Why verify the bank account holder ?
Verifying who owns a bank account is essential for protecting your business from fraud, particularly bank transfer fraud, which is increasingly affecting companies worldwide. It also helps prevent costly errors.
If a transfer is accidentally sent to the wrong account, knowing who actually owns it can become necessary as part of the bank’s procedures to recover funds.
Before initiating a transfer, checking the account owner ensures the payment goes to the correct beneficiary, whether it is a company or an individual.
Indeed, most fraud cases involve identity theft, where criminals impersonate the intended recipient. With digital account details and official company documents becoming more accessible, it’s increasingly easy for fraudsters to manipulate the information. For example, they might enter the name of your intended recipient alongside their own account details to receive the payment for themselves.
So, what concrete steps can you take to verify the owner of a bank account?
Let’s be clear: once money has been sent to the wrong account, finding out who owns it is very difficult.
The bank holding the account is bound by strict confidentiality rules and cannot disclose the account holder’s identity. While the bank can investigate and contribute to recovering the funds, it is not authorized to simply provide this information.
On the other hand, there are simple ways to verify account ownership in advance and ensure that your payments are sent to the right account, for the right recipient.
In this article, we will look at three methods, explain their advantages and limitations, and show you which method is truly effective.
As you will have understood, when it comes to fraud, prevention is better than cure.
Understanding bank accounts and their details.
First, it’s important to understand the relationship between a bank account, the account details, and the information typically provided by the account holder.
In practice, what you receive are the details that allow you to make a transfer: the account number, the bank name, and, where applicable, the IBAN (International Bank Account Number), which is used in many countries to uniquely identify a bank account.
This information is usually provided in a document from the account holder that summarizes all the key account data. It ensures that payments are sent to the correct account and helps minimize errors.
Why does it matter? Accurate account information simplifies and secures financial transactions, allowing the recipient’s account to be precisely identified. While the IBAN standard has improved international transfers in many countries, the concept applies everywhere: you need reliable account information to safely send money.
The first step in verifying who owns a bank account is therefore to obtain these details. In most cases, the person or company you are paying provides them directly, often in a summary document including the account number, bank name, and account holder’s name.
Checking the bank account format
Once you have the account details provided by your supplier or customer, which generally include the bank account number and a local bank or branch code, the next step is to make sure the information is valid and correctly formatted.
Checking the format is the first step in preventing errors and fraud. It means ensuring the account number and any accompanying codes comply with the local standards for that country. For example, in Europe this might include an IBAN (International Bank Account Number), while in the US it would be a routing number, and in India, an IFSC code.
This verification is particularly important because at some point you’ll need to enter or store these details in accounting software, treasury tools, or your bank’s online platform. Ensuring accuracy from the start helps prevent mistakes later on.
The good news is that this check is relatively simple. Many online tools allow you to verify the format for free. You just need to confirm that the account number and local code follow the correct structure for the relevant country, and, where applicable, comply with specific algorithms (such as the Luhn algorithm for IBANs).
However, format verification alone is not enough. A correctly formatted account number may still belong to the wrong person, be closed, or never have existed.
Whether for a transfer or a direct debit, checking the format is necessary, but it is far from sufficient.
The three methods to verify the bank account holder
Now that we've seen the basics together, we can finally move on to the main purpose of this article: how do you make sure that an account belongs to the right person?
Method 1: Ask the beneficiary directly
The first method that comes to mind is usually the simplest: contact the beneficiary directly, whether a company or an individual, and ask them to confirm their bank account number and identity.
The main disadvantage of this approach is reliability. How can you be sure that the person confirming the account details is not actually a fraudster pretending to be your intended recipient?
Another drawback is that this method can be tedious. You need to make sure you are contacting the right person, and that this person is authorized and able to confirm the account information. This is not always straightforward, especially when dealing with corporate accounts. Sometimes it can take several days to receive a confirmation.
In summary, this method is both time-consuming and not fully reliable.
Method 2: contact the bank
The second method is to contact your own bank or the bank holding the account in question.
For obvious reasons of confidentiality and data protection, the bank cannot disclose the identity of the account holder directly. However, if you provide the bank with the account number and the identity of the person or company, the bank may be able to confirm whether the account really belongs to them.
The advantage of this method is that it can be reliable. The main drawback, however, is accessibility. Banks are not always willing or able to share this information.
Additionally, like Method 1, this approach can be slow and difficult to scale if you need to verify a large number of accounts.
Method 3: Use a bank account verification solution
Finally, let’s look at the most reliable and effective way to verify who owns a bank account: using a dedicated verification solution.
These solutions allow you to check account ownership without having to contact the account holder or the bank directly. They make it possible to verify, quickly and reliably, that the account belongs to the intended recipient.
How do they work? There are generally two types of solutions:
- The first type relies on data from external sources and self-reported information. These solutions can provide an initial indicator and a certain level of confidence about who owns a bank account.
However, they are not infallible and may occasionally provide incorrect information. In addition, these solutions can be expensive and complex to implement. Their main advantage is the ability to give some visibility on accounts held by foreign banks.
- The second type of verification solution queries the bank directly and thus has access to bank databases.
This is the most reliable and effective method: the bank itself is asked, and it provides a response in just a few seconds. The result is fully reliable because it is the bank that confirms whether the account belongs to the person or company in question.
Our Ibantrack solution uses this method to verify supplier and customer accounts, relying on secure banking networks to query the banks directly.
Solutions of this type are much easier to use and implement than those based on external data sources, which require aggregating large volumes of information from multiple sources, making them complex and costly for the end user.
It’s important to note that all these solutions confirm whether an account belongs to a given person or company, which allows you to prevent fraud by checking account ownership before making a transfer or setting up a direct debit.
However, due to banking secrecy, no solution or bank can provide the full identity of the account holder based on the account number alone.
Conclusion
Verifying who owns a bank account is critical to prevent fraud and errors in transfers or withdrawals, ensuring that funds reach the right account and the intended recipient.
Once a transfer has been made to the wrong account, identifying the account holder is a complex and time-consuming process. Prevention is the only truly effective way to avoid fraud.
Traditional methods, such as contacting the person directly or asking the bank, are tedious and unreliable, but dedicated solutions like Ibantrack allow you to verify account ownership quickly and reliably.
They are easy to use and significantly reduce the risk of fraud and related financial losses.
Contact us to learn more about bank account verification solutions and how to protect your business from payment fraud!