Maximising Confirmation of Payee checks
Individuals who use online banking will be familiar with Confirmation of Payee (CoP), those checks that occur when making a bank transfer to confirm whether the beneficiary’s details are correct.
The major banking groups have been required to have this technology in place since June 2020, and its use is considered a key protection against Authorised Push Payment (APP) fraud, as well as misdirection of payments due to human error.
Accordingly, the Payment Systems Regulator (PSR) has extended the requirement to implement CoP checks to all Payment Services Providers (PSPs) with a deadline of 31st October 2024.
Comparatively, the use of CoP by businesses has been less prevalent. However, with its use now considered best practice, finance teams are increasingly exploring potential use cases. While the ability to protect against APP fraud and human error remains a major driver for uptake, CoP can also help in many other scenarios.
This article explores three examples: verifying customer Direct Debit details, conducting payroll checks and managing high-value customer pay-outs.
Scenario 1: Solidifying Know Your Customer (KYC) processes and verifying Direct Debit details
While typically associated with outbound payments, CoP is also useful for checking the details of regular inbound payments, such as Direct Debits. Organisations that collect payments via this method, such as charities and utilities, need to verify account holder details and face the challenge of fixing erroneous bank details.
Customers and donors are often signed up by third-party agencies, so the end company needs to carry out additional checks to know who their new customers are. This is particularly important in sectors, such as the charity space, that are subject to anti-money laundering (AML) regulations and need to perform KYC checks. Running CoP checks on new donors helps to solidify existing processes.
Bank details can also be entered incorrectly, or the details provided are for accounts that cannot accept Direct Debits. Generally, these issues are not detected until the Direct Debit fails or money is collected from the wrong account, at which point the customer’s details are directed into a pot of failed Direct Debits.
Refunds also must be issued where money has been taken incorrectly. To remediate these issues, team members must work through the failed payment list and attempt to collect the correct information.
This approach wastes considerable time and resources. A better method would be to conduct a Direct Debit validation check independent of the payment run, and integrated CoP checks do just this. They are invaluable when details are inputted at the point of sale, and errors can be fixed immediately. Data can also be uploaded in bulk for verification, and errors sent for remediation before a payment run takes place.
Scenario 2: Conducting payroll checks
Managing payroll is a considerable task for many companies, especially those in the recruitment sector, which handle pay runs for several contractors and regularly onboard new people. It is a similar situation for specialist payment bureaus and accounting firms, which manage the payroll process on behalf of corporates.
Without checks to verify new bank details, erroneous payments are not uncommon. Often, companies write off low-value mistakes, resulting in monetary losses, which can add up to a considerable amount over time. Over a certain threshold, firms are more likely to reclaim the money. However, this involves a lengthy recall process, taking several working weeks.
To mitigate these issues, some payroll teams run checks on a sample of beneficiaries, which usually involves going through each entry line by line and checking details on banking portals by creating a mock payment. Not only is this time-consuming, but it also increases the risk of internal fraud because more people are given access to banking portals.
CoP software eliminates these issues. Bulk uploads remove the need to set up mock payments, and all new accounts can be checked rather than just a sample. The same checks also prove helpful for verifying new suppliers. Furthermore, these can be done separately from banking, so there is no need to give bank details to more people than necessary.
CoP can also help recruitment firms meet Modern Slavery commitments. By the very nature of their work in placing staff, recruitment firms face a greater risk of being targeted by gangmasters. Putting in place strong checks to verify individuals, including their bank accounts, helps to mitigate this risk. It is particularly powerful when used with payment screening capabilities to spot duplicate bank accounts.
Scenario 3: Managing high-value customer payouts
CoP checks particularly prove their worth for companies such as investment platforms and insurers that make a lot of high-value payouts to customers. These payments can amount to thousands of pounds, which means any misdirection of funds is costly and a source of extreme customer concern. This can then lead to poor customer satisfaction, negative reviews and reputational damage.
To prevent this, finance teams often conduct manual checks, such as contacting the customer to request they provide a statement as evidence of their bank details. This approach is time-consuming and adds extra steps to the customer journey, resulting in a poor user experience. CoP checks, particularly using software with strong bank coverage, remove the need for these workarounds. In doing so, they also improve the customer experience and significantly reduce the risk of lost funds.
Making the most of CoP
The benefits of CoP checks don’t have to be limited to reducing the risk of APP fraud and errors when making outbound payments. There are also a range of other scenarios where CoP checks can be used.
From verifying customer Direct Debit details to putting in place best practice processes for payroll and supplier checks, the result is that businesses of all sectors can save time and money because they do not have to conduct manual checks or follow up on errors. Instead, they can confidently operate knowing that funds are being sent to the right place and the customer and supplier experience is improved.