Consumers of today don’t want to maintain financial records on a series of lost papers, stuffed in a drawer. Open banking data has spawned a wealth of apps and services that provide consumers and small businesses a real-time overview of their finances. 

Open banking can sync across multiple accounts and across financial institutions to provide consumers with a complete overview of their finances. The expectation is that individuals should be able to see where their money is going, anytime they want.

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Open Banking Initiatives Around the World

open banking efforts

Open banking has become the “IT” word of the financial industry. But, it is not just for creating hype, open banking has some incredible real-world applications. 

In case you’re not familiar with open banking, it’s the process of banks and other institutions allowing customers to share their financial data with trusted entities. Open banking/open finance makes bank-to-bank payments easier and allows customers to access all their data in a single place. Everyone here at DIRO and other financial institutions considers open banking to be the future of the financial industry. 

If you don’t have the right knowledge, it may be hard to understand the benefits open banking brings to the table. There are multiple levels of open banking that offer different features.

In this guide, we’ll go over different open banking models, and how countries all over the world are utilizing them to their benefit.

Brief History of Open Banking Around the Globe

The term “Open Banking” first came onto the scene in July 2013, with the launch of the EU’s PSD2 proposal. In which it was recommended that banks allow trusted third-party sources to access customer financial data. These early suggestions went on to become the Open Banking landscape of today. 

Jump to 2022, and Open banking has become a global phenomenon. At least 87% of countries have some type of open banking API. In the European Union, there are over 400 third-party service providers. They are authorized to access financial data using open banking.

State of Open Banking Framework Around the World

Each country has its own way of leveraging an open banking framework. Here’s a peek into the current open banking landscape across the world:

1. State of Open Banking in the UK

Open Banking regulations in the UK require the top 8 banks to create APIs that third-party service providers can use. These APIs have to establish a secure way of data sharing.

The deadline to create these APIs was all the way back in January 2018. While the regulation only asked the 9 banks to create these APIs, other institutions automatically followed suit.

In the UK, third-party service providers can use the Open banking API in two ways.

The TPPs can be Account Information Service Providers, which allows them to get access to payer information and data including balance information and verification. 

Or, the TPPs can be Payment Initiation Service Providers, which allows them to make instant bank-to-bank payments, without needing a card, manual transfer, or direct debit transaction.

The UK is definitely leading the charts when it comes to open banking frameworks, innovation, and customer inclusion. Based on a Report in December 2020, there are over 294 regulated providers of Open Banking in the UK.

Unfortunately, even with this strong open banking product usage in the UK, only 102 out of 294 entities have a live customer offering. Although, the reports suggest an upward trajectory in upcoming years.

While there’s a positive outlook on open banking, a lot of customers are still suspicious and reluctant to use their service. Less than 25% of all UK consumers are happy sharing their financial data with third-party providers.

2. State of Open Banking in the EU

There will be some key differences in all the individual countries across the EU, but the group as an entity is going strong. They’re working strongly towards building a complete open banking structure.

Even though the European Commission made recommendations all the way back in 2013, the deadline for PSD2 readiness was in 2018. Relevant APIs from Europe is about 1 year behind the UK. With this slow API implementation, Europe can be seen as lagging behind on the global stage.

European open banking APIs are lagging behind the UK ones, but we can expect to see a sudden growth in the TPPs using the APIs. 58% of all European FinTech decision makers consider open banking as a great opportunity.

3. State of Open Banking in the US

Unlike the UK and Europe, the USA has taken an industry-based approach to open banking. Industries themselves are building APIs and infrastructure without any oversight from regulatory bodies. 

The current US Open Banking framework has been limited to account information solutions, most of which are done using screen scraping. But Screen Scraping isn’t an effective solution as it has led to some major data leaks. 

The US is definitely behind the UK and Europe in the race for open banking, and the demand for new technologies is growing at an incredible rate. Especially after the Covid-19 pandemic. As the rest of the world is starting to put efforts to build a proper open banking framework, global companies headquartered in the US will start to take advantage of international efforts.

Other Innovators in Open Banking Landscape

There are some other countries that are making great strides when it comes to open banking. Here’s a peek into their efforts:

1. New Zealand

New Zealand’s approach to open banking has been pretty hands-off. There have been some discussions of Consumer Data Rights, but there’s nothing solid. 

2. Canada

Similar to the US, Canada has also taken an industry-led approach. However, there are some government bodies looking at how to create more regulatory oversight moving forward. According to a 2019 report, the implementation of a structured framework would address consumer privacy concerns. 

3. India

The open banking framework has been well established in India since 2016. This implementation was spearheaded by the Unified Payments Interface (UPI). UPI allows consumers to access their bank accounts, and make instant payments to other banks. India is moving forward with a hybrid approach to open banking.

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Micro Deposit Verification for Bank Accounts – Alternatives to Micro Deposit Verification

alternatives for micro deposit verification

Micro deposits are the legacy system for the verification of customer bank accounts. As far as customers could remember, banks have been using micro deposit verification to verify bank account ownership. But being one of the oldest and most used methods doesn’t mean that it’s the perfect solution. There are some flaws in the micro deposit bank account verification process.

Micro deposits are two small test deposits that are sent from one bank to another one. The idea is that it helps in verifying second account ownership information.

The micro deposit bank account verification process can easily take up to 5 business days as the transactions go through the ACH Network. In a world where consumers want instant process completion, waiting for 5 days can increase the abandonment process.

Why Micro-Deposit Account Verification Is Used for Account Verification?

The current banking infrastructure is decades old, and it takes a lot of time and money to upgrade. Since the beginning, the account verification process revolves around micro deposit verification.

In 2018, the National Automation Clearing House Association (NACHA) completed 23B micro deposit transactions with a value of $51.2T. While the ACH Network proves to be a very cost-effective method for completing these transactions, it has lacked immediacy since always.

While NACHA also launched same-day ACH payments all the way back in 2015, the adoption of same-day payments for micro-deposits remains low. NACHA has commented about an API-based, real-time verification approach, but no significant improvement has been made.

Similarly, a huge range of mobile and online banking suites are available to banks and credit unions are also reliant on micro deposit verification. Regardless of the scale of the service, or how new it is, most businesses still tend to rely on micro deposit bank verification.

Flaws in Micro-Deposit Verification Process

Banks and credit unions should follow the steps of modern-day e-commerce companies. Customer experience in the web 2.0 era is all about fast experience. Customers aren’t willing to wait days for basic processes to be approved. In the eCommerce industry, any delay in payments can lead to account cart abandonment.

In the banking sector, every 10 seconds that are added to the customer onboarding process increases 5% the risk of application abandonment.

So, the best way for banks to move forward is to increase their conversion rates and improve the rate of customer acquisition. This can be done using automation, and other technologies for the onboarding and account verification process.

Bank Account Verification Best Practices

Financial institutions that want to verify bank account information should find some better ways. If micro-deposits are a widely used method, banks should renounce it if it increases the chances of application abandonment. Here are the two best replacements for micro-deposit bank account verification:

1. Instant Account Verification (IAV)

It’s important to include customers in the verification process to boost relationships, but banks should do it with the help of more seamless technologies. Instant account verification doesn’t rely on two small deposits to the customer accounts. And, as the name suggests, the process is instant. 

2. Real-Time Account Transaction Monitoring

The biggest challenge banks face while moving on from micro deposit verification is that they can’t access their own data. 

Banks and credit unions have data that when used correctly can predict fraud before it happens. More than often, all of this data is hidden beneath a bank’s core systems, or is only available on a batch basis. There are technologies out there that can help banks access this transactional data, which helps in verifying bank accounts and predicting fraud. 

Conclusion: Customers Demand Real-Time Verification

Micro deposits helped banks and financial institutions a lot in the past. But customers of today prefer faster resolution times and friction-proof validation. So, for banks to provide an ideal customer experience, there’s a heavy need for micro deposit verification alternatives.

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Bank

Rise of Open Banking – New Innovations for Small and Medium Sized Businesses

impact of open banking small business

Small businesses of today aren’t like the old days, limited to a particular market. Today’s small to medium-sized businesses (SMB) are evolving and leveraging emerging technologies to keep up with the giants. While some businesses are still stuck with old and traditional methods for customer acquisition, capital access, and more. Businesses using digital apps and services have a clear advantage. 

More and more consumers are now using open banking-powered solutions to handle their finances, save time, and save money. So, it makes sense for SMBs to also jump on the open banking bandwagon. This helps SMBs to cater to consumers’ needs and understand their demands. In this increasingly digital world, any SMB that’s capable of providing a unique yet tailored customer experience wins the race.

The crisis brought forth by the pandemic in the last two years has forced SMBs to ride the financial technology wave. A study conducted by Mastercard named the Rise of Open Banking, highlighted the rising costs and newer methods for customer acquisition and other important factors for SMBs.

The new and easier access to technology has led to an encouraging trend, SMB owners have been quick to adopt digital tools to fund, manage, and promote businesses. According to a finding in Mastercard’s study, 9 out of 10 small business owners consider themselves heavy FinTech users. Their use is both personal and commercial. 

Some other important pointers from the research include:

  • 80% of SMB owners started using digital channels for loan applications in the last 2 years.
  • 84% claim that technologies make them feel better while applying for loans.
  • 64% have received some kind of business loan using digital means. 

The adoption of digital channels is higher than consumer numbers. SMB owners need to generate enough business to stay afloat so they’re more than happy to adopt technologies. They’re accustomed to adopting market conditions.

Digital Transformation is Solving SMB Challenges

The Covid-19 pandemic forced businesses all over the globe on how they operate. Banking, finance, investing, savings, and several other parts of the financial industry have gone digital. Technologies are changing how businesses conduct their day-to-day activities.

Doing businesses from home or while traveling has become super easy. Small business owners are taking advantage of every possible beneficial technology available to them. They’re also one of the most FinTech-heavy businesses, regardless of the industry. 

While business owners are learning how to adapt and adjust to uncertain and changing regulations. Some concerns that every SMB owner has in their mind are:

1. Inflation

The rising costs of almost everything are the first and foremost concern for small business owners. With this year’s record-breaking price hikes, businesses have to find new solutions to cut down costs and remain profitable. 47% of owners claim that rising costs are their biggest concern. Consumer-focused industries such as restaurants, and retail have it even tougher to stay profitable. 

2. New Customer Acquisition

39% of SMB owners say that acquiring new customers is the biggest pain point. Professional services businesses were more urgent about new customers. 49% of SMB owners say that finding new customers is their day-to-day concern. 

3. Hiring Skilled Employees

Pandemic-related challenges quickly changed the employment landscape quickly and drastically. 35% of all employers are having trouble finding skilled employees in this new landscape of hiring. 

4. Managing Operations

27% of owners said that efficient tools and systems to manage operations are one of the biggest challenges for them.

Open Banking Innovations – Improving Speed, Efficiency, and Personalization

Over 80% of SMB owners want faster, easier access to capital. This is why they’re more than ready to partner with FinTech for customized, and agile funding solutions. Almost all SMB owners heavily rely on credit cards, and 81% of owners are interested in business loans that meet their requirements perfectly. Over 60% of small business owners require loans to keep surviving in the market. 

Faster payments are also something that SMB owners look forward to. To streamline the payment processing experience for customers, Small business owners use Open banking tools. They leverage digital wallets, cryptocurrency, and other FinTech tools.

Connecting accounts to manage businesses’ finances provides the opportunity to give personalized insights. It also adds convenience for SMB owners wanting to streamline the way to handle business operations such as banking, invoicing, managing cash flow, and paying bills.

SMB Open Banking Adoption is Going Strong

SMB owners are using open banking innovations to better handle their finances. By integrating open banking into their operations, they’re creating a smoother, and easier-to-handle workflow.

Open banking can streamline linking accounts, payment processing, customer onboarding, bank account verification, and other parts of a business.

Owners are linking their financial accounts with open banking solutions to gain a competitive edge above their competitors. 85% of SMB owners are looking for solutions that can be customized according to their business needs.

Feeding intelligent, and quality data in financial management tools is giving businesses the edge they need for growing in this changing environment. Paying and getting paid becomes faster and more efficient.

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Bank

How does Bank Data Validation Process Work?

bank data validation process

Now that the financial industry has completely embraced technologies into their processes, it’s important for them to make sure that payments are error-proof. Customers make mistakes. Instead of trying to teach customers the right way, banks should employ a bank data validation tool. Banks should try to make every part of a customer’s journey as seamless as possible. This also includes smoothing out the transactions.

Another added benefit of doing so is that it helps in preventing fraudulent activities. When banks verify bank account information before every transaction, it reduces the risk of fraudulent payments going through. It goes without saying, bank data validation is crucial.

But what exactly is “Bank Data Validation?” In this article, we will shed some light on the bank data validation process and how it helps out banks and customers.

What is Bank Data Validation?

A lot of consumers confuse bank data validation and bank data verification processes. While they may sound the same, the processes are slightly different. Bank account data verification means verifying the input information against the information present in the database. Data validation on the other hand involves an algorithm-based process.

In simple words, it means that payment details are checked using a series of data and information. This allows the system to understand whether an account exists or not based on the numbers.

Moreover, this process is instant during payments, meaning customers don’t have to wait. Merchants can instantly verify the details and correct any errors that pop up. Bank data validation offers a number of benefits:

  • Reduces the risk of payment errors/failures
  • Eliminates the need of inputting bank details over and over again
  • Uncovers and prevents fraudulent transactions

What is Bank Data Validation Automation?

Now that you have a fair understanding of how the bank data validation process works, let’s discuss how banks can implement it. The process of implementation is super easy for merchants. There are endless online solutions that will gladly help you implement the solution. You can ask them to install the solution and then automate the bank validation on the input of payment information.

There are a lot of bank data validation solutions out there, it’s easy to choose one based on your needs. 

The process itself is pretty difficult, and it requires a deep understanding of data structures. Basically, the third-party services simultaneously check if the account information is correct and if the account can make the payments. 

With access to this information, banks can decide whether to authorize the payments or not. Additionally, the bank data validation solution can also be used to access other data such as Bank Identifier Code (BIC), IBAN, and other information.

Advantages of Using a Bank Data Validation Solution

There are a number of benefits of implementing a bank data validation solution. Banks of today need to provide a smooth experience to the customers, so technological integration is important. A bank data validation solution can help your business by:

  • Avoid Payment Delays

When you have a process in place that verifies bank information before payment, you can get rid of unwanted payment delays. Any incorrect information that a customer adds will be instantly identified. Customers won’t have to re-enter information once the payment fails.

  • Eliminate Fraud & Multiple Tries

If a transaction is authorized without verifying the details, it can be expensive to rectify the information. So, the best way to move forward is by identifying information firsthand. It can also reduce the risk of fraudulent payments being authorized.

  • Valid Payments

It helps in confirming if the payments are valid or not before they are processed. This leads to improved customer satisfaction. Customers get annoyed if they have to re-enter the same information. When information is verified firsthand before the payment, customers get a sense of security in the institution.

Simply put, bank data validation is an essential tool for increasingly modern banking. It improves customer satisfaction, and also reduces the headaches for the bank’s payment processing team.