Upcoming Nacha Rule Changes for WEB Transactions
On March 19, 2021, the National Automated Clearing House Association (NACHA) updated rules for WEB Entries: ACH Network transactions initiated over the internet and wireless networks. Updated requirements were designed to enhance fraud prevention and the overall customer experience.
In our continuing coverage of NACHA’s evolving rules, we’ve provided guidance on:
- PPD Transactions (Prearranged Payment and Deposit Entries)
- TEL Entries (Telephone-Initiated Entries)
- CCD Transactions (Cash Concentration or Disbursement)
- WEB Entries (Internet-initiated Entries)
This segment will focus on the updated authorization process for WEB Entries.
The ABCs of the Upcoming NACHA Rule Change
Check verification services are an excellent way to solve the costly problem of fraudulent transactions. NACHA operating rules currently require WEB Entry originators to use “commercially reasonable” fraud detection systems. Beginning March 21, 2021, these systems will also need to verify that consumer accounts are legitimate and ready to receive ACH debits. This rule applies to first-time and existing customers with new or updated accounts.
The updated WEB Debit Account Validation Rule modifies Article Two, Subsection 184.108.40.206, “Additional ODFI Warranties for Debit WEB Entries.” Originating Depository Financial Institutions (ODFIs) must warrant to Receiving Depository Financial Institutions (RDFIs) and ACH Operators that they meet the following criteria:
(a) Fraud Detection Systems: The Originator has established and implemented a commercially reasonable fraudulent transaction detection system to screen the debit WEB Entry.
(b) Verification of Receiver’s Identity: The Originator has established and implemented commercially reasonable methods of authentication to verify the identity of the Receiver of the debit WEB Entry.
(c) Verification of Routing Numbers: The Originator has established and implemented commercially reasonable procedures to verify that the routing number used in the debit WEB Entry is valid.
NACHA members originally approved the updated WEB Debit Account Validation rule in November 2018, with an effective date in January 2020. Upon further review, the NACHA Board of Directors decided to give businesses more time to get up to speed and update their fraud detection capabilities. The deadline was extended to March 21, 2021.
While the rule pertains to ODFIs, it affects RDFIs, ACH Operators, businesses, and consumers. As originators update fraud detection capabilities and authorization procedures, RDFIs may see an increase in ACH prenotifications, microtransactions, and validation requests instead of live-dollar transactions. These increases could potentially increase costs for WEB debit originators and participating organizations.
Why Is Account/Check Validation so Important?
Any business that originates credit and debit knows that accuracy is the key to success. Errors in account, transit, and routing numbers take time and money to correct and may result in added fees from financial institutions. These errors may delay payroll deposits, vendor payments, and customer transactions, potentially damaging a company’s image and brand.
Account validation procedures help ACH debit originators identify data entry errors, whether they are caused by accident or intentionally fraudulent. Verifying checks and accounts at the onset of a transaction can improve employee, vendor, and customer relationships while reducing the amount of help desk calls and increasing customer longevity.
Account/Check Validation Methods
Companies can choose account/check validation methods that best meet their needs and use cases. Here are some examples:
- Manual method: This approach is suitable for businesses with a small number of accounts to verify. Manual processes are accurate, but they are time-consuming, and not all financial institutions and consumers are willing to provide information to a caller.
- ACH method: This method verifies routing and account numbers and confirms accounts can receive ACH entries. It doesn’t check account holder names. It is best for businesses that can wait up to three days for a response before initiating an entry.
- Micro Deposits: This method verifies routing and account numbers so that accounts can receive ACH entries and receivers have access to the accounts. Because businesses must wait several days for consumers to respond, this option is best for businesses that are willing to wait and whose customers are willing to respond.
- Validation Services: This fast and efficient scoring method uses new technology that is not widely available. It requires companies to provide customer information, which may be subject to consumer privacy regulations. While the service is expensive, it may be useful when the speed of response or a need for additional account information is critical.
How iCheckGateway.com Can Help
ICG-Verify, a check verification service by iCheckGateway.com, helps WEB entry originators identify and eliminate the potential for fraudulent activity at the point of sale. By providing real-time access online to positive and negative account information and check level status, the solution reduces the potential for returned and unpaid items.
Reduce Fraudulent Behavior
ICG-Verify’s leading ACH check verification technology screen can detect discrepancies in routing numbers, account numbers, and check numbers. It also flags suspicious activities such as Recent Stop Payments, NSF, Recent Returns, or High Debits, Non-Reporting Bank, Fraud or Stolen Checks Reported, and Negative Data Found.
In addition to checking real-time account status and prior day processing, ICG-Verify screens a check writer’s history, in-person and online across multiple databases. Companies can select the following standalone or a 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
Bottom Line Benefits
The ability to determine if checks are valid or invalid reduces the risk of fraud and improves check acceptance rates. Businesses that process checks quickly and accurately can prevent returned check losses and accept more checks at the point of sale. Investing in a check verification service is a smart management strategy that delivers bottom-line benefits and helps businesses grow and scale.
ICG-Verify provides 24/7 support. Partners can initiate service requests and track open cases on Partner Zone, an online portal. They can speak with ICG support representatives between 9 am – 5 pm Eastern Time, Monday – Friday, and reach after-hours support teams 24 hours a day.
iCheckGateway.com and industry leaders are working with NACHA to improve existing check account validation services and create new innovative services. NACHA collaborates with financial institutions, processors, third-party service providers, and businesses to drive continuous process improvement across all financial services.
NACHA’s updated rule is intended to help prevent fraudulent payments from entering the ACH Network while protecting RDFIs from posting fraudulent or otherwise incorrect or unauthorized payments. ACH Originators are in the best position to protect the security and integrity of WEB debit transactions, online and in stores, at the point of interaction.
The account validation requirement significantly ups the ante in fraud prevention while providing the most advanced protections available to help businesses stay ahead of the technology curve. Businesses that implement advanced account validation systems will boost check acceptance, improve professional relationships, and avoid losses due to financial institution fees, delayed customer payments, and customer attrition.
The ACH network processed 6.4 billion payments in Q1 2020, a 7.1% increase over the previous year. Rising transaction volumes proportionately increase the risk for errors and fraud. Adding account validation to fraud detection systems will improve check-acceptance rates, benefiting all financial services industry stakeholders.
Schedule a call with our team if you want to partner with a payment solutions provider that can offer online real-time access to both positive and negative account information and unparalleled check verification services.
Date Originally Published: July 22, 2020
Date Updated: July 27, 2022