The evolution of any industry extends to the regulations that govern it, and the payments landscape is certainly no exception.
A new rule change from NACHA — which will go into effect on Oct. 3, 2016 — will be targeted at reducing the occurrences of unauthorized ACH debits and improving ACH network quality, putting the financial burden in that regard on originating depository financial institutions (ODFI).
As David Barnhardt, Vice President Product Management at Early Warning, told PYMNTS, it’s a rule that ought to compel banks to take an even closer look at their risk management and monitoring practices.
"[It’s] especially suggestive for ODFIs (originating depository financial institutions) to reassess their processes,” he remarked, “as it could potentially create resource challenges as well as a financial burden by requiring them to pay a fee to the receiving depository financial institution (RDFI) for each unauthorized transaction return."
ODFIs are presently at what Barnhardt describes as “a critical point,” given that, according to Javelin Strategy & Research’s 2015 Identity Fraud Report, the risk of unauthorized transactions is greater than ever. The payments ecosystem is already witnessing, as a result of high-profile data breaches and malware attacks, a sizable volume of illegally gathered consumer data being sold on the black market.
“Without a proper solution for verifying account information,” says Barnhardt, “the pervasiveness of this issue will ultimately cost ODFIs heavily in fines.”
It will also create personal and financial hardships for consumers who are impacted by unauthorized transactions. Citing that NACHA estimated a range of $3.50-$5.50 per unauthorized entry, Barnhardt points out that would “translate to anywhere from $10.3 million to $16.2 million in fees paid to RDFIs."
The impending shift of the financial burden related to unauthorized ACH debits — and its potential negative impact on consumers — has driven many financial institutions, in Barnhardt’s observation, to seek stronger risk management options.
One of these, he puts forth, is Early Warning’s Real-Time Payment Check® Service with Account Owner Authentication (AOA). Leveraging Early Warning’s National Shared Database℠ Resource, which Barnhardt says “contains the most current, accurate data contributed daily from nearly 600 financial institutions,” the solution addresses two issues.
First, it informs a user of an account’s risk and the likelihood of a transaction being returned; secondly, it confirms account signatory and owner information by detecting whether the individual is authorized to transact on the account.
While facing a financial liability is certainly not a pleasant thing for any business to consider, Barnhardt reiterates the fact that the new NACHA rule will ultimately be a benefit for financial institutions, as it will strengthen ACH network quality, reduce exceptions and “improve overall customer service and satisfaction."
Provided FIs have solutions in place that can verify account owner details to mitigate insufficient funds, administrative and unauthorized returns, they will — as Barnhardt concludes — “be prepared for rules in place today, as well as those on the horizon."
To download and learn more about Early Warning’s deposit and payment solutions, click here.
VP of Product Management, Early Warning
David Barnhardt is Early Warning’s Vice President of Product Management where he oversees development and management of deposit and payment solutions. He joined Early Warning in 2014, bringing with him 13 years of executive experience in bank fraud and risk management. During his career, he has done extensive work in mitigating deposit, debit, eCommerce, and internal fraud. He has also done significant work in link analysis and collusive ring investigation.