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Successful ACH Validation Techniques

One of the biggest hurdles to offering ACH as a payment method for merchants currently accepting credit and debit card payments is the lack of real-time account validation you get through the card networks.

This hurdle has now been eliminated! 

iStream now offers the capability to verify, in real-time, account details such as account ownership, ABA/DDA, account type, and balance.  Imagine knowing that the account being presented has sufficient funds for your transaction and that the account details are verified by the account owner!  Now merchants can accept ACH transactions online, benefitting from the cheaper processing costs and faster settlement!

National Automated Clearing House Association (NACHA) is the governing body for the exchange of ACH transactions.  The underlying principles are based on contract law between all the parties to the network.  By having a ruleset that everyone agrees to and procedures to follow for any disagreements, the exchange of transactions has been running smoothly since 1974. 

With the explosive growth of the internet for paying your bills, buying services, and shopping, NACHA has had to add to the ruleset to keep the exchange of information trusted.

NACHA created an explicit standard entry class (SEC) code for the transactions authorized on the internet.  They label these transactions appropriately as WEB.  Although merchants can now submit transactions through ACH WEB, it fell short of providing tools to help determine that the transaction would succeed.

This lack of tools resulted in the private sector creating methods to reduce the risk of bad transactions.  Over the years the ability to validate ACH transactions has gotten better and better.  Here are the prevalent ways ACH account information can be validated.

ACH Prenotification Entry or Prenote: A Prenotification Entry is defined in the NACHA Operating Rules as a non-monetary Entry initiated by an Originator (any individual, corporation or other entity that initiates entries into the Automated Clearing House Network) to a Receiving Depository Financial Institution (RDFI) prior to the initiation of the first credit or debit entry to a Receiver’s account with the RDFI. A Prenotification notifies the RDFI that the Originator intends to initiate one or more credit or debit Entries to a Receiver’s account with that RDFI in accordance with the Receiver’s authorization.

Prenotes are the only tool that NACHA provides to validate accounts.  This zero-dollar ($0.00) transaction can be sent to the consumer’s bank and if there is no response, the merchant can initiate a payment transaction in 3 banking days.  This method has a few issues.  The first issue is the delay in initiating a payment transaction.  As a merchant are you going to wait to provide the products or services that the customer is going to purchase?  This is a bad customer experience.  The second issue is that these prenotes may get ignored by the receiving financial institution.  The merchant waited to send the payment transaction and does not get a return, they generate the payment transaction and then a couple of days later get a return.  This process can take a week to go through with no guarantee of success. The third issue is that banks do not typically look at the name on the transaction and verify it against the name on the account.  Therefore, a prenote may result in no returns on the prenote but if the account information is being used fraudulently will result in the transaction being returned for no authorization.


  • Built into ACH network and reaches 100% of US ACH bank accounts
  • Sponsored by NACHA resulting in this method being qualified for validation
  • Cost of an ACH


  • Can’t send the Payment (debit) transaction for 3 days following the prenote
  • Not all banks respond to the prenote
  • Prenote only validates the account number, not the account owner

Micro-deposit or Trial-deposit Method: The account number and the routing and transit number are validated by sending micro-deposits to the account. These credits are for random amounts, usually between two cents and one dollar, and the customer confirms that they have received the deposit and verifies the amount. In some cases, a micro-deposit and withdrawal verification process is used to confirm that funds can be both deposited and withdrawn from the account.

Micro-Deposits are truly a great tool to validate bank account information. This method will ensure an account exists. What it lacks is banks do not check the name on transactions so even with proper account information a consumer at your site could be using a stolen account number from any number of sources of account numbers. However, provided the consumer does not have access to the stolen account, they will not be able to submit the amounts of the micro-deposit resulting in no further action from the merchant.  Further, you will not know this transaction is good for at least 2 days based on the batch nature of the network. This will delay a merchant sending the debit transaction for the purchase by several days depending on their customers’ timeliness to return to the purchase and complete the verification by entering in the amounts of the transactions.


  • Uses the ACH network and reaches 100% of US ACH bank accounts
  • All banks will respond if it is a bad account
  • Can build functionality to have users enter the amounts sent and that would verify they have access to that same account.
  • Cost of an ACH


  • Micro credits take at least a day to get to the consumer’s account, the consumer may abandon the process and never enter the amounts in your verification system.
  • Takes 2-3 days to get a response to a return
  • Delays your ability to send a debit
  • Have the cost of the micro-deposits and any resulting returns.

Account (ACH/Check) Validation Services:Using a service’s database, and/or other proprietary solutions, businesses can validate the accuracy of the account information of an account being presented.

There are several offerings to validate account information against really large databases.  These databases are often credit reporting type databases.  These services are quite useful and respond to the request to validate in real-time.  This quick response can let the merchant know that the transaction information appears to be good or is known to be bad.  The information in these databases is usually updated in a batch process and therefore decisions are based on only known history.  If an account has never been seen before the service can look at the attributes of what was provided and tell you whether it is reasonable or not.  This method of account verification is good and suffices for most ACH applications but in comparison to credit card authorizations, it is still lacking.


  • Real-time responses
  • Only an ACH validation fee
  • Satisfies Nacha requirement
  • Shared databases being constantly updated
  • One connection benefits from multiple merchant experiences


  • Not 100% of US accounts are covered
  • The transaction could still return for any reason, less likely for administrative reasons like account not found
  • Doesn’t determine account ownership

Instant Linked Account Verification: The customer provides his/her online banking login credentials and the organization seeking to validate the account information uses these credentials to log into the account and verify the customer’s ownership of the bank account.

This method of ACH validation leverages the newer concept of Open Banking which is the sharing of financial data through APIs with the bank.  This method provides real-time validation through the consumer choosing their bank, logging into their bank with their credentials, and approving which accounts can be viewed.  The process ensures the consumer has account ownership through the successful login at the bank with their credentials.  This method also reduces errors on account number entry as the verification will pull back the routing and account numbers directly from the bank!  This verification eliminates administrative returns such as Account Not Found, or Invalid account.  Transactions can still be returned for NSF as the verification does not hold any funds like an authorization can in card processing.


  • Real-time responses
  • Only an ACH validation fee
  • Satisfies Nacha requirement
  • Real-time access to the consumer’s bank account
  • Provides routing and account number
  • See if balance is currently sufficient to cover the payment transaction
  • Confirmation through credentials of account ownership
  • 81% of US consumers have done this type of validation according to GIACT.


  • Not 100% of US accounts are covered
  • The transaction could still return for insufficient funds
  • Most expensive method of verification

The different methods of ACH validation for bank accounts are varied. The traditional methods, such as ACH Prenotification Entry and Micro-deposit Method, have limitations in terms of delays, potential non-responsiveness from banks, and inability to verify account ownership. Account ValidationServices offer real-time responses but may not cover all US accounts and cannot determine account ownership. However, the introduction of Linked Account Verification, which leverages Open Banking and allows customers to provide their online banking credentials for real-time validation, proves to be a promising solution to convert your customers from card payments to ACH payments. This method provides immediate validation, eliminates administrative returns, reduces errors in account number entry, and even provides routing and account numbers directly from the bank. It offers a convenient and efficient way for merchants to accept ACH transactions online, benefiting from lower processing costs and faster settlement. With these successful ACH validation techniques, merchants can enhance the customer experience, mitigate risks, and streamline their payment processes.