Frictionless and Fraud-Free: The Rise of Reverse Penny Drop
What is Reverse Penny Drop ?
Reverse Penny Drop, also known as UPI-Based Authentication, allows users to initiate the authentication process by paying a little amount of INR 1 using their preferred UPI method. Most importantly, the little fee is promptly reimbursed to the customer's bank account following verification. This straightforward yet effective process ensures safe account detail verification and confirmation and is compatible with all UPI versions, including Collect, Intent, and QR.
Why is it needed ?
Enhanced security:
Reverse penny drop adds an extra layer of security to the verification process by ensuring that the user has control over the bank account they are providing. Traditional verification methods, such as relying on users to provide documents or answer knowledge-based questions, can be vulnerable to social engineering attacks. With reverse penny drop, the user needs to initiate a transaction directly from the bank account they are trying to verify. This makes it much more difficult for fraudsters to impersonate legitimate users.
Reduced risk of fraud:
By verifying account ownership, reverse penny drop helps reduce the chances of fraudulent activities such as money laundering or unauthorized transactions. In money laundering schemes, criminals often try to funnel money through multiple bank accounts. Reverse penny drop verification can help prevent criminals from using other people's accounts for these purposes. Additionally, by confirming that the user has control over the bank account, it reduces the risk of unauthorized transactions where someone gains access to another person's account information and steals money.
Faster verification:
Compared to traditional methods that rely on bank deposits, reverse penny drop can be a faster way to verify bank accounts. Traditional methods can take several days for the deposit to clear, while reverse penny drop transactions are typically completed within seconds. This faster verification process can improve the user experience and streamline onboarding processes for businesses.
Improved user experience:
Reverse penny drop offers a smoother user experience compared to traditional verification methods. It's a quicker process and doesn't require users to manually enter complex account details or answer multiple questions. Additionally, users receive their verification confirmation almost instantly, which can be helpful for situations where immediate access is required.
Lower operational costs:
For businesses, reverse penny drop can be a more cost-effective way to verify bank accounts compared to traditional methods. Traditional methods may involve manual verification processes or third-party verification services, which can add extra costs. Reverse penny drop is a more automated process that can help businesses save on operational costs.
Reverse Penny Drop Process
Step 1: User Initiates Verification:
The user starts the process by indicating they want their bank account verified. This can happen during sign-up for a new service or other situations where bank account information is required.
Step 2: Verifier Provides UPI Payment Link:
The verifier, the party trying to confirm the bank account, provides the user with a UPI payment link. This link contains several key pieces of information:
The amount to be paid
The verifier's account details where the user needs to send the money
Step 3: User Approves Payment:
The user receives the UPI payment link and opens their UPI app (like PhonePe, Google Pay, etc.). They review the payment details and then approve the transaction if everything looks correct.
Step 4: Verifier Receives Payment and Extracts Details:
If the user approves the payment, the verifier is notified and receives the small amount. They can then extract the user's bank account details associated with the UPI transaction.
Step 5: Verification and Refund:
The verifier checks the extracted bank account details to confirm they match the information provided by the user. Once verified, the verifier may optionally send a refund back to the user's account for the small amount they paid.
Step 6: User Receives Verification Confirmation:
If the verification is successful, the user will receive a confirmation notification from the verifier.
Where is it used ?
Fintech Startups:
Fintech startups, which are companies that use technology to deliver financial services, can leverage reverse penny drop to ensure the authenticity of user bank accounts during the onboarding process. This helps mitigate the risk of fraud by verifying that users are who they say they are and that they have control over the bank accounts they provide. Additionally, complying with Know Your Customer (KYC) regulations is essential for financial institutions, and reverse penny drop can streamline this process by providing a secure and efficient way to verify user identities.
Online Marketplaces:
E-commerce platforms can use reverse penny drop to verify the bank accounts of both sellers and buyers. This can help to reduce the incidence of fraudulent transactions by ensuring that sellers have legitimate bank accounts to receive payments and that buyers have sufficient funds in their accounts to complete purchases. By verifying bank accounts, online marketplaces can create a more trusted and secure environment for all users.
Insurance Companies:
Insurance companies can leverage reverse penny drop to verify the bank accounts of policyholders for two main purposes: premium payments and claim disbursements. When collecting premiums, reverse penny drop can ensure that the policyholder has control over the bank account they are using to make payments. This helps to reduce the risk of fraud and ensures that premium payments are collected successfully. Additionally, when paying out claims, reverse penny drop can be used to verify the policyholder's bank account information before disbursing funds. This helps to ensure that claim payments are sent to the rightful recipient and reduces the risk of errors or fraud.
Online Gaming and Gambling:
Platforms that involve real-money transactions, such as online casinos and sports betting sites, can benefit from using reverse penny drop to verify the bank accounts of their users. By verifying bank accounts, these platforms can help to ensure that users are providing accurate financial information and that they have the funds available to participate in gambling activities. This can help to reduce the risk of fraud and money laundering on these platforms.
Government Agencies:
Government agencies in India are increasingly offering online services to citizens, such as tax filing, benefit applications, and permit renewals. Reverse penny drop can be a valuable tool for government agencies to verify the bank accounts of citizens who are applying for or receiving these services. This helps to ensure that benefits are distributed to the rightful recipients and that tax payments are collected accurately. Additionally, reverse penny drop can help to streamline the application process for government services by providing a fast and secure way to verify bank account information.
