External accounts must undergo a series of validations before they can be used for transactions. These validations ensure that account details are accurate, the account is operational, and regulatory checks are satisfied.

Validating an external account helps:

Reduce ACH return risks (e.g., insufficient funds, closed accounts)
Prevent fraudulent activity
Improve success rates of debit and credit transactions

Depending on your program configuration, validations can be triggered during account creation or later using the validation API. Multiple validation methods may be applied before an account becomes fully active.

Validation & Activation Lifecycle

INACTIVE
   ↓
PENDING_VERIFICATION
   ↓
┌──────────────────────────────────────────────────────────────┐
│                     VALIDATIONS IN PROGRESS                  │
│                                                              │
│  1. EWS (Instant Validation)                                 │
│     PENDING → OPEN / VALIDATED ───────────────┐              │
│            → NOT_FOUND ────────┐              │              │
│            → INVALID_DEBIT_ACC │              │              │
│            → CLOSED / HIGH_RISK│              │              │
│                                 ↓              ↓              │
│  2. PRENOTE (if ALWAYS / ON_FAILURE)                         │
│     PENDING → PROCESSING → COMPLETED ────────┐              │
│                         → FAILED ────────────┘              │
│                                                              │
│  3. MICRO-DEPOSIT (if ALWAYS)                               │
│     PENDING → PROCESSING → AWAITING_VERIFICATION            │
│                         → COMPLETED ──────────┐              │
│                         → RETURNED / FAILED ──┘              │
│                                                              │
│  4. OFAC (Compliance Check)                                 │
│     PENDING → VERIFIED ───────────────────────┐              │
│            → UNDER_REVIEW                     │              │
│            → REJECTED ────────────────────────┘              │
│                                                              │
│  5. DOCUMENT VERIFICATION (Optional)                        │
│     PENDING → VERIFIED                                      │
│            → REJECTED                                       │
│                                                              │
└──────────────────────────────────────────────────────────────┘
   ↓
┌───────────────────────┬──────────────────────────┬──────────────┐
│ ACTIVE                │ ACTIVE (Credit Only)     │ BLOCKED      │
│ (All validations      │ (Debit restricted due    │ (Any critical│
│ successful)           │ to validation outcomes)  │ failure)     │
└───────────────────────┴──────────────────────────┴──────────────┘

Key Notes:

External accounts move from INACTIVE → PENDING_VERIFICATION upon validation initiation
Multiple validations may run in parallel or as fallback mechanisms
Final account status depends on combined validation outcomes, not a single method

External Account Status

External account status represents the current stage of validation and determines whether the account can be used for transactions.

Status	Description
`INACTIVE`	Default state upon account creation
`PENDING_VERIFICATION`	Validation and compliance checks are in progress
`ACTIVE`	Fully validated and ready for transactions
`ACTIVE (Credit Only)`	Can receive funds but debit transactions are restricted
`BLOCKED`	Account is restricted due to validation failure or risk signals

How External Account Status is Determined

The final status of an external account is determined by the combined outcome of validation methods and compliance checks. The following table outlines how different outcomes impact the final status:

Final Status	Trigger Conditions	Explanation
ACTIVE	Successful validation via EWS, Prenote, or Micro-deposit	The account has passed validation checks and is ready for transactions
	OFAC status is `VERIFIED` (or not applicable)	Compliance requirements are satisfied
ACTIVE (Credit Only)	EWS returns `INVALID_DEBIT_ACCOUNT`	The account supports credits but restricts debits
	Insufficient funds scenarios (`R01`)	Debit capability is limited due to risk signals
BLOCKED	EWS returns `CLOSED` or `HIGH_RISK`	Account is not safe for transactions
	Prenote fails (`RETURNED`)	Bank indicates invalid or closed account
	Micro-deposit fails (`RETURNED`, `VERIFICATION_FAILED`)	Ownership validation failed
	OFAC status is `REJECTED`	Compliance failure
	Bank returns (e.g., `R02 – Account Closed`)	Account is no longer valid
	Account manually flagged	Explicit operational restriction

Validation Methods

External accounts can be validated using multiple methods depending on your program configuration:

EWS (Instant Validation): Performs real-time checks on account status and recent transaction history
Prenote: Sends a $0 transaction to validate the account at the bank level
Micro-deposit: Verifies account ownership by depositing small amounts that the customer must confirm

External accounts can be validated either during account creation or later by explicitly triggering validations using the POST v1/customer/id/{id}/externalAccount/id/{id}/validate API.

To help you choose the right validation method, refer to the comparison below.

Method	What it does	Processing Time	Customer Effort	Ownership Verification	When to Use	Limitations
EWS (Instant Validation)	Verifies account status and recent return history in real time	Instant	None	No	When you need fast onboarding and early risk detection	May return `NOT_FOUND` for valid accounts; does not confirm ownership
Prenote	Sends a $0 transaction to validate account at bank level	~3 business days	None	No	When you need bank-level validation without customer interaction or as fallback to EWS	Slower; cannot transact until completion
Micro-deposit	Sends small deposits and requires user to verify amounts	~3 business days	Required	Yes	When strong ownership verification is required (high-risk use cases)	Slower; requires user action; higher drop-off risk

Validation Rules:

EWS can be used independently or alongside other methods
Prenote and Micro-deposit are mutually exclusive (only one can be used)
Use ON_FAILURE to trigger Prenote when EWS is inconclusive (NOT_FOUND)

Completing Micro-deposit Verification

If you are using Micro-deposit validation, an additional step is required to complete the verification process.

Once the micro-deposits are credited to the external account, the customer must confirm the deposited amounts to verify ownership.

To complete this step, use the POST v1/customer/id/{id}/externalAccount/id/{id}/verify API.

Compliance Checks

In addition to validation methods, external accounts undergo compliance and verification checks to ensure regulatory adherence and document authenticity.

OFAC Verification

Validates the external account holder against regulatory watchlists to ensure compliance.

Status	Description
`PENDING_VERIFICATION`	Default state when verification is initiated
`VERIFIED`	Successfully cleared compliance checks
`UNDER_REVIEW`	Requires manual review due to inconclusive results
`REJECTED`	Failed compliance verification
`IGNORED`	OFAC verification is disabled for the program

Document Verification

Triggered when supporting documents (e.g., authorization forms) are uploaded for the external account.

Status	Description
`PENDING_VERIFICATION`	Document is awaiting review
`VERIFIED`	Document has been approved
`REJECTED`	Document verification failed

📘
Key Notes:

Validation methods may run independently or as fallback mechanisms

Final status of the external account is determined by combined outcomes across validations and compliance checks

External accounts can re-enter PENDING_VERIFICATION if re-validation is triggered

Instant Internal Validation (Passport Match)

When an external account is added, the system checks whether the account already exists within the Passport ecosystem. If a match is found, the account can be instantly validated without requiring additional validation methods such as Prenote or Micro-deposits. This significantly reduces onboarding time and avoids unnecessary verification steps.

To view the outcome of this validation, use the External Account Retrieve API and check the validateInstantly object in the response for detailed status and reason.

Instant Validation Statuses

Status Reason Description
PENDING PENDING External account is currently under instant validation
OPEN VERIFIED_BY_SYSTEM Account exists in Passport and is successfully validated
INVALID_DEBIT_ACCOUNT No debits accepted Account supports credits only; debit transactions are restricted
VERIFICATION_FAILED VERIFICATION_FAILED Account found, but holder name does not match
BLOCKED Account is blocked or inactive Account exists but is not usable due to restrictions
NOT_FOUND Account Not Found No matching account found in Passport

Failure Handling & Re-verification

External account validations may fail due to account issues, compliance failures, or bank-level responses. Understanding these scenarios helps you take the appropriate corrective action and ensure successful transaction processing.

Always monitor validation statuses and status reasons via the Retrieve External Account API or webhooks to proactively handle failures.

Common Failure Scenarios

Insufficient Funds / Returns (e.g., R01)

External account may be marked as ACTIVE (Credit Only)

Debit transactions are temporarily restricted

Credits can still be processed
Recommended Action: Retry debit transactions after sufficient funds are available

Account Closed or Invalid (e.g., R02)

External account is moved to BLOCKED

No further transactions are allowed
Recommended Action: User must add a new external account

Validation Failures

Prenote failures (RETURNED)

Micro-deposit failures (RETURNED, VERIFICATION_FAILED)

External account is moved to BLOCKED
Recommended Action: User should re-add or re-verify the account details

Compliance Failures (OFAC = REJECTED)

External account is restricted due to regulatory reasons
Recommended Action: Requires manual review or resolution via compliance team

Automatic Re-verification & Fallbacks: In certain cases, the system may automatically trigger additional validation steps:

If EWS returns NOT_FOUND
→ System can trigger Prenote (ON_FAILURE)

If validation method is inconclusive
→ Fallback validation may be applied based on configuration

Re-verification Scenarios

If an external account is manually unblocked
→ Status moves back to PENDING_VERIFICATION

If validation fails repeatedly
→ External account may need to be re-created

If account details are updated
→ Validation may be re-triggered

Best Practices

Prefer Instant Validation for faster onboarding

Use Micro-deposit when ownership confirmation is critical

Monitor status transitions via the Retrieve External Account API