The U.S. payment system is currently moving toward faster delivery of information and settlement. In line with this, NACHA recently announced the approval of same day ACH transactions, which will give consumers, businesses and government agencies the ability to move information and optionally clear and settle funds faster. Specifically, the industry is adding two new same day settlement windows, enabling financial institutions (FIs) to shift from once-a-day movement of funds to three times a day. Receiving Depository Financial Institutions (RDFI) will receive these same day transactions and will be required to provide fast funds availability by 5 p.m. (local time) for ACH credits, therefore speeding up the movement of funds and enhancing the customer experience.
What does this mean as it relates to risk in the payment system?
As payment speed accelerates and EMV card protections rollout to the U.S., many fraud and risk experts anticipate criminals will further exploit account information to move funds quickly out of the system. Faster payments may actually expand this risk; given there will be less time for transaction risk reviews. Thus, real-time risk solutions are needed.
FIs and corporates must take steps to ensure strong authentication is in place before funds are moved to stop unauthorized transactions before funds move. Services such as Early Warning’s suite of authentication solutions help provide FIs confidence, authenticating account holders prior to funds distribution.
Additionally, originators and Originating Depository Financial Institutions (ODFI) will become more reliant on real-time detection tools to validate sender and recipient accounts. A key use case for same-day ACH is a funds transfer. Today, funds transfers can be an easy way to target fraud. It is a technique commonly used to move funds quickly out of an account without being detected – and its use is expected to increase. Typically, a fraudster acting as a supplier contacts his commercial customer indicating the supplier has changed banks and accounts. The “supplier” asks the commercial client to send funds to the new account. Once the funds are sent, it is nearly impossible to retrieve them.
One way to prevent this is by adopting Early Warning’s Real-time Payment Chek® Service with Account Owner Authentication. Real-time Payment Chek validates the name, address, email, phone, and tax ID number with the bank of record’s information in real time. This real-time validation confirms the account belongs to the intended recipient and alerts the originator of a high-risk transaction. The ODFI can then further investigate and stop the transaction before funds are sent to the imposter’s account.
Merchants and billers should be using these types of solutions to mitigate unauthorized transactions and losses; however, as transaction speed increases, it will also be important to ensure account numbers are accurate to prevent administrative returns and reduce administrative costs. For this reason, NACHA recently selected Early Warning’s Payment Chek Service with Account Ownership Authentication as a designated Preferred Partner to help organizations reduce losses and costs associated with administrative, unauthorized and account takeover transactions.
NACHA’s decision to enable same day ACH is a step toward faster information sharing and settlement around ACH payments. With this migration, FIs need tools for real-time validation and account owner confirmation to help reduce both administrative errors and unauthorized transactions. Early Warning’s solutions offer improved customer experience while reducing costs and real-time risk management, which will position originators and ODFI’s for same day ACH.
About the Author:
Laura Weinflash is Vice President of Product Management for Early Warning and has been with the company since 1999. Prior to joining Early Warning, Ms. Weinflash worked for Bank One Corporation (now part of JPMorgan Chase) for 11 years, serving in a variety of executive roles. She frequently speaks at financial services industry events and is regularly quoted in industry publications, including American Banker and Credit Union Times.