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How Does Bank Data Validation Work?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedNov 20212 min read

With more and more businesses operating in the digital space, ensuring that payments are error free is crucial to your company’s cash flow. It’s easy for customers to make mistakes when entering payment information or to use an old or invalid bank card, so implementing a form of bank validation to check details can help smooth out transactions.

What’s more, these services are a good form of fraud protection, helping you to avoid any untrustworthy payments that fraudsters may be attempting. But what does data validation mean, exactly? Find out more about this process and how it could benefit your business by reading this simple guide.

What does data validation mean?

Bank data validation can be distinguished from verification, which involves a slightly different process. Verification means checking the payment details that were input against actual account details, but data validation is distinct from this as it involves algorithmic processes. Essentially, it means that the payment details (sort code and account number) are checked using a series of different algorithms that determine whether it is possible for an account to exist with that combination of numbers.

Importantly, this process occurs instantly upon payment, allowing merchants to quickly check details and identify any errors before they can cause significant problems. In this way, bank validation allows you to control the quality of data right at the source.

What is the automated bank data validation process?

Now that you understand what data validation means, you might be wondering how it works and how you can implement it. In terms of implementation, the process is relatively simple for the merchant. Plenty of third-party services exist that will take on the hard work for you, installing data validation processes into your websites and allowing for automatic bank data validation on input of payment information. These services are available with a number of different pricing models, including pay-as-you-go and flat-rate subscription, so make sure to shop around before making a final decision.

The process itself is fairly complex and requires an in-depth understanding of data structures and software to fully grasp. In a nutshell, the third-party services simultaneously check whether details are correct, if the account is capable of making direct debits and whether it is CHAPs supported. Using this information, they can tell you whether the payment can be authorised. In addition, it can be used to acquire other useful data, such as Bank Identifier Code (BIC), IBAN and full banking address.

What are the advantages of bank data validation?

There are a number of different advantages to implementing a form of bank data validation to your website, and many would argue that it is an essential feature for any modern business to have. These processes improve your business in a variety of ways:

Avoid payment delays. If you have some processes in place to verify the bank details before any payments are authorised, you can avoid any unwanted delays in the process. Any incorrect details will be identified immediately, and these orders will not be confirmed or paid for.
Reducing risk of fraud or failed transactions. Any erroneous transactions can be costly to correct, so it’s in your best interest to find these before they become an issue. What’s more, this can help to save you time so that you can focus on more important elements of your business.
An added benefit of ensuring payments are valid before confirming the order is improved customer satisfaction. Although it may take them slightly longer to re-input details if they are incorrect, they have a sense of security in the knowledge that once the payment has been validated they will receive their order. The improved efficiency that bank data validation offers also improves the overall customer experience.

In short, bank data validation is an essential feature that can quickly improve the efficiency and safety of your business transactions.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.