Verification of Payee (VoP) is an essential service that aims to prevent fraud and errors in credit transfer transactions. It ensures that the payee, to whom the funds are being transferred, matches the information provided by the payer, adding a crucial layer of security to payment processing.
This service is designed to verify payee details before the payment is authorized, providing both the payer and the payee with confidence in the transaction’s accuracy.
How Does Verification of Payee (VoP) Work?
The Verification of Payee service checks the details of the payee prior to the authorisation and processing of payment. The payer’s Payment Service Provider (PSP) initiates a Verification of Payee at the Point of Payment initiation by the payer. The Payer’s PSP sends the payee details input by the payer such as IBAN + Name or IBAN + code to the Payee’s PSP directly or via a Routing & Verification Mechanism provider (RVM). Payee’s PSP will respond with a matching verification result.
This process occurs immediately after the payer submits the payment information and before the payment is authorised.
- Full Match: If the payee’s name and the payment account identifier provided by the payer match with the details held at Payee’s bank, a full match result is returned.
- Close Match: If the payee’s name is a close match to the one provided by the payer, the payer will be informed of the close match results along with the payee name held at Payee Bank.
- No Match: If the payee details provided by the payer does not match with the account details held at Payee bank, the payer’s PSP will notify the payer.
The correct name held at payee bank will not be provided in the result. There is a high possibility that the funds may be sent to an unintended recipient, potentially leading to a misdirected payment in this case.
The IPR mandates that the Verification of Payee checks are conducted for all credit transfers. The checks should be conducted for payments initiated via all payment initiation channels, whether the payer uses a mobile app, online banking, retail branch, paper-based payment initiation or a payment initiation service.
The PSPs should select a solution which allows integration with all payment initiation channels made available to customer.
Can VoP checks be done for IBAN and Identifiers?
Verification of Payee check is required not only for consumers and joint account holders; they must be conducted when payer wants to pay legal persons, such as businesses and organisations.
If a payer provides the account number along with additional identifiers such as a fiscal number, Unique company number, Tax ID or Legal Entity Identifier (LEI), the payer’s PSP will verify these details with the payee’s PSP. The payee’s PSP will provide verification results based on the identifier if Payee’s PSP holds such details in its internal systems.
VoP for Paper-Based Payment Orders
Verification of Payee (VoP) services also extends to paper-based payment orders. If the payer submits a paper-based order, the PSP will perform the verification when it receives the order, provided the payer is present at the time of submission. This ensures that paper-based payment orders are treated with the same level of security as digitally initiated payments.
Opt-out provision for Non-Consumer Payment Service Users
Non-consumer users, such as businesses, who submit multiple payment orders as a package can opt out of verification of payee services. PSPs will need to make provisions such that these users can choose to opt-out when payments are initiated.
The opt-out option is fraught with risks and the PSP should inform the non-consumer PSU about the potential risks involved, including the possibility of transferring funds to an unintended recipient. PSPs will also need to put in a place a process which allows users to opt back in at any time if they wish to receive the VoP service.
Liability and Refunds in Case of Errors
PSPs stand to incur losses where the Verification of Payee checks have not resulted in accurate results and the payment is sent to an unintended recipient. The payer’s PSP must refund the payer and restore the debited account to its original state.
If the error is due to a failure at the payee’s PSP or a payment initiation service provider, they must compensate the payer’s PSP for any financial damage caused.
From regulatory standpoint, the payer is protected from losses resulting from unintended or fraudulent transactions at all times.
But this poses a risk to FIs who could be left footing a very big bill if the verification of payee service is not as per the regulatory guidelines. FIs must select a VoP provider which has previous experience in conducting VoP checks, understands the guidelines well and can be trusted to deliver services 24/7/365.
Charges for Verification of Payee (VoP) Services
The PSPs cannot charge for verification of payee services and must offer this as free of cost.
FIs must select a cost-effective VoP service provider as there is no option to pass the costs to the user.
Key Deadlines for VoP Implementation
- For PSPs, EMIs and PIs in Eurozone Countries: Payment Service Providers located in Eurozone countries must provide Verification of Payee service by 9 October 2025.
- For PSPs, EMIs and PIs Outside the Eurozone: PSPs located in non-eurozone countries must provide Verification of Services by 9 July 2027.
The deadline is particularly tight for the PSPs, EMIs and PIs in Eurozone member states. They should begin preparing now to avoid any last-minute issues.
For payment service providers looking to enhance their security measures and meet regulatory deadlines, adopting a comprehensive VoP solution is key. As a provider of Verification of Payee solutions, TechoXander is here to assist you in implementing VoP service seamlessly into your payment processing system. We have experience in providing VoP services and our solution is designed to integrate smoothly with your existing infrastructure, ensuring that both you and your customers are protected from fraud and payment errors.
Contact us today at vop@technoxander.com to learn how our Verification of Payee solution can enhance your payment processing system and help you stay compliant with the latest regulations.
