Check verification service

A check verification service provides businesses or individuals with either the ability to check the validity of the actual check or draft being presented, or the ability to verify the history of the account holder, or both.

There are a number of different methods that can be used to provide the service, these include checking different databases with negative or account history, checking that routing and account numbers are valid using algorithms, or contacting the bank that issued the check to get confirmation about the account status. As well as the banks themselves, there are a number of third party companies in the US that provide check verification services.

Check verification services have been most common in the United States, in Europe a cheque guarantee system operated for a number of years that could be used by merchants until the usage of cheques declined to the point where it was no longer necessary. Outside the US the decline in check usage in favour of debit cards and credit cards has meant that cheques are rarely accepted by merchants anymore and so cheque verification services have not been needed.

Check verification services can use a number of different methods or may combine a number to verify the validity of a check.

A Negative Check Database contains a comprehensive list of people who either wrote a bad check at a retail location, paid a bill with a check that was returned, also called "bouncing a check."

Historical data check verification services that use a national network with a negative check database can be difficult for consumers and businesses to remove themselves from once they get on, even in the case of errors.

These databases are often bundled with "check guarantee" services like ChexSystems. This leaves companies that use historical data reliant systems in a position of sometimes denying customers that have a good valid check, but managed to get on the negative check database.

This type of verification is usually linked to the person writing the check and runs the verification using their drivers license number. This type of information is a valuable tool for loss prevention because it identifies historically or habitual check bouncers who are more likely to re-offend.

Use of this type of system can also cause customer service issues between retailers and their own customers, because it bases history that could stretch back up to 10 years or more.

The account history database offers a database with historical data on the account itself, and not just the person writing the check. This type of system keeps records of the account number for all checks that don't clear and can tell if that particular checking account has had returns in the past.

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Wikipedia