The misuse of account information is considered the leading type of fraud, resulting in total losses of over $5 billion a year in the US alone! (PYMNTS: The State of Fraud and Financial Crime in the US 2023) or, to make the example more “tangible,” this accounts for approximately $1.5 million a year for each Financial Institution in the US.
Here are answers to some questions that have recently been raised by regulated entities with regards to OFAC compliance requirements.
In addition to fraudulent activities, simple mistakes in the payee’s bank account number lead to payments being transferred to the wrong individuals.
As a result of these genuine mistakes, along with intended fraudulent activities, almost 5% of all payments land in the wrong accounts, causing banks to incur significant losses stemming from operational costs involved in handling misdirected payments.
The regulators also put considerable pressure on PSPs, requiring checking the match between Account Number / Account Holder or, in case of international transactions, the match between IBAN / Name.
Consequently, Verification of Payee has become a hot topic for Payment Solutions Providers (PSPs).
What do the regulators say about VOP
According to regulatory requirements, PSPs must verify whether the account number and the name of the payee provided by the payer, match. If not, the transaction should be stopped, and the payer notified immediately after they enter their counterparty Account Number and name in the PSP’s app or website, before being able to finalize the payment.
In the EU, the European Payments Council (EPC) launched a public consultation on its proposed VoP Scheme Rulebook and proposed EPC Recommendations for the Matching Processes under the VoP Scheme Rulebook.
Among other things, it’s stated in the EPC Recommendations for the Matching Processes that “It is at the discretion of each Responding PSP to determine whether a matching result is a Match, Close Match, or a No Match. The Responding PSP takes up the liability for providing such response to the Requesting PSP.”
The basic requirements include, among other things, that
- VOP requests and corresponding VOP responses should be fully automated, based on the best practices of STP (straight through processing), and
- instant, to support real-time transactions.
Within the framework of the Revised Payment Service Directive (PSD2), compliance is required from all parties to the transaction. This means that the originating PSP needs to obtain the payees’ information to verify the accuracy of the information provided by the payers. However, due to the personal data protection rules, account holders exercise control over the transmission of their personal data, i.e., the originating FI cannot obtain the payee’s personal data without the explicit consent of the latter. This makes the whole system not 100% reliable since neither party can ensure personal data sharing.
What does technology have to offer
On top of these regulatory issues, there is a technological challenge of matching names entered in different languages/alphabets and name variations resulting from different transliterations, mistakes, or name spelling variations. This is especially important for IBAN/Name check in cross-border transactions.
Fincom has developed exceptionally accurate and effective system for Account #/Accoun Holder and IBAN/Name verification. Fincom’s advanced accurate Name Matching technology supports:
- Instant VOP Request applications with screening speed of <15msec
- BAV as part of Wire Transactions flow, or
- CoP for fraud prevention in outgoing payments.
The system performs immediate data processing without disrupting the payment flow, saving time, operational efforts, and costs.
The system screens and accurately matches names in different languages (alphabets), different transliterations and spelling variations. It processes IBANs, Account Numbers, Account Holder Names, and other searchable parameters.
It ensures seamless integration with payment systems (incoming or outgoing), core banking systems, CRMs, or other platforms, and supports REST and SOAP APIs.
