Penny Testing: Understanding Account Validation & Verification

Why did I see a small deposit occur in my account only to see it be removed minutes later?

What You Should Know (TL;DR):

• Normal Procedure: Seeing a few cents deposited and then withdrawn is a regular part of account verification.
• No Cause for Alarm: These transactions are routine and should not be a cause for concern.
• Confidentiality: All personal and financial information remains confidential throughout this process.

Penny testing plays a critical role in the financial services sector, particularly in global payouts. It is a simple yet effective method for verifying account ownership and ensuring transactional security. 

By understanding this practice, customers can have peace of mind knowing that their financial institutions are actively working to safeguard their interests and maintain the integrity of their transactions.

Introduction

In all aspects of payouts and financial services, the security and accuracy of transactions are paramount. A common method used by financial institutions and fintech companies, including MassPay, to ensure the legitimacy of financial transactions is known as "penny testing." 

This article explains what penny testing is, its importance in financial services, its importance in MassPay’s operations, and why it is a standard practice in account validation and verification.

What is Penny Testing?

Penny testing, also referred to as micro-deposits verification, is a security measure used to verify the ownership and validity of bank accounts involved in financial transactions. 

It involves the transfer of a small amount of money, often just a few cents, into a customer's bank account.

The Process:

• Initiation: A financial institution sends a small deposit, usually ranging from one cent to a few cents, to the customer's bank account.
• Withdrawal: The deposited amount is then withdrawn.

Why Does Penny Testing Happen in Financial Services?

The primary goal of penny testing is to safeguard against fraud and ensure the accuracy of bank account information. 

This practice is especially crucial in global payouts where the risk of errors or fraudulent activities can be high.

Key Reasons for Penny Testing:

• Security: It helps in detecting and preventing fraudulent activities by confirming the user's access to the account.
• Accuracy: Ensures the bank account details provided are correct, reducing the risk of erroneous payments.
• Compliance: Many financial institutions use penny testing as part of their compliance with anti-money laundering (AML), Know Your Business (KYB) and Know Your Customer (KYC) regulations.

Standard Practice in Account Validation

When MassPay customers observe a small deposit from one firm and its subsequent withdrawal by another, it's essential to recognize this as a standard and legitimate practice in the financial services industry.