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Guide on Real-Time Payments and Verifying Account Identity

NACHA, the Electronic Payment Association overseeing the ACH network, recently made some changes to its Operating rules regarding ACH payments. Based on the new rules, originators or WEB debit entries are asked to use a “commercially reasonable fraudulent transaction detection system” to verify users for fraud. Beginning on March 19, 2021, the rule will change to explicitly require “account validation” or “bank account verification” to be part of the new fraud detection system.

Payment merchants who don’t already have bank account verification technologies in their fraud detection systems need to add them. They should also educate themselves about the rule changes and find ways to comply with the new regulation put out by NACHA. There are tons of educating yourself about the guidelines and how to make sure you’re complying with the regulations.

Bank Account Verification and Fraud

The changes in NACHA rule changes come as faster payment services, these include NACHA’s Same Day ACH. Ever since Same-Day ACH Payments, it has just seen an upward growth. For example, in 2017, Same Day ACH volume exploded by 137% to $159.9 billion in total payments. Although with faster payments, there’s also an increased risk of payment fraud.

“As the adage goes, with faster payments comes faster fraud, so implementing preventative measures upfront to identify fraudulent activity before it is set in motion is receiving the most focus,” said Sarah Grotta, director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

“When transactions occur within seconds instead of hours or days, there isn’t the time to assess the transaction itself, so ensuring the validity of the account is critical.” Says Mercator Advisory Group.

As bank account verification is crucial, NACHA is making it mandatory for every single ACH transaction. When the changes finally take effect, any and all payment merchants that process WEB debits will need to have a bank account verification solution. All the merchants that use the ACH network will have to comply with this rule. Everyone that originates WEB debits, regardless of business size or industry they’re operating in will have to abide by these new rules. 

As millions of companies across thousands of industries use the ACH payment network, a whole range of use cases may be impacted by the changes in the rules. Here are some of the key payment examples that rely on ACH payments, especially if account information is collected by the originator:

  • Insurance company payments
  • Contributions to individual retirement accounts, SEPs, 401Ks
  • POS purchase
  • Utility payments
  • Tax payments
  • Charitable donations
  • Installment loan payments, including car loans, credit cards, mortgages, HELOCs
  • Membership payments

Account Verification Solutions in Real-Time Payments

Fortunately, the merchants who need to change their fraud screening services can leverage a lot of solutions to be compliant. However, not all the solutions are good enough at stopping fraud or working when it comes to real-time payments.

This is crucial because even if NACHA didn’t change the rules, merchants would be wise to take the account verification process seriously.

One method is ACH prenotification, also known as a prenote. It is a zero-dollar transaction that an originator sends to the issuing company before an actual debit or credit card. The goal is to validate the routing and accounting number at the issuing bank prior to sending through the actual transaction.

Although the prenote is effective at verifying the account number, it doesn’t offer any information about the account itself. It also takes up to three days, making it ineffective for faster payments.

There’s another solution for bank account verification is DIRO online document verification solution. DIRO can verify bank account information using bank statements in real-time by cross-referencing information from the issuing source. DIRO bank account verification solution can be the perfect tool for real-time account validation with faster payments.