The ACH Problem: How its Biggest Upside is Being Exploited

By David Barnhardt, EVP of Product, GIACT

Accounts receivable professionals say that they expect nearly half of all payments will be made by way of ACH by 2020¹. But while financial institutions, payment providers, businesses and consumers continue to adopt and benefit from faster payments, significant new challenges and risks are emerging in tandem.

Fraud is ever-adapting and faster payments is no exception. The same benefits that Same Day ACH provides can also be its biggest weakness. The shortened settlement window, for example, can easily be taken advantage of by fraudsters who are able to bypass existing fraud prevention tools.

In the midst of all of the excitement and rush to adopt a Same Day ACH model, now is the time to take a step proactive steps and carefully consider the following:

• Legacy systems won’t work. Legacy account validation processes – including prenotes and trail deposits – will be ineffective at identifying and preventing Same Day ACH fraud. Those relying on existing fraud reduction or account validations tools give fraudsters a window of opportunity to exploit them. The result of using legacy systems to facilitate ACH fraud prevention will likely result in higher rates of unauthorized administrative returns, fines and penalties, negative customer experiences, and unacceptably high fraud losses.
• Fortune favors the prepared. Those planning to offer Same Day ACH debits need to update their existing systems and processes so that they’re able validate both account status and ownership in real-time before it is made available to customers. This proactive step will reduce unauthorized and administrative returns as well as prevent a surge in fraud at implementation.
• Know your customer. To defend against customer impersonation and account takeover, it’s important to have the best possible intelligence on your customer. This can be accomplished through a robust upfront validation of not only account status and account ownership, but also the customer’s name, address, phone number, e-mail, and social media accounts. Financial institutions and processors who only rely upon traditional fraud prevention system will likely be taken advantage of by fraudsters who realize the lack of enhanced fraud prevention tools designed for same day processing.
• Balance speed and safety with automation. Automating and accelerating transaction reviews will enable faster risk analysis and transaction decision making. Today, some fraud reduction systems are still manual and exist in silo, which requires hours (if not days) to identity risk – making comprehensive, simultaneous screening (including OFAC checking, identity verification and payment validation) impossible in a same day environment.
• Stop relying on customer-initiated transaction flagging. Finally, don’t rely on customer-initiated transaction flagging as a stop-gap to prevent fraudulent or mistaken transfers. With same day payments, most customers will no longer have time to identify suspicious debits and will therefore not be able to alert their financial institution or service provided before the payment in debited.

To learn more about how to protect your organization and customers, download the GIACT white paper, Securing Faster Payments (link here).

1. Credit Research Foundation and NACHA, “CRF/NACHA Payment Benchmarks Survey” (June 2017)