Penny drop verification - instant bank account authentication

ZealiD’s mission is to empower natural persons to leverage their first legally recognized digital identity in relation to digital service providers from all industries

What is a penny drop verification?

Penny drop verification is a method used for validating a bank account, which involves depositing a small amount of money, usually 0.01 EUR, into the account. For instance, when a company enrolls a new vendor, verifying the vendor's bank account information is one of the most important requirements. This is necessary to ensure that the account is genuine and to prevent any payment transfer problems for both the business and the vendor.

This process serves not only to authenticate the customer's bank account but also to confirm that the account is active. Moreover, it also helps to establish whether the provided account details belong to the same vendor or not.


Why do businesses need to verify Bank Accounts?

The primary objective of businesses performing penny drop bank account verification of their customers is to ensure that:

The beneficiary bank account is valid and exists
The bank account belongs to the same customer, which is verified through the account holder's name
The bank account is operational and able to send funds, meaning it is not frozen or closed.

By utilizing a penny drop verification method, businesses can verify the authenticity of their clients' bank accounts before onboarding them and initiating money transfers. This approach yields accurate results, allowing businesses to ensure that the bank account belongs to the same client who is registering for their services.


How does the Penny Drop Verification Process Work?
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ZealiD Penny Drop verification works in a simple way by asking the user to authorise a microtransfer that accompanies the signing action. In order to do so, the customer creates a transaction indicating that it will require a penny drop. Once the user scans the QR code and triggers the transaction ZealiD will check whether the user has already made a penny drop for that customer or not. If the user has not made it, ZealiD application will open a new window asking the customer to authorise a microtransfer by logging into a an online banking account. Once that is done, ZealiD will check whether the holder name matches with the one on the certificate and finilise the signing process. In the case where the holder name will not match, ZealiD will inform the user and ask to repeat the step with a corresponding bank account. Lastly, if the user has made a penny drop previously for that customer - they will not need to repeat this process.



Is Penny Drop or Bank Verification a regulatory requirement?

German legislators (Bafin) provision several different methods for remote identification and customer registration. One of the methods allow for the easiest user registration and document signature in one go - Qualified Electronic Signature. However, Bafin unlike many other EU countries additionally requires the signature to be accompanied with a microtranfer for a bank account with a matching holder name.


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Where is penny drop service commonly used?

Penny drop verification is a user-friendly method that businesses of all sizes can use to validate their clients' bank accounts. With penny drop, they can confirm bank account details, which helps prevent potential large-scale losses in the future.

Using penny drop, businesses can initiate insurance money transfers, partial withdrawal requests, pension fund transfers, employee salary transfers, and other transactions. They can compare the account information they obtain against the KYC proofs or bank account details submitted by the client/employee to ensure that monetary transactions occur solely between the business and the intended recipients.

Apart from verifying customer details, this verification process can also help mitigate fraud through identity theft. By simply performing a penny drop, organizations can take a significant step towards avoiding significant losses due to erroneous money transfers.

Internal monetary transactions within a company also require bank account verification. By using penny drop, organizations can authenticate their employees' bank account and ownership details before processing salaries and reimbursements.

This helps prevent failed money transfers and ensures that salaries and expenses are not accidentally transferred to the wrong account, resulting in a stress-free experience for both the employer and employees.

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