Account validation is an often underrated part of ACH and all online payment processing. Protecting the funds as they travel from institution to institution, or from bank to business to personal checking accounts, tends to be the area we focus on most heavily.
But the verification stage is near the beginning of the process for a reason – it is the gatekeeper for stopping fraudsters and certain security breaches in their tracks. And yet, merchants in the past have not been required to have an account validation procedure in place.
If you are a merchant using or considering implementing an ACH payment processing system, this will be changing soon.
New Nacha Account Validation Rules
Nacha has a new rule that will take effect on March 19, 2021, called “Supplementing Fraud Detection Standards for WEB Debits” and it aims to modify Article Two, Subsection 18.104.22.168 of the Nacha Operating Rules.
How Does This Change the Current Rule?
Nacha breaks down how the change will affect current operations in this Q&A entry:
Currently, Originators of WEB debit entries are required to use a “commercially reasonable fraudulent transaction detection system” to screen WEB debits for fraud. This existing screening requirement will be supplemented to make it explicit that “account validation” is part of a “commercially reasonable fraudulent transaction detection system.” The supplemental requirement applies to the first use of an account number, or with subsequent changes to the account number, when used for WEB debit entries.
But what does this mean? Starting next March, creators of WEB (or internet-initiated) debit entries will be required to validate that the account being used for the debit is valid – meaning it is an open account that currently accepts ACH payments.
One thing to note is that the new rule will not require the originator to validate ownership information or records for the account being used.
This new rule is being implemented at a time when ACH processing has experienced some hefty changes. Nacha’s Same Day ACH program has been gaining in popularity in recent months, and the maximum transaction amount has also recently been increased to $100,000.
This means larger amounts of money are now being moved more frequently – which means the risk for fraud is also increasing. And since account validation is a huge fraud deterrent, this change is going to be mandatory for all merchants starting next year.
What is Affected by the New Account Validation Rule?
Some of the payments being affected by this change include but are not limited to, insurance company payments, individual retirement account contributions, POS purchases, utility and tax payments, and charitable donations. For more information, PaymentsJournal suggests downloading the GIACT white paper entitled “Securing Faster Payments: Modernizing Account Validation”.
The good news is: once the account has been validated, the originator doesn’t have to repeat the process again unless the customer or account owner changes to a new account number.