Account verification services (AVS) validate the identity of an account holder against the bank account number supplied. This can be requested by banks, or the information can simply be provided by a bank. In this blog, we explore why a bank should offer these services, and compare real-time services with batch AVS.

AVS is a service provided by BankservAfrica that came about because the South African Revenue Service (SARS) needed a way of checking consumers’ bank account details in order to ensure that tax payouts were only made to valid and correct accounts. This resulted in AVS-B (batch-processed account verification) being developed: This enables SARS to push out a single request file to BankservAfrica with large numbers of bank account details, which BankservAfrica then distributes to the various relevant banks to validate.

Currently, only banks can register for participation in BanservAfrica’s AVS. That is, a retailer or other business cannot connect directly to BankservAfrica to make use of their verification services. A business would have to go via their own bank to perform AVS checking. However, in line with the modernisation of the real-time payments system in South Africa, it is expected that the rules at BankservAfrica will change in the future to allow non-bank businesses to participate directly in the AVS services as well.

A bank can choose to implement AVS-R (real-time processing of individual requests) and/or AVS-B (batch-processing of multiple requests).

They can also choose to participate in incoming AVS (where the bank merely provides account verification of their own customers’ accounts when requested to do so from other banks) and/or in outgoing AVS (this is where the bank wishes to request verification of accounts that are held at other banks).

It is useful to note that a bank wishing to make use of outbound AVS needs to have a bilateral agreement with each bank that will perform account verification for the bank requesting it. This bilateral agreement includes agreement on transaction processing fees to be paid by the requesting bank to the authorising bank.

6 reasons why banks should participate in AVS

1. In-house verification

You can verify the validity of a bank account held at a bank other than yourself, and/or enable other banks to request validation of accounts held within your own system. The account details that can be validated, include:

• That a given ID number is linked to a given bank account

• Whether transactions can be processed against a bank account

• The account type (e.g., check/savings)

• The status of the account (i.e., open, closed)

• Whether or not the account has been open for longer than a specific time period

It should be noted that AVS is not a ‘lookup’ service. A bank processing an AVS request will not return any additional information related to that account, but will perform a check against all parameters included in the request message and return a yes or no response.

2. Mitigate risk

AVS allows you to proactively mitigate the risk of fraud – both at your bank and at the merchant. By verifying a payee’s account at another bank before making a payment to it, you reduce the risk of a failed payment, as well as the risk that the payment might somehow be fraudulently redirected.

3. Increased profits

More efficient processing will contribute to improving profitability. By verifying an account before making a payment to it, you reduce the risk of a failed payment. Since payment transactions incur interchange fees, the reduction of failed payment transactions offers profitability improvement for the payer’s bank.

4. Lower costs

You can lower your transactional costs by avoiding failed debit order collections resulting from invalid bank accounts.

5. Ensured integrity

You can ensure the integrity of stored beneficiary details holding accounts at other banks, including verifying the personal details of the account holder (e.g., initials, surname, mobile phone number, email address).

6. Improved processing

AVS can help improve business profitability and strengthen customer and merchant service by minimising payment errors and improving payment processing.

Should you decide between real-time or batch processing?

Originally, only AVS-B existed, and AVS-R was developed later. Currently, it is primarily the government-related organisations (e.g., SARS) that still make use of AVS-B when they request account verification from banks. In other words, while it is expected that most or all banks will eventually implement AVS-R in order to support both incoming and outgoing account validation in real-time, you should still support AVS-B for inbound validation requests in order to handle the requests from government organisations.

The reason for banks leaning more towards AVS-R include:

• Participating banks must respond within seconds (as opposed to AVS-B where banks only need to respond within one hour)

• The service is available 24/7/365 (as opposed to AVS-B which is only available between 3 am and 5 pm)

Electrum’s AVS product can translate all inbound AVS-B files into individual AVS-R requests for further processing, thereby alleviating the need for a bank to implement both AVS-B and AVS-R. Furthermore, we can take care of transmitting inbound and outbound AVS-R and AVS-B transactions with BankservAfrica, and processing all inbound AVS requests by validating accounts on behalf of your core processing system. Our account mirroring service, which is an add-on to our AVS product, allows you to streamline this validation process by integrating and keeping account records for AVS purposes separate but in sync with your core system. The account mirror is used to store all details required for account verification and process all AVS-R and/or AVS-B requests on your behalf, thereby significantly reducing your processing burden.

AVS in the real world

As a bank, participating in AVS will provide benefits to your customer and merchant-level customers, presenting different use cases when it comes to transacting. Three scenarios are described below:

1. A payer wants to pay a payee who holds an account with a different bank, and who has provided their account number to the payer. Before making the payment, the payer wants to verify that the account is valid. On the payment screen in your banking app, you could present a button (e.g., ‘verify account before proceeding’) that the payer can click to verify the beneficiary’s account. The payer is prompted to enter the beneficiary’s account number, and the response shows whether the beneficiary’s account exists, is valid, and is able to accept payments.

2. A customer applies for an account at a retailer (either online or at a store). During the application process, the customer allows the retailer to load an automated debit order against the customer’s bank account. The retailer, who makes use of your acquiring banking services, wants to verify the customer’s account (including whether the account has been open for longer than 3 months) and get the result within seconds; this way, the application process can be completed immediately. The retailer can start selling goods to the customer with the assurance that the debit order will go through at the end of the month.

3. A company employs hundreds of individuals who need salaries to be paid at the end of each month. In order to ensure that payroll is made to correct employee bank accounts and to avoid payment to accounts that might have changed without the knowledge of the employer, the company, who holds an account with your bank, requests you each month to perform account verification of all employees’ bank accounts at various other banks before initiating the payroll processing.

Electrum’s ACH Payments solution supports both AVS-R and AVS-B, and provides effective, reliable account mirroring functionality designed to help you offer a seamless service to your customers. Contact us today to chat about our payment offering.