Automating Clearing House Payments – or ACH – can be a godsend for merchants for both one-time and recurring payments. The costs associated with credit card processing can seem overwhelming, and offering a multitude of payment options decreases abandoned carts and missed payments.
Certainly, the popularity of ACH proves the benefit to businesses considering this kind of payment option. NACHA reports that 25 billion ACH payments were made in 2016, an increase of 5.3% over 2015’s numbers. Those payments represent a huge sum, as well, with a value of $43 trillion dollars.
Inevitably, as the number of ACH transactions has increased, so has fraud associated with ACH. And with same-day ACH processing fast approaching, some experts are warning of the risks, while other experts identify the faster payments as being no more risky than the current system.
All payments have some risk associated with them. What is important for merchants to understand is what the risks are to them when accepting ACH payments, and what they can do to mitigate them.
Types of ACH Fraud
Most ACH fraud falls into three categories.
The first is on the consumer side. Fraudsters use various means, including phishing tactics and keyloggers, to obtain legitimate banking information from consumers, and then use that information to tap into the funds now available to them from the compromised bank account.
This can be bad news for a merchant, since payment through a compromised account may be contested at a later point, or an account that is used for recurring payments may be suddenly closed.
The next two methods more directly affect merchants and are closely linked.
Some ACH fraud schemes involve using falsified banking information to set up a payment, but no real account exists behind that payment.
The second is when information is taken in on an account, and the merchant provides the goods or services before the payment has cleared. This can occur when the first scenario occurs – a consumer’s bank account has been compromised – and the payment is later disputed.
Knowledge and Tools to Prevent Fraud
Advancements in technology are making it easier for merchants to mitigate the risks associated with ACH fraud. In addition to the tools available, teaching employees what to be on the lookout for and setting the right policies in place can help.
It’s a good idea to set a policy that items aren’t shipped or provided when ACH is involved until the payment has been validated. This becomes much easier, very soon, when same-day ACH is available. But with most ACH processing within a day even now, there is little inconvenience for your customer and significant peace of mind for you.
Also, remind your staff to be wary of unusual activity. For instance, repeated purchases in a short period of time or purchases made in quick succession for the same amount should be red flags. Sometimes the easiest way to prevent fraud is to go with your gut.
For many merchants, however, a single employee won’t see multiple transactions passing through and have the opportunity to notice a pattern. This is when you’ll rely on the tools from your payments providers.
When accepting ACH payments, check with your provider and see what their capabilities are for verifying an account is open and has funds available. And to prevent being part of the problem, be sure that the transfer of bank information from you to your processor is secure and encrypted.
There are many benefits to being able to accept ACH payments from your customers. But, as with any kind of payment, there are risks involved. Through awareness, smart procedures and leveraging the best anti-fraud technology your payment provider has available, merchants can side-step the risks and utilize ACH for their customer’s convenience and their own lowered costs.