13 Key Components of ACH Security

What is the safest way to transfer money? Business owners and individuals often look for the most secure and economical ways to transfer money, especially when transferring large sums. With the increased use of digital transactions, they now have several options to transfer significant amounts within seconds. However, which payment method proves the most secure? Is it credit cards, ACH, paper checks, cash, or something else? In this blog, we talk about the various components of security on the ACH network that make it one of the most popular and secure ways to transfer money.

How Safe are ACH Payments?

ACH payments remain famous for their lower processing fees and efficient transfer processes with automated/recurring billing. Most large organizations and business owners started leveraging ACH payments to transfer large sums of money, especially when immediate transfers are not necessary. Conventionally, ACH payments are processed slower compared to wire and credit card transfers. However, does that make ACH less secure? Simple answer. Not at all.

Nacha (National Automated Clearing House), the governing body of the ACH network in the U.S., adopted several measures to fortify the ACH network against fraud. Like all the other digital transaction methods, there is some risk of fraud associated with ACH. However, one can take specific measures to minimize the risk considerably. Nacha imposes several rules and regulations to authorize a transaction on the network and fortify consumers and merchants against cyberfraud.

ACH payments are safe and encrypted. With the help of a PCI-compliant payment processor, merchants can minimize the risks associated with ACH transactions.

Why Do You Need ACH Security?

All merchants that leverage the ACH technology should adopt specific measures to prevent fraud and reduce risk. While credit card processing is protected by PCI DSS (Payment Card Industry Data Security Standard), ACH is regulated by Nacha. A few notable payment processors in the market annually certify their compliance for processing transactions on the ACH network. Partnering with such payment processors is the best way to get started with ACH processing for your business.

13 Components of ACH Security

Sticking to the PCI Standards 

Most merchants carry out ACH transactions, aka “direct payments” or “e-checks,” on a third-party payment processor software like iCheckGateway.com. While it is the responsibility of the merchant to stay in compliance with these transactions, aligning with an experienced payment processor who provides technology services will support the mission to fight against cyberfraud digitally against cyberattacks with a solid infrastructure in place. The handful of payment processors in the market that can process both ACH and card transactions need to undergo a rigorous PCI compliance audit every year along with more certifications from banking institutions. These compliance tests ensure that they have the appropriate management tools and procedures in place when providing financial technology to keep the end customer’s sensitive bank and card information safe during the transactions.

The top payment processors go an additional step while using iFrame or Hosted Payment Portal technology. To reduce PCI scope and the vulnerability of cyberattacks, these services ensure that no sensitive customer information stays on the merchant’s systems once the customers complete their transactions. 

Enhanced Security for Funds in Transit

Funds and sensitive customer data are usually most vulnerable when in transit. So, ACH has rules to prevent fraud and leakage of this information at this stage. As per the ACH rules, customers’ sensitive banking information, such as bank account and routing numbers, should be protected by “commercially reasonable” encryption standards when they are transferred over an unsecured network. This rule essentially means that you cannot send such sensitive banking information over an email or an unprotected web form. Merchants that need to collect such data need to use encrypted forms or email servers. 

Validating Routing Numbers

Validating routing numbers before initiating a transaction is one of the best practices for ACH network security. Nacha recommends using “commercially reasonable” tools to validate routing numbers on a secure network without leaking that information to prevent fraudulent transactions and errors.

Validating Identity and Check Verification

Identity validation and check verification services further enhance ACH security by ensuring that the funds are transferred to the correct individuals/organizations beforehand. A merchant can validate the customer’s identity by collecting a valid driver’s license or social security number or using a third-party identity verification service.

Advanced payment processors maintain an active real-time negative database to reduce the time to validate the routing numbers. Such payment processors help reduce the turnaround time and increase customer satisfaction. Moreover, the implementation of check verification services boosts check acceptance and reduces the chances of incurring costly check returned fees. 

Detecting Fraud 

Nacha recommends using necessary fraud detection tools to detect fraud amongst WEB and TEL authorized transactions. Learn more about the different types of ACH authorization forms. The best payment processors have systems to actively identify dubious activity and duplicate trades.

Implementing Enhanced ACH Security Policies

The top payment processors use a well-documented security policy and enhanced ACH security measures like the following to protect customer data:

• Tokenization, 
• iFrame implementation, 
• Velocity Filters, 
• BIN Filtering, 
• Anti-bot Measures, 
• Transparent redirect, 
• Customer account/IP blacklisting, 
• Payment method restrictions, and 
• End-to-end Encryption 

The essential components of a well-defined security policy include:

• Protection against threats to protected information
• Protection of confidentiality and integrity of protected information
• Protection against unauthorized use of protected information

Most businesses that are PCI-compliant have most of these policies in place. However, it is always good to speak with your payment processing partner to ensure that your business practices are updated with the latest guidelines.

Rules for Protected Information

According to the ACH Rules, a merchant should have the necessary tools to protect the clients’ sensitive information. According to the rules, protected information is defined as “the non-public personal information, including financial information of a natural person used to create, or contained within, an entry and any related addenda record. The definition covers financial information and includes sensitive non-financial information (such as non-financial account information contained in addenda records for bill payments).” Additionally, protected information includes other vital data like social security numbers, driver’s license numbers, and any additional non-financial personal information collected during the payments process. 

Micro Validation Methods

Micro-deposits are the quickest ways for merchants to validate customers’ bank accounts and routing numbers. Ideally, merchants should create individual relationships with customers and payees and ensure that their banking information is shared correctly. After creating the relationship, the merchant can ask the payment processor to make two micro-deposits (small amounts, usually a few pennies) in the receiver’s bank account. Once the user has received the amount correctly, the sender can process the following larger amounts with peace of mind.  

Merchant-Specific Registration Practices

Most merchants adopt the “Know-Your-Customer” policies to validate the identity of their customers first-hand. The merchant is primarily responsible for the safe transmission of ACH items to the bank. The bank then is responsible for the security of processing and transmitting the concerned ACH item to the Federal Reserve. So, merchants need to have encryption layers and security measures for the first part of the funds/information transfer process. The bank usually processes a transfer as it is, based on the information received by the merchant, without any additional verification. So, it is the responsibility of the merchant to complete the necessary validation of account and routing numbers before sending the transfer request to the bank.

Upkeep of a Strong Firewall and Virus Protection

Relying entirely on your payment processor for all your security needs might not be the best way forward. In fact, merchants should ideally have access controls and firewall protection for their systems to protect sensitive information. The merchant is also responsible for immediately notifying the bank of unauthorized use of the business online banking platform in case of a data leak.

Two-Factor Authorization and Tokenization

Tokenization is also popular with ACH security measures. The use of tokenization and mobile-number or email-based two-factor authorization helps the merchants add a layer of security to their transactions.

Storing Electronic Data Securely

When storing any bank account numbers or routing numbers, merchants need to adopt layers of secure encryption as part of the secure vault. They also need to keep all related paper documents in a safe location when not in use. Ideally, only the employees responsible for ACH transactions should have access to sensitive information such as login and access IDs.

Protection of Sensitive Information

Nacha recommends that the merchants keep their accounts safe by changing their passwords periodically. Even if you rely on a third-party payment processor for your ACH transfers, you need to keep track of regular password and access ID changes. A reliable payment processor will guide you on how to set and change strong passwords periodically.

For more additional data security requirements, check out this  document from Nacha.

How to Get Started with ACH Security?

Implementing ACH and credit card security is not a one-time job. Instead, it is a routine practice that needs regular updates from the merchants and the payment processors. Here are five steps on how you can get started with ACH security at your organization:

• Step 1: Identify your total ACH payment volume and list security measures you already have in place for sending and receiving money. 
• Step 2: Look for all the systems where you have stored sensitive customer information such as routing numbers and other bank account details.
• Step 3: Partner with a Nacha-preferred payments processor with a history of offering the correct type of ACH security. Ideally, partner with an organization that thoroughly understands the different ways you process money transfers from your business savings account. 
• Step 4: Upgrade or change your data storage and payment processing systems on the recommendations of your payments partner. Involve your IT team if you are responsible for handling a large business with heavy transaction volumes. 
• Step 5: Adopt necessary ACH payment methods to process bills online. Some payment processors have the technology to process both ACH debit and credit card payments on a single platform. Partnering with such reliable payment processors helps merchants reduce the chances of data leakage. 

Other Advantages of Adopting ACH Payments

Automated Recurring Payments: Consumers will automate bill payments with recurring transactions on the ACH network. They need to set it up only once to process the transactions seamlessly on a periodic cycle.

Complementary Technologies: The best payment gateway providers are tech-savvy enough to offer complementary payment solutions. SMS payments, Email invoicing, and IVR payments are amongst the most popular complementary payment solutions adopted by growing businesses.

Lower Processing Costs: ACH transfers are slower than wire or credit card transfers. However, with modern-day developments, Nacha now supports same-day transfers, too. Merchants who do not require an immediate transfer leverage ACH for lower processing costs. 

Cash Discounts: Merchants have the flexibility to offer cash discounts to customers that pay online via ACH. Learn more about the benefits of adopting ACH payments. 

Summing it Up

Financial institutions have been using the ACH technology for decades. However, it is now quickly gaining popularity amongst small and large businesses, too. With low processing costs and fast transfer speeds, it is the go-to payment method for most merchants today. Setting up ACH is simple, and with suitable payment processors, merchants leverage the best complementary technologies to automate various payment processes. 

Banks and credit unions that want to offer secure ACH payment processing to their customers need not start from scratch now. Instead, they partner with a reliable gateway provider like iCheckGateway.com to get a host of safe tech-savvy features for their payment needs. Get in touch with our financial experts to know more!

Date originally published: May 12, 2022