Modulus Checking and Paperless Direct Debits – Why & How?

The latest Service User Guide and Rules to the Direct Debit scheme (SUG&R v4.1) has clarified what is and is not provided by modulus checking.

Modulus checking describes the ability to check that a bank account number and sort-code are accurate.  It does not verify that the account details belong to the payer i.e. that they own that bank account.

Modulus checking is often mistaken as providing proof of account ownership, particularly in paperless processes i.e. over the phone or internet.  It is in fact a mathematical check on the bank sort code and account number combination only, and includes confirming whether they are valid/ active, have any account limitations and the type of account, e.g. and if it accepts direct debit instructions.  An example being that direct debits are not allowed on savings accounts.

Proving ownership of a bank account falls under KYC (Know Your Customer) rules. See our previous KYC blogs to learn more and why it’s mandatory for paperless direct debit sign-ups.

Modulus checking is an important part of any DD process.  It is strongly recommended that every service user validate bank account details using appropriate products, some of which are available online, or their own internal systems.  The rules for paperless service users go further, highlighting that modulus, and KYC checks, must be performed at the point of capture, whilst the payer is still there.

Service users  are required to use up-to-date data to perform a modulus check in the form of ‘the Industry Sorting Code Directory (ISCD) and the Extended Industry Sorting Code Directory’ (EISCD. This ensures accuracy when checking and helps to reduce the chance of a direct debit failing due to incorrect bank details.  Both directories are available from VocaLink and published weekly however, your software/ bureau should already be utilising these.    

Our direct debit training helps service users improve their processes and their understanding of the rules, including why things like modulus checking, are actually useful!

Find out more about our Direct Debit Scheme Training and book online today!