Penny Drop Verification: Why Is It Important?

At a time when online fraud is increasing in the country, penny drop verification has emerged as a key solution to the financial services industry. It is a form of bank account validation in which a penny, usually Re 1 is deposited into the bank account.

Kolkata:These days many are getting messages on their mobile or emails that a token money of rupee one has been transferred to their bank accounts. Suddenly receiving an unexpected transaction of Re. 1 through IMPS (Immediate Payment Service) in your bank account can be puzzling. In the financial world it is called penny drop. In an era where online fraud is a major concern, ensuring the authenticity of financial transactions is critical. Penny Drop Verification has emerged as a key solution in the financial services industry.

What is penny drop verification?

Itis a form of bank account validation in which a penny, usually Re 1 is deposited into the bank account. For instance, if a business registers a new vendor, one of the foremost requirements would be to verify the vendor’s bank account details. This is done to ensure the validity of the account so that neither the business nor the vendor faces any problems during payment transfers. The same thing is done when an FD matures. The issuer of FDs send Re 1 to the bank account of the FD holder to ensure that the maturity amount goes to the real FD holder.

The procedure not only verifies the authenticity of the customer’s bank account but also checks if the mentioned account is operative or not. In addition, the procedure also helps ascertain whether the account details provided belong to the real vendor.

Why Is It Important For Businesses to Verify Their Customers’ Bank Accounts?

The primary purpose of a business carrying out a penny drop bank account verification of its customers is to ensure that:

1. The beneficiary bank account exists

2. The bank account belongs to the same customer or not (through the account holder's name validation)

3. The bank account is active, i.e., the account is not frozen/closed and is accepting credits

Before onboarding their customers, businesses can easily verify the authenticity of their client's bank accounts prior to initiating a money transfer with a penny drop. The method provides precise results regarding the bank account ownership so that businesses can be ensured the account belongs to the same client who is signing up for their services.

Bank Account Verification API

Bank account verification, which usually takes days to complete manually, is automated using penny drop APIs. These APIs enable financial institutions including major banks and NBFCs to instantly and securely verify the bank account details of customers before proceeding to offer services.

Implementing these APIs is seamless and typically requires no assistance from third parties. Additionally, bank account verification APIs can be easily integrated into various customer journeys to ensure compliance with regulatory procedures and secure authentication. Bank account verification APIs are simple and immensely useful tools for banks and NBFCs to automate and upscale operating capacity and improve functionality.

Process of penny drop verification

The customer shares their bank account number and IFSC with the penny drop service provider.

The penny drop function is called through the service provider's dashboard or penny drop API.

The service provider's system drops a penny (Re 1 ) into the customer's bank account.

The penny drop procedure succeeds if the customer's bank account is valid.

The process fails if the bank account is closed or invalid.

After a successful penny drop transaction, the verified account status and beneficiary name are returned to validate the customer.

However, if the bank account verification fails only the account status and the reason for failure are returned.

Additionally, businesses can further verify the details of their customers by comparing the beneficiary name returned from the bank against the identity details provided in the application.

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