The term “merchant verification” is used in several ways in the financial industry. In the first and more widespread sense, it refers to a merchant check verification service which confirms that checks written out to a merchant are valid. Some online companies use this term to refer to the process of verifying the identities of merchants they list for the purpose of identifying and eliminating potential sources of fraud.
When discussing merchant check verification, merchant verification involves running the information on a check through a system to make sure that it connects to a valid bank account, that there is enough money in the account to cover the check, and that the person writing the check does not have a history of writing checks on accounts with insufficient funds or other adverse credit events. The purpose of such systems is to protect merchants from check fraud as well as situations in which people write checks innocently without having enough money; in either case the merchant must pursue steps to collect the funds and this is expensive and time consuming.
Some merchants avoid this problem by simply refusing to accept checks. Others use merchant verification. Very small businesses may use a system as simple as calling the bank or credit union on which the check is drawn and asking if the person writing a check is a member or customer in good standing. Other systems may scan checks and run the data through a database which people can use to determine whether or not the check is likely to be valid. More advanced systems debit money immediately from the customer's checking out to ensure that the check will cover the funds.
Using a merchant verification system costs money. The cost of the system varies depending on the services it offers and the business in which a merchant is working. Someone with a high risk merchant account will have to pay more because the risk of bad checks is correspondingly higher. It is typical to pay both a monthly maintenance fee and a per-check fee for merchant verification processing.
In the other sense, merchant verification is used by sites which act as marketplaces, listing goods from multiple vendors. These sites ask their vendors to verify their identity and to provide current and accurate contact information. This protects consumers from fraud by ensuring that only authorized vendors are listed and providing consumers with a mechanism for contacting a vendor in the event of a dispute or problem.
How To Verify a Check?
Many merchants use automated check verification systems. However, if you need to verify a check without one of these systems, you can contact the bank the check is drawn on:
- Locate the bank name on the front of the check.
- Search for the bank online and go to the bank's website to get contact information. The bank may have a number specifically for check verification. If not, call the customer service number.
- Tell the representative you need to verify a check. Some banks may have an automated system you must navigate.
- Follow the prompts from the automated system or give the representative the bank account and routing numbers from the bottom of the check. The first group of numbers is the routing number. The account number is the second group of numbers.
- Enter the amount of the check on the automated system or tell the representative.
Don't call the phone number printed on the check. If the check is legitimate it may be correct, but if the check is fraudulent, the number may go to a fake bank representative who will tell you the phony check is good.
Some banks may refuse to verify whether there are enough funds in the account to cover the check. Others may require you to go to the bank in person. If you are unable to verify the check, you must decide whether to refuse to accept it or take a chance that it will bounce.
Keep in mind that if you can verify funds, it is still possible that the owner of the account could withdraw those funds before the check clears. There is also the possibility that the check is written on a legitimate account that belongs to someone other than the person who wrote it.
The best way to reduce the risk of a check bouncing after verification is to go to the bank that the account belongs to and cash the check there. If you cash the check at the account holder's bank, the funds will immediately be withdrawn from their account.
If you can't go to the account holder's bank, wait several weeks before spending the money you deposit from the check. This protects you from overdrawing your account and potentially incurring bank fees and experiencing other problems if the check bounces or turns out to be fraudulent.
How Do Check Cashing Places Verify Checks?
Check cashing places either call the bank the check is written on to verify the check or use a check verification service. Check cashing places don't always verify checks before cashing them. In many cases, the bank only verifies that the check is written on an active and open account, not whether it has sufficient funds. Some check-cashing stores may only attempt to verify the check if it is over a certain amount or something seems suspicious about it.
Most retail stores that cash checks use third-party verification systems. Most check cashers also ask for photo identification from the payee and record contact information. This is because the check casher will attempt to collect the funds it paid from the payee if the check is fraudulent or there are not sufficient funds in the account to cover it.
What Are Some Warning Signs That a Check May Fail Merchant Verification?
There are several signs you can look for that may indicate that a check is fake:
- Security features on the back of the check are missing
- Suspicious behavior, such as a person trying to exchange a check for cash at a non-check cashing location
- When viewed with a magnifying glass, there is no microprinting around the signature line or anywhere else on the check
Microprint is a security feature used to make printing fake checks difficult. This feature employs printing letters that are too small to be read with the naked eye but can be seen under magnification. Microprint is often used for the signature lines of checks. The lines appear solid but are actually microprinted words.
How Long Does Merchant Verification Take?
Third-party verification systems usually provide near-immediate results, though it may take some time for the employee to run the check through a machine or input information from the check. If the merchant has to call the bank, the process may take a few minutes.
Is It Possible To Verify a Check Online?
There are some merchant verification services available for businesses to use online. Some payment processing services that are used for processing credit and debit card payments online may also offer check verification services.