Verification of Payee urged to secure pay-by-bank transfers

Vladyslav Kolodistyi, a payments security specialist, told industry stakeholders this month that Verification of Payee (VoP) is the missing link to make pay-by-bank transfers safer. He argued real-time name confirmation at the point of payment would reduce misdirected transfers and account-to-account fraud.

VoP matches the name entered by the payer with the name held by the recipient’s bank. If the names do not match, the payer receives a warning or the payment can be blocked, depending on how the service is configured. Kolodistyi described the check as a way to prevent both simple typing errors and scams that trick customers into sending funds to fraudulent accounts.

Kolodistyi pointed to rising use of pay-by-bank channels driven by open-banking APIs and bank-initiated payment rails, noting banks and merchants are seeking lower-cost alternatives to card networks. He urged industry participants to agree on technical standards and roll-out timelines so VoP protections can reach more users.

He identified practical challenges to broad implementation. Banks will need to change or add back-end systems to support real-time name checks, including consistent data formats and reliable storage of account names. There are privacy and consent issues: customers must know what data is being checked and when. Inconsistent uptake across providers could leave some transactions exposed to error or fraud.

Kolodistyi recommended a phased approach, starting with higher-value or higher-risk payments, adopting common standards for name-matching algorithms, and providing clear messages to customers when a payee name does not match. He suggested regulators could set minimum expectations for banks or encourage industry schemes to share best practices and transaction-level signals that help spot fraud.

“VoP reduces certain types of loss, but it must be combined with sender authentication, transaction monitoring and consumer education to be effective,” Kolodistyi said.

Pay-by-bank methods let customers pay directly from their bank accounts, often via online banking or open-banking APIs. Merchants and platforms are using these methods because they can lower fees and shorten settlement times compared with card payments. Pilots in some markets have shown VoP can prevent both error-driven losses and scams, but wider adoption requires technical coordination and policy support.