Financial Management, Open Banking
How the Nacha WEB Debit Rule Affects Your Organization
Whether your company uses direct deposit or other direct payments through the ACH network, you’re likely leveraging WEB debit transfers in some way. And if you’re using WEB debits, you should be adhering to Nacha’s WEB debit rule. Doing so will not only keep you on good terms with Nacha, but it’s also an opportunity to enhance payment experiences and protect your company. Here’s how.
How Prevalent Is ACH Fraud?
Nacha’s WEB (meaning internet-initiated entry) debit compliance rules are designed to protect both the ACH network and your company from rising ACH fraud. The Association of Finance Professionals (AFP) 2020 Payments Fraud and Control Survey Report found that 81% of businesses were targets of payments fraud and 55% of businesses were directly impacted by ACH fraud, with 33% of that fraud from ACH debits and 22% from ACH credits.
Fraud usually occurs when a criminal accesses a customer’s account and submits an unauthorized ACH transaction. In the past, all a criminal needed was an account number and a bank routing number. How many abandoned checkbooks might be floating around in the landfill, waiting for an eager fraudster?
With a third of businesses falling victim to ACH WEB debit fraud, it’s no wonder Nacha is updating its rules to protect both the ACH network and your company.
What Are the Nacha WEB Debit Compliance Rules?
Nacha has established operating rules that keep the ACH network secure. As part of those operating rules, originators of WEB debit entries must use a “commercially reasonable fraudulent transaction detection system” to screen those debit transactions for fraud. What that detection system specifically looks like has been largely up to the businesses initiating ACH transfers.
However, Nacha has recently augmented this requirement and now specifically requires that the “fraudulent transaction detection system” includes account validation. Under the new rule, an account must be validated with the first use of the account number, or after any changes to the account number. This updated rule aims to cut down on the WEB debit fraud that continues to climb.
When Do Businesses Need to Be in Compliance?
Nacha had originally set January 1, 2020, as the effective date for the new WEB debit rule. The Board of Directors then approved an extension to March 19, 2021 to allow businesses to educate themselves and implement the new processes. As of now, the WEB debit rule is in effect. Originators of WEB debit payments have one year from the effective date of the rule to implement an account validation solution.
How Can You Ensure Your Payments Are Compliant?
To be compliant with Nacha’s WEB debit rule, your payment solution must include some form of account validation. This validation can take several Nacha-approved forms:
- Prenotification entry: The payment originator sends a zero-dollar entry through the ACH network to the account several days prior to the live entry.
- Micro-deposit verification: Small amounts—usually between a couple cents and a dollar—are sent to an account and must be verified by the account holder.
- Instant account validation: The customer provides consent to access their account information, ideally through a direct API connection to the customer’s financial institution. Of these verification methods, instant account validation delivers the most accurate information in real time and doesn’t rely on the customer manually keying their account and routing information. They simply log in to their account and provide consent for the validation.
Nacha also notes that companies may leverage other validation means. For example, proving that an account has a reliable history of prior successful payments may act as a sufficient validation. Ultimately, Nacha recognizes that every company’s position and situation is unique, and so determining whether an account validation method is “commercially reasonable” will differ, and each company should consult their own attorneys, risk department, or other advisors to ensure the validation method is compliant.
How Finicity’s Instant Account Verification Prevents Fraud and Enables A Better User Experience
Through our Finicity Pay™ solution set, we offer instant account validation that satisfies Nacha’s updated WEB debit rule and provides additional valuable data to improve the experience and efficiency of ACH payments. Our instant account validation enables money movers to mitigate fraud and maximize the accuracy of payment transactions by providing account and routing numbers, account owner verification, and balance checks to streamline and secure ACH payments. And with easy and fast consumer permissioning, our validation solution empowers consumers to benefit from their own data to have better financial services experiences.
In addition to validating account information, the consumer-permissioned data Fincity’s open banking platform provides can be used to check balances prior to processing payments to avoid fees and returns due to insufficient funds. It can also support Know Your Customer (KYC) by providing the name and address of the account owner on file at the financial institution. While this data is useful for payments, it can also be leveraged in account opening, digital wallet or prepaid card funding, or other use cases where similar information is needed.
Don’t just take our word for it. Nacha has named Finicity a Preferred Partner, which guarantees that our validation solution aligns with Nacha’s core strategies to advance the ACH networks. According to Nacha, those who are preferred partners:
- Facilitate efficiencies in the use of ACH information and messaging formats and standards
- Improve ACH risk management and transaction quality that is conducive to ongoing innovation in the ACH network
- Conduct business according to the highest standards
Nacha’s WEB debit rule protects you and ensures better ACH payment experiences. And with Finicity’s instant validation solution, you’ll also empower your customers and get access to the highest-quality real-time data. To see our instant account validation in action, request a demo today.