Plaid Bank Verification vs. Manual Verification

What’s the Difference?

Many businesses struggle to find the best solution to make accounts payables and accounts receivables easier and more seamless. One issue to note is the amount of time it takes payments to process.

This has led to many businesses using electronic funds transfers (ETFs). An automatic clearing house (ACH) is one of the most popular methods of completing ETFs.

A technology platform known as Plaid has come to the forefront to help organizations complete ETFs more quickly and seamlessly. This is a welcomed change from the longer processing times of manual bank verification.

What is ACH?

ACH enables bank-to-bank transfers without cash credit card networks, paper cheques, or wire transfers.

The National Automated Clearing House Association (NACHA) controls the ACH network. But other institutions are involved in the process, including Originating Depository Financial Institutions (ODFIs) and Receiving Depository Financial Institutions (RDFIs).

While ACH payments don’t process in real-time, they do allow for faster processing than some alternatives. In most cases, it takes several business days for the funds to become available. This is because network operators process ACH transfers a limited number of times a day.

What is Plaid Bank Verification?

Plaid is a Fintech solution that gives customers the ability to share their financial data through their bank accounts with an app in order to make payments. They can do this without having to manually enter their account and routing numbers as well as other banking information to verify ownership of their bank account. This makes Plaid verification instant, easy, and secure.

When a consumer uses Plaid, they’re giving an app access to their account balances as well as the ability to retrieve up to 24 months of transactions. This, in turn, allows for faster ACH processing.

How Plaid verification works:

1. A user logs into a web application that asks to verify their bank.
2. The app then asks the user to select from a list of financial institutions. They can either scroll through the list of the supported financial institutions or they can type their bank’s name into the “Search” field. From there, their financial institution should appear.
3. The app will then redirect the user to their financial institution’s website. To continue with Plaid verification, they must enter their online banking credentials (i.e. username, password).
4. The next step usually requires multi-factor authentication (MFA) in which the user receives a verification code to the phone number or email linked to their bank account. Then, they must enter the code into the field.
5. After completing these steps, the user has now linked their financial institution to the app they’re using.

What is Manual Bank Verification?

Manual bank verification requires users to add their Routing Number, Account Number, Account Owner’s Name, and Account Type.

Once they’ve added their bank account, they’ll receive micro-deposits within a few business days. Then, they must enter the amount of the micro-deposits to complete the verification process.

What’s the Difference Between Plaid and Manual Bank Verification?

The main difference between Plaid and manual bank verification is the time it takes to process payments. Plaid offers a tokenized method of facilitating ACH payments, which makes the process easier and faster than ever before.

In contrast, manual bank verification goes through a lengthier process to verify ownership of an end user’s account. Due to security reasons, it can take several business days for users to receive micro-deposits to complete the verification process.

Plaid helps to solve this problem by using account verification or login credentials to authorize accounts within seconds. Plus, the tokenized method allows for added security.

Pros and Cons of Using Plaid

Pros

• Allows for faster ACH payments
• Offers a more tokenized method of verifying bank ownership
• Highly secure
• Offers integrations with other apps like Paypal

Cons

• Isn’t compatible with some financial institutions
• Connectivity issues with smaller banks
• Users must wait 24–72 hours to re-try authentication if they forget or need to reset their login credentials

Pros and Cons of Manual Bank Verification

Pros

• Lower processing costs
• Less prone to error
• Reduce failed payments and chargebacks
• Requires less private information

Cons

• Takes several business days to complete
• Not an instant process

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