ACH Payments with Nacha Compliance
The ACH payments industry has accepted Nacha's new rule regarding WEB debits since it was first proposed in November 2018. The new rule went into effect on March 19, 2021. However, the rule will not be enforced until the end of one year from the effective date, provided the covered entities can prove their plans towards compliance in good faith.
Nacha’s New Rule for WEB Debits
Take heed to note that Nacha has not changed the fundamental rule. The rule has been extended to include account validation for WEB ACH payments. Previously, Nacha mandated that all merchants who accept ACH have a commercially reasonable method to validate customers’ identity and routing numbers. Starting March 19, 2021, the terms “commercially reasonable method” shall include, at minimum, account validation.
Note that the rule applies prospectively, not retroactively. Nacha requires account validation for WEB Debits on accounts being used for the first time or changes in an existing account number.
This means ACH recurring payments will require validation only for the first time the payment is processed, and this rule change will not require validation for subsequent transactions.
Remember, though, that the ownership of the account is not required to be validated. Nacha requires an originator to, at minimum, confirm that the account is open and accepts ACH entries.
While this change may involve re-tooling the fraud detection systems for most ACH originators, it brings several benefits. These include reducing the volume of invalid or fraudulent transactions, limiting the effect of fraud events, and improving front-end fraud detection capabilities.
ACH Payments Account Validation: Purpose and Methods
Account validation goes a step further than just routing numbers in validating payments. Validating an account offers the originator an insight into the account’s current standing. Account validation enhances accuracy by mitigating errors in the account, transit, and routing numbers which otherwise cost the company and damage the brand. Validating accounts helps ACH debit originators avoid mistakes right out of the gate, whether accidental or fraudulent.
Verification of checks and accounts in this manner improves relationships with employees, vendors, and customers. It also reduces the volume of help desk calls, increasing customer retention. Nacha does not prescribe a specific method for accounting validation but merely advises that the technique be commercially reasonable.
Options for Validating Customer Accounts
Microdepositing is the practice of depositing a small amount into the customer’s account. The customer will acknowledge the receipt of the amount, and the account will be considered validated. This method takes two to three days, dependent on the customer, for the completion of the validation process. The account cannot be validated if the customers fail to complete the process.
Prenotifications eliminate the customer dependency inherent to microdeposits. Account validation with prenotifications involves initiating a $0 transaction through the ACH network.
The account confirmation may take two to three days. Still, Nacha rules require the merchant to wait a minimum of three days to submit actual payment information after sending the prenotification. The ACH payment delay remains an issue, just like microdeposits, owing to Nacha three-day rule.
Merchants prefer this method since it eliminates customer dependency and payments delay. Third-party validation services have access to a pool of information they can use to understand the account’s current standing, history of fraud, forgery, NSFs, paperhanging, owner authentication, identity verification, and counterfeiting or check alterations.
iCG-Verify: What it Brings to the Table for ACH Payments
iCG-Verify, iCG's check verification service, effectively reduces your cost resulting from returned and unpaid items. It enables the detection of fraudulent activity at the point of sale by offering real-time access to positive and negative information regarding an account and check level status.
iCG-Verify is an unparalleled check verification service that helps ISOs and ISVs minimize attrition and maintain long-term relationships with their merchants. This powerful ACH check verification technology can screen for inconsistencies in routing numbers, account numbers, and check numbers. Moreover, it even flags apprehensive activities such as recent stop payments or returns, NSF, reports of a stolen check, and harmful data found.
Companies have the option to choose from the following standalone or bundled services:
- iCG Basic – Validate routing numbers
- iCG Proprietary – Proprietary negative data database
- iCG Real-Time – View account status in real-time via financial institutions
- iCG Negative Data – Negative data database providers
- iCG Private Bad Check List
iCG-Verify’s ability to detect potentially fraudulent transactions at the POS aids businesses boost their check acceptance rates. That payment solution also directly impacts the business’s net income since it allows verification of a check’s validity and authorizes inspections quickly. This means no items will remain left unpaid, thus improving the bottom line.
iCG's Commitment to ISOs and ISVs
iCG does compete for merchant processing with its ISO and ISV partners. Add value with solutions strengthening the relationship between you and the merchant via our technological solutions. We offer our ISO and ISV partners an array of tools that help them deliver a seamless payment processing experience to their merchants.
Our iCG sales and support team will continue to assist until the ISO or ISV feels comfortable taking charge. We strive to keep our customer attrition rates to a minimum. Thus far, we have solved the merchants’ technology-related challenges with comprehensive support. As an ISO or ISV, you can have confidence that your merchants will be in good hands. They always have access to the support they need from iCG’s support and tech teams.
Contact us to partner your merchant processing with ACH as an alternative form of payment, and know with iCG, your merchants’ transactions will meet the highest of Nacha’s compliance standards as they continue to evolve to protect customers and businesses with technology.
Nacha's new rule does not come as a surprise. A need for the rule was identified in 2012 and has been a topic of discussion ever since.
This rule aims to curb the volume of fraudulent transactions before they enter the ACH Network and protects RDFIs from posting fraudulent, incorrect, or unauthorized payments. Since originators are the point of initiation of a WEB debit transaction, the responsibility of account validation rests with them.
ISOs, ISVs, and merchant service providers ramp up their efforts toward complying with the new rule. iCG, a Nacha-Preferred Partner, hopes to become a key contributor with its cutting-edge technological solutions. Whether our partners want to offer credit card solutions with our contactless, online solutions or ACH payments integrated with the same virtual terminal, our team commits to delivering excellence via our comprehensive industry experience and 24/7 support.
We value our ISO and ISV partners and strive to help them build strong, long-term relationships with their merchants by providing them with the support and solutions they need for seamless payment processing.
Request a Quote today to let iCG help your businesses accept ACH payments while staying in Nacha compliance.
Date Originally Published: April 26, 2021
Date Updated: August 1, 2022