Given the risk of same-day payments and the sophistication of fraudsters, originators should see fraud prevention requirements as a necessary hedge.
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Faster payments continue to grow in popularity, as a record 2 billion new automated clearinghouse transactions took place in 2020, with Same Day ACH payment volume rising to 347.2 million payments.
The 26.8 billion ACH payments made in 2020, according to Nacha—the association that governs the ACH network—is an increase of 8.2% over 2019, while the value of those payments, $61.9 trillion, is up 10.8%.
Several core ACH payment categories grew by more than 10% in 2020, such as direct deposits of salaries and wages, benefits and assistance payments; internet-initiated consumer payments; and person-to-person and business-to-business payments.
The importance of, and reliance on, ACH payments for day-to-day transactions requires the attention of credit unions.
In March 2021, Nacha’s WEB Debit Account Validation became effective, requiring ACH originators to put into place a “commercially reasonable fraudulent transaction detection system.”
Credit unions are now in a year-long grace period, ending in March 2022, to make a good faith effort to put a “reasonable” system into place. After this time, enforcements begin.
Demand for Faster Payments; Fraud Losses
The demand for faster payments prompted the launch of Same Day ACH (for credits) in 2016. Ensuing enhancements involved adding debits, faster funds availability and raising the payment limit to $100,000. In March 2021, Same Day ACH grew by two hours, allowing credit unions and banks to submit Same Day ACH payments three times a day.
Same Day ACH continues to grow, accounting for $460 billion total value in 2020; and in 2021 reaching $188 billion on 141 million transactions in the first quarter and $250 billion on 148.7 million payments in the second quarter.
Same Day ACH, one of several real-time payment schemes moving from pilot to implementation, may also be attracting the attention of fraudsters drawn by the potential for prompt plunders.
Coincidentally or not, the Federal Trade Commission received more than 2.1 million fraud reports from consumers in 2020, costing more than $3.3 billion. Nearly $1.2 billion of losses reported last year were due to imposter scams.
The Faster Payments Council cited several schemes of concern:
- Account takeover: hackers steal account credentials to reset account authentication;
- Application fraud: using a stolen or synthetic identities to apply for loans or credit; and
- Transaction fraud: individuals conned into sending payments under false pretenses.
Addressing Nacha’s Account Validation Rule
To address fraud and keep the ACH network safe, Nacha’s WEB Debit Account Validation Rule makes sense. But exactly what tools credit unions need to put into place has been seen as more difficult to comprehend.
As a best practice, and a part of Nacha’s Rule, credit unions will need to validate an account before a disbursement is made.
According to Nacha, the minimum standard requires originators to “validate that an account is open and accepts ACH entries,” implying that the account is “legitimate” and open. The rule does not, however, require originators to also validate account ownership. The rule also doesn’t require re-validation of an account number that has a “proven history of prior successful payments.”
For ACH originators including credit unions, Nacha expects that the rule could potentially require a re-tooling or implementation of ACH fraud detection systems, thereby increasing the cost of originating web debits. But given the amount of risk inherent in faster payments and the sophistication of fraud operators, originators should see anti-fraud measures as a type of necessary hedge.
Overall, the rule is a step forward in protecting faster payments. To truly protect themselves and their members, credit unions should not only comply with the Rule, but look for additional steps to reenforce it.
Ted Kirk is VP/strategic partnerships for Advanced Fraud Solutions, High Point, North Carolina. To learn more about how to protect faster payments, and what tools credit unions can implement to help address Nacha compliance, read our whitepaper, Protecting ACH Payments: Safeguarding Faster Payments and Addressing Nacha Rules.