Why Lifecycle Management Matters When Fighting Payments Fraud

Brian Holbrook, director of product strategy at LSEG Risk Intelligence, told PYMNTS in an interview that financial institutions (FIs) are going to have to gird for changes in how they conduct and approach risk management.

Nacha, he said, cleared more than 30 billion transactions, with $79 trillion in value last year — making it the largest payment network operating in the United States.

But along with that staggering transaction volume and value, said Holbrook, ACH debit and credit transactions are two of the most vulnerable areas of payments.

“The risks are growing exponentially, especially as we continue to move money faster and at higher dollar amounts,” he said. “Protecting these payments across the entire value chain is really going to be important.”

Stretching back over several months, Nacha introduced new rules that are being implemented to help safeguard high-risk payments by identifying, and thus helping stop, potential fraud.

What’s Changing

Most immediate, Holbrook said, are the changes that will impact the monitoring of the transactions themselves.

“Every transaction outside of anything that’s consumer-related is going to be monitored,” he said.

That expanded purview includes the debit and credit payments for both the originating and receiving depository financial institutions and the merchants’ institutions. Nacha also wants to have more time in place for payments reversals to be reviewed so that entities examining flagged transactions will have more time to “pull” those funds back, if necessary.

The changes, he cautioned, are going to give rise to more friction for the organizations themselves — so FIs, especially, will need to plan, budget and ideally have partnerships in place to analyze and improve their risk tools and processes to remain in compliance.

“Account validation, identity verification, multifactor identification velocity is going to be key,” said Holbrook.

He noted, too, that device-level and biometric verification can help FIs address the new rules while helping to significantly reduce fraud.

Asked by PYMNTS how the rise of faster payments in the United States will help spur changes in how stakeholders think about the safety of ACH transactions, Holbrook acknowledged the value of a future, long-term strategy.

“No one wants in five years’ time to be in the position of having to reinvent the wheel,” he said. “The processes and the tools that we put in place today need to have the flexibility to easily be updated or to pick up on new fraud trends.”

The best strategies involve the reduction of manual processes and manual review, he said.

“This will not be a ‘one and done’” implementation, said Holbrook. It will demand attention to the payment’s entire lifecycle management, setting thresholds around individual customers or even transaction types or dollar amounts.

Looking ahead, he said, ACH payments, amid an environment of faster fund flows, will see a surge in B2B-related volumes and direct deposits, as well as growing use in healthcare and insurance verticals, among others.

“ACH won’t be going away anytime soon,” he said.