The Impact of Account Validation on Transaction Security and Speed

As instant payments continue to grow in the U.S., the integration of ACH, open banking, and account validation is helping to make transactions not only faster but more secure. With real-time consumer-permissioned data, banks are gaining valuable insights that improve risk management and enable tailored products and services to meet consumers’ financial needs.

However, when it comes to choosing between speed and security, Scott Brackin, EVP of bank account and payment intelligence at ValidiFi, makes it clear that security should be the priority. As Brackin shared with PYMNTS, instant bank account validation has become an effective weapon against fraud in an increasingly complex financial environment.

“We have 53 million credit card users, over a billion same-day ACH transactions, and an increase in check fraud incidents. It’s a perfect storm,” Brackin stated. “To counteract that, real-time account validation is a powerful tool for ensuring secure transactions.”

The advent of open banking has been transformative for financial institutions. Traditionally, financial institutions relied on single-source information for risk assessments at the point of enrollment, mostly focused on credit card data. But with open banking, institutions can now access a wider array of consumer data, including checking account information and cash flow insights, to make more informed decisions.

Although the regulatory landscape is still evolving, Brackin emphasized that banks and firms involved in both traditional and online commerce are adapting by utilizing consumer-level information from platforms like ValidiFi’s to better assess risk and compliance. New guidelines, including those from Nacha, now mandate that businesses validate account details for first-time ACH payments and any changes to accounts. This is positioning the use of payment performance and banking data to unlock new use cases.

The Role of Real-Time Data and Open Banking

According to Brackin, open banking enables businesses to access real-time data via APIs, allowing consumers to share information securely. This shift not only meets consumers’ expectations for secure data-sharing but also simplifies and clarifies the transaction and decision-making process for both consumers and businesses involved.

For example, a lender can quickly validate account information by submitting an ACH and routing number to ValidiFi, which then validates this data in real time using its Omni Platform. This is in stark contrast to the traditional, multi-day processes previously relied upon by banks. Real-time cash flow insights give a more comprehensive view of the consumer’s financial situation, enabling faster payments and smoother transactions.

“What we’re aiming for is providing a high degree of confidence in the banking transaction,” Brackin said, highlighting the importance of improving consumer trust and transaction reliability.

Looking Toward the Future of Open Banking in Payments

Brackin believes that open banking principles will have a significant impact on the pay-by-bank sector, where consumers use ACH and routing numbers to pay for a variety of services, from gym memberships to utilities. This model is expected to revolutionize industries like healthcare and insurance, which involve high volumes of consumer-sensitive data.

“We are well-positioned to work within the emerging open banking ecosystem,” Brackin said. “The integration of open banking principles is paving the way for smoother transactions in both the business-to-business and business-to-consumer markets, facilitating greater efficiency and security.”

As the use of open banking and account validation grows, the potential for secure, real-time financial transactions continues to evolve, paving the way for faster, safer payments in industries where data security and consumer confidence are paramount.

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