The old saying goes: Faster payments, faster fraud.
To that end, in an interview with PYMNTS, Kimber Johnson, executive vice president of strategic alliances at GIACT, said account validation is of increasing importance in an age where commerce is speeding up, and increasingly, moving online.
There will soon be rules in place that govern how merchants and other entities make sure the accounts presented for debit transactions are valid — and in the process, cut down on fraud and chargebacks.
At a high level, the changes to Nacha’s WEB Debit Account Validation Rule mandate that as of March 19, 2021, account verification must be part of anti-fraud efforts.
The new rule comes at a time when Nacha has reported that ACH payments have become increasingly popular, perhaps not a surprise as more transactions and commerce move online. In the first half of 2020, for example, Nacha said its network volume reached 13 billion payments, marked in part by a 37 percent jump in same-day ACH payments, as measured year over year in the second quarter.
As to why the account validation rule is particularly timely, Johnson said, “Nacha's goal with this change is to clean up the ACH system. So they are looking beyond just the typical financial institutions that are originating these ACH transactions, and they extended the rule to apply to those entities that are actually originating the ACH transactions.”
Even as ACH transactions are increasing, those payments may be rising across industries where there may not have been rigorous validation processes in place — which opens vulnerabilities for fraudsters as they attack merchants and other entities. One example is the increasing and widespread disbursement of stimulus payments (via direct debit), which run into the tens of millions of transactions and which in part drive ACH volumes higher.
Broadly speaking, the responsibility of account validation is on both the financial institution (FI) and the entities originating the payments. FIs who are processing WEB Debits from their Treasury clients, must ensure those clients have an account validation process in place. With a nod toward GIACT’s own offerings, Johnson said verification services can validate ownership of the account in real time.
She gave the hypothetical example of a consumer who signs up for an insurance policy with an insurance carrier, and he or she presents a bank account that will be used to pay the premiums.
“Prior to that insurance carrier creating an ACH payment to take that first premium payment they have to perform a validation on that account to make sure they know what the status is on that account,” said Johnson. There must be assurance, through solutions such as GIACT’s, that the account exists, what its “health” might be (i.e., if the account is open and in good standing so the premium payment can process) and there needs to be verification of who owns the account — and even whether debit transactions can be performed at all. Typically data points include, but are not limited to, name, address, phone number, email and other personally identifiable information -- and the checks are performed in real time (the data is updated on a daily basis).
During the lifetime of that relationship with customers, if other bank accounts are offered, the same verifications must be performed.
She noted that the verification activities can also utilize information tied to payment history.
“Knowing if there have been recent NSF chargebacks can be indicative of how consumers manage their account — and give insight as to whether that web debit might be at risk,” said Johnson.
Automated account verification tools can be particularly useful in industries where verification has been traditionally done manually. Johnson said that vendor management has been an area where, “large entities are being taken advantage of within their vendor management process, where originally checks were issued, or those processes were manual. There has not been any type of validation incorporated into the overall onboarding of new vendors,” she continued, “and the dollar amounts are very large most of the time — which can be especially attractive to fraudsters.”