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September 01, 2021

Why fast and easy account validation is the key to onboarding more customers

Shreyas Mohan

Consumers want everything to be as easy as bingeing on Netflix or checking out on Amazon. Their expectation is the same when it comes to funding a new bank account or paying a friend for lunch. Here’s how to make that happen.


Consumers expect to instantly be able to fund new accounts and access their money. But funding accounts using traditional authentication methods, such as microdeposits, can take several days to complete—which is a turn off for many. 

This creates a ‘leaky funnel’ that can have a significant negative impact on ROI, given the high cost of acquiring new customers. For example, one of our customers told us that before switching to Plaid, as much as 65% of their newly opened accounts went unfunded within the first 30 days. Several factors contribute to the leaky funnel, among them are: manual account authentication processes that consumers simply don’t finish, non-intuitive user experience during onboarding that results in high drop-off rates, and lack of coverage for consumers who bank with smaller regional banks or credit unions. 

This article will help solve those issues by providing a deeper look into:

  • Consumer expectations and industry trends around digital payments 

  • How to accelerate customer onboarding with Plaid 

  • How to gain 100% financial institution coverage for new customer accounts

  • Our future roadmap and how we’re improving conversion even more

Consumer expectations for financial services are changing fast

When consumers sign up for a new service, they don’t just compare their experience to other providers in that industry, but to their favorite services. That means they’re likely to compare their user experience of funding a new account with you to booking a vacation home on Airbnb or ordering a pizza on Dominos.

That preference towards frictionless user experience, options, speed and personalization extends into the financial services space as well. Younger generations, including Gen Z, are among those driving these trends.

Gen Z stat graphic

Source: Paysafe, Billtrust

To meet these new consumer expectations and fill the gaps left by traditional financial services, more fintech startups are coming on the scene. From 2019 to 2020, the number of fintech startups jumped by almost 52%, making this space more competitive than ever. To thrive and grow, fintechs need to focus on delivering best-in-class user experiences that delight consumers who are comparing them to their favorite on-demand services and apps.

ACH is still a high-growth payment rail in the era of digital wallets

When consumers sign up for a new financial service such as a bank, brokerage, or digital wallet, they can choose one of several payment rails to fund their new account. Among the most popular choices are card payment networks such as Visa and Mastercard, and interbank transfers via Automated Clearing House (ACH).

Payment rails graphic

Card networks provide instant settlement, but come with high fees between 1.3%-3.5% for credit cards and close to 1% for debit cards, which can eat into profits or become a barrier for consumers if the cost is passed to them. More importantly, the card payment rail mainly allows for one directional push (credit) payments, which doesn’t work well for the P2P payment use case that needs push and pull (debit and credit) payments to function. 

ACH is one of the most popular payment rails in the US. It enables bank-to-bank transfers for nearly all US financial institutions, essentially enabling people to replace paper checks or cash with digital processes that are much faster, easier, and cheaper. It’s traditionally used for transactions like automatic bill payments, direct deposit paychecks, and bank/brokerage account funding. However, as the popularity of digital wallets and P2P payments apps like Venmo and CashApp grows, many consumers have chosen to fund their digital accounts with ACH. This trend is one of the drivers behind ACH’s strong growth in recent years.

In Q2 2021, overall ACH volume went up almost 10% over the same time period in 2020, to 7.3 billion total transactions. Internet-initiated transactions went up 14.3% while P2P payments went up 24.2%. This growth trend is a continuation of the surge we saw in 2020, indicating the importance and relevance of ACH in the digital payment ecosystem.

Account validation is now a requirement by NACHA

NACHA is the organization that governs the ACH network. In March of 2021, Nacha’s WEB Debit Account Validation Rule went into effect, which requires ACH originators of WEB debits (internet-initiated ACH debit transactions) to implement ‘account validation’ as part of ‘commercially reasonable fraud detection’ to help minimize fraud. 

Essentially, this means that businesses that use ACH to debit consumer accounts online (often for funding new accounts) must validate that the accounts are legitimate, open, and able to receive an ACH transfer before their first use. There are several ways to achieve this, including microdeposits, manual validation, database verification, and instant authentication.

Instant authentication: the gold standard for account validation

The traditional ways of validating accounts, such as manual validation or microdeposits, can take several days to complete and require customers to complete cumbersome activities such as verifying small deposits or providing a voided check. These lengthy manual processes introduce friction to the onboarding process, which can cause customers to abandon newly opened accounts before funding them. 

As a NACHA preferred partner for account validation, Plaid’s Instant Auth can dramatically speed up this process from days to less than a second for most US accounts. It also doesn’t require your customers to remember their bank account or routing numbers. Instead, your customers can securely and easily connect their external bank accounts using their login credentials (username + password). Instant Auth is the gold standard for account validation when it comes to speed, security, and user experience.

Plaid supports 100% of US depository accounts

While 90% of US depository accounts are covered by Instant Auth, we want to make sure all your customers have a great experience no matter who they bank with. To support account holders of the other 10% of depository accounts, Plaid offers three additional Auth products: Instant Match, Automated Micro-deposits, and Same-Day Micro-deposits.

4 Auth Path Overview

Being true to its name, Instant Match also validates accounts instantly. It is used when a financial institution only returns a masked account number (usually the last four digits) instead of the whole number. By enabling Instant Match, you can extend instant account validation coverage to the roughly 2,500 financial institutions that do this. We consistently see an additional 4% lift in conversion for our customers who add Instant Match.

Automated Micro-deposits are similar to the regular micro-deposits you may be familiar with. However, with this product, we can validate the deposit amount automatically and without customer involvement. This removes friction from the process and increases the likelihood that customers will fund their new accounts. 

Even the slowest method, Same-Day Micro-deposits, could potentially be faster with Plaid. When this is used, Plaid makes two deposits that post within one business day using Same-Day ACH, which allows customers to verify deposited amounts within one business day. This is up to two days faster than the standard micro-deposit experience.

The complete ACH solution: Auth + Identity + Balance

To help you complete successful ACH transactions with confidence and security, we offer two other products, Identity and Balance, that work hand-in-hand with Auth.

Identity returns the account holder name, address, phone and email that are on file at their connected bank account. It complements your KYC processes to help protect against fraud. For example, if a customer enters information that doesn’t match the identity information returned from the connected bank account, you can require additional verification methods such as ID or bank statement upload.  

Balance does a real-time check on available and current balances of your customer’s connected bank account. Verifying that there are enough funds in the account before initiating a debit can greatly reduce non-sufficient funds (NSF) returns for you and overdraft fees for the customer. 

ACH returns and fraudulent ACH transfers are not only costly, but they can also damage your brand’s reputation. That’s why most of our account funding customers fully leverage Auth, Identity, and Balance to ensure they offer the best user experience while protecting themselves as much as possible.

Case studies: seamless ACH solutions drive results

Here’s how improving the user onboarding experience with Plaid has helped some of our customers.

  • Chime, a leading neobank serving over 12 million customers, partnered with Plaid to create a frictionless digital onboarding experience. When Chime members choose Plaid to connect their external bank, they are 3 times more likely to fund their accounts.

  • Zirtue, an app that enables loans between family and friends, used Plaid to expand their institutional coverage to the smaller banks and credit unions that their customers often use. After implementing Plaid Auth and Balance, Zirtue’s conversion rate increased by 10% while 65% of Zirtue customers avoided overdraft fees.

  • First Tech Federal Credit Union, a credit union that primarily serves big tech companies and their employees, partnered with Plaid to improve their onboarding flow for new members. After integrating with Plaid, the average initial funding amount for new members grew almost 5x.

The future of account funding: our product roadmap

We spend a lot of time talking to customers and thinking of ways to make our Auth, Identity, and Balance products better—especially in terms of helping our customers convert even more users. To achieve this, we’re focusing on improving four key areas:

  • Speed: give customers access to their data faster and reduce latency

  • Coverage: ensure that Plaid provides coverage in the most secure ways to all financial institutions

  • Accuracy: provide reliable and consistent data to our customers from all financial institutions and reduce complexities in the authentication process

  • Reliability: our north star is “it just works—no matter who, where, and when”

Specifically for our Auth product, we’re exploring how we can make entering online banking credentials even easier and more secure than typing in a username and password. That includes integrating with technologies like password managers, facial recognition, and biometric authentication. 

Our goal for these improvements is simple: to create down-funnel actions that convert at higher rates for our customers. Our hope is that in turn, our customers can keep creating innovative financial solutions that exceed rapidly evolving consumer expectations, as well as grow together with Plaid.