While the NACHA WEB Debit Rule went into effect on March 19, 2021, enforcement of the rule was delayed – until now.
WEB debit entries continue to increase in popularity and have historically been susceptible to fraud. To combat the rising criminal activity, the rule requires businesses to validate a consumer's bank account information when initiating an ACH debit transaction.
What FIs and businesses need to know
1. ACH Fraud is Real and Growing.
The Association of Finance Professionals (AFP) 2021 Payments Fraud and Control Survey Report found that in 2020 74% of businesses were targets of payments fraud, with 34% of that fraud from ACH debits and 19% from ACH credits. That means more than one-third of businesses have experienced some sort of ACH fraud.
2. Account Validation is Required.
Financial institutions, corporations and government entities that only ask their customers to enter an account and routing number for a payment, but do not perform an account validation step will not be compliant with the new rule. So, if you haven’t created a project to get into compliance, you will need to prioritize resources quickly.
3. Compliance Solutions are Available. But Time’s Running Out.
There are several ways to comply with the new rule – manual verification, ACH prenote, micro/trial deposits, database and FI credentials. A combination of methods can better ensure a frictionless and lower potential fraud experience for customers. FIs and businesses will need to evaluate which method is best for their customers, and there are often pros and cons associated with using just one.
There are solutions that help with the rule compliance and benefit companies and consumers in several ways. Early Warning’s Verify Account® solution leverages the industry’s most current and accurate source of collaborative account information through its National Shared DatabaseSM Resource to validate accounts and respond to high-risk transactions.
With every inquiry, it can answer:
- If the person transacting is authorized to do so on this account. • Whether the account is open and active.
- If it’s a new account.
- The status of the account, i.e. negative.
- If the account is a non-DDA account.
- The account’s associated risk.
- And whether an FI can debit the account.
4. Be Cautious of Solutions Using Aggregate Data Platforms
While there are several options out there, ideally, a consumer won’t feel any impact with the solution you implement. For example, Early Warning’s Real-Time Payment Chek® product uses a consortium of bank-verified information from more than 3,500 financial institutions that enables a frictionless user experience with no consumer involvement.
Be wary of platforms that use data aggregators from scraped or API bank credentials as these can fail if an FI changes its online layout or has blocked aggregation. Consumers can experience high friction and a higher risk of fraud when they have to provide or update their bank credentials.
5. Emerging Trends Create New Challenges
Instant payments are gaining traction in 2022, creating new opportunities for fraudsters to defraud global businesses quickly. The need for FIs and businesses to implement the right controls becomes essential. Companies like Early Warning are continuously innovating to stay ahead of evolving fraud trends, emerging bank technologies, and regulatory changes to help keep your customers safe, and you in compliance.
Key Takeaway
Nacha’s WEB Debit Account Validation Rule will better protect originators and consumers in a world with increasingly common and lucrative fraud attacks. To learn more about how we're helping companies, government entities and financial institutions stay in compliance with the new rule, check out the panel discussion on PYMNTS.com with our own, Paramita Bhattacharjee, VP Business Line Leader – Risk Insights