The world of digital payments isn’t showing any signs of slowing down. The modern ACH Network experienced significant growth in 2021, with 29.1 billion payments valued at $72.6 trillion, and same day ACH payment volume grew nearly 74 percent, new figures from Nacha show.
That’s a good thing, not just for merchants and their customers, but also for parties involved in the further digitization of payment experiences for consumers, businesses and governments. But as with every coin, there are two sides.
More volume and value means more opportunity for disruption and friction in the flow of payments. Fraud and ‘fat finger error’ are just two of the common pitfalls associated with an increase in digital payments in the 21st century. So, any strategy designed to contain and minimize the opportunity for errors and nefarious activity within the payments ecosystem is vital. And with AFP research reporting that nearly 75 percent of organizations were targets of payment scams in 2020, the need for action is clear to see.
That’s why last year Nacha implemented a new rule intended to supplement fraud detection standards for digital debits. The ACH Data Validation rule stipulates that any ‘ACH Originators of digital debit entries are required to use a “commercially reasonable fraudulent transaction detection system” to screen WEB debits for fraud.’ The rule itself came into effect on March 19, 2021, and Nacha gave all qualifying merchants a full year to ensure they are fully compliant.
How Does the Rule Impact Merchants?
The rule stipulates that all merchants that use consumer debit payments authorized over an online channel must validate first-use consumer account information. Nacha includes the following in their list of possible account validation methods:
- An ACH prenotification – non-monetary transactions sent to the ACH network to help ensure subsequent entries are posted appropriately. There is usually a 6-day delay between the prenotification and the actual transfer of funds.
- ACH micro-transaction verification – a very small amount (usually a few cents) sent to the account to be verified. The account holder then verifies the amount by contacting the sender. This method is indeed quicker but does involve a reliance on the account holder to act.
- Commercially available validation service – some financial institutions and third parties have access to large numbers of account data and may offer products that leverage this information. A company can access these services for scoring as to the likelihood of correct account information and/or the account holder’s identity.
The Cost of Non-compliance Is High
And totally not worth it. Considering the growing prevalence and versatility of ACH payments in today’s US payments landscape, failure to comply with data validation checks can have far reaching implications to a business’ relationships with customers, staff and suppliers.
Beyond this, there’s the matter of Nacha rule violations – along with their associated fines – most certainly not to be taken lightly. Failing to meet the standards provided could cost merchants anywhere between $1,000 for a Class 1 infraction to fines worth $500,000 per month for Class 3 infractions.
These fines can do serious financial damage to businesses of all sizes. So, with the March 19, 2022 deadline looming, now is the time to make certain your business is compliant with ACH data validation regulation.
The Best Path to Compliance
We’ve already identified that non-compliance is a non-starter. But in today’s fast paced, digital economy simply complying with regulation isn’t enough. Businesses must focus on giving their customers, staff and suppliers peace of mind that ACH transactions are processed securely, compliantly, with minimal disruption and crucially, at speed. This automatically excludes the manual validation, micro transaction verification and prenotification methods due to their time-consuming nature and poor customer experience.
Working with a Nacha preferred payment technology partner, such as Nuvei, can completely remove the complexity associated with validating account information and help your business ensure compliance. Take care of everything from routing and account number validation to real-time financial institution account status and even reduce non-sufficient funds and unknown account returns. Protect your business from fines and fraud while reaping the benefits of ACH transactions – all with none of the hassle of having to ensure compliance yourself.
At Nuvei, we believe in taking your business’ digital payment experience that one step further. Have a look at how you can save time, money and remove complexity with our solution designed specifically for compliant ACH payment processing.
|Ed Dean, Ed Dean is Nuvei’s VP of Product Management. He is a payments professional with over 28 years’ experience, skilled in developing and executing payment strategies that deliver best in class product offerings. Using his deep understanding of ACH / RTP / EFT payments and platforms, he always strives to bring the right solution to support merchants and the industry at large.|