Presented by Envestnet | Yodlee
As ACH transfers have increased, accelerated by the pandemic, so has ACH fraud. Now Nacha has launched new account validation requirements, opening important new opportunities. Join this VB Live event to learn how to turn fraud safety measures into consumer satisfaction, the best sources of fraud intelligence, and more.
The pandemic has thrown the payments world into flux as companies race to tackle the challenges that a new world order has brought, says Jason Carone, director of product management at Silicon Valley Bank.
“It’s an interesting time, because people are reinventing how they make payments, and how they move money around,” Carone says. “I anticipate that as the economy recovers, we’ll see some pretty radical changes in volumes and behaviors as people start rethinking how they do things.”
The move to contactless payments
Consumers were already writing significantly fewer checks; now there’s even more pressure to to do contactless payments. And there’s been a big uptick in businesses signing up for ACH services and bill pay services, so that they can send payments out without having to cut physical checks.
“This is just the beginning, because they were signing up for easy services that they were familiar with, but there’s going to be a lot of rethinking as things get a little bit back to normal, around how these payments are made.” he says. “You’re going to start seeing things like real time payments and different card-based payments, and a lot more automation around electronic payments in these industries that have traditionally not used them.”
Most of these companies have relied on paper checks because they built their entire control infrastructure around having that paper item being a control point. They can control when the money goes, who signs it, and reconciliation.
“A lot of those are going to have to be rethought,” Carone explains. “These companies will need to adapt to the changes the pandemic brings, and they’ll find there’s a lot of opportunity to make things easier.”
Fraud to be wary of
Naturally, as the number of ACH debit transfers exceeded the number of check payments, the fraudsters have taken notice and are showing up in droves.
There are two major types of fraud to be on the lookout for, Carone says. The first is debit fraud. it puts diligence back on the owners of the accounts. Customers need to make sure that they’re looking at their accounts, reconciling them, and understand why these payments are being debited from their account, whether they’re fraudulent or not, and make use of services like ACH blocks and filters or ACH positive pay.
The other frequent type of fraud is business email compromise. Someone at a company may get an email or a fax or a letter in the mail that looks like it came from a current vendor explaining they’ve opened a new bank account and want future payments sent there. This can happen in any channel, not just ACH, and the fraudsters are very good at tricking their victims, with real-looking letterhead and official-sounding wording.
“That money goes out there, the fraudsters get it out of the account quickly, and you can’t recover it,” Carone says. “Now you’re out the money and you still need to pay your vendor.”
It means always double-checking these kinds of requests, says Carone – simply picking up the phone and verifying that the email or fax is authorized.
The new Nacha rule
To protect financial services providers, their customers, and members from fraud, Nacha is implementing stronger security protocols. The current rule requires ACH originators of WEB to use a fraud transaction detection system. Starting in January of next year, these systems will require account validation as well.
“The rule is very intentionally neutral to the method of authentication,” Carone says. “You can do things like pre-notes, and traditional micro-deposits, and you can use commercially available systems that have databases of user information. But you do have to apply a commercially reasonable method to validate that account number.”
In other words, the system needs to ensure that the account you’re sending the transaction to is actually there, is open, and is authorized to receive funds.
The opportunities for financial services companies
The new rule offers a huge benefit to financial services companies, Carone notes. It means eliminating the hassle and cost of sending transactions out to an invalid account number and getting returns back. But with the coming new rule, companies need to have a plan in place for adding account verification to their current technology stack.
The ACH system is remarkably secure already — far less than one percent of transactions actually come back as invalid, and within that group, the number of fraudulent transactions is an even smaller percentage of that. But the amount of money that can be lost in a single transaction or a single issue is huge.
There’s another benefit to this rule: as you prepare to implement and roll out an authorization function, you also have an opportunity to connect with your customers about guarding themselves and their accounts.
“A lot of fraud prevention is education,” he says. “It’s somewhat of a self-correcting issue.
Making sure customers are looking at their account, to ensure the transactions are authorized is a big tool.”
Don’t miss out!
Attendees will take away:
- An in-depth look at the Nacha WEB Debit Account Validation Rule
- Broad overview of the current and future online payment landscape
- Lessons from the financial services companies in the fray
- And more
- Jason Carone, Director of Product Management, Silicon Valley Bank
- Eric Jamison, VP, Product Management, Envestnet | Yodlee
- Evan Schuman, Moderator, VentureBeat
More speakers to be announced soon!