Nacha Validation Rule: How to Turn Compliance Into Opportunity

How do financial institutions meet Nacha’s (National Automated Clearing House Association) web debit account validation rule without creating more friction for their growing number of digital customers, or added costs or risk for their business? Eric Jamison, Vice-President of Product Management for Envestnet | Yodlee, outlined Envestnet | Yodlee’s Account Verification solution at Nacha’s recent Smarter, Faster Payments Conference, demonstrating how it not only helps FinTechs and financial institutions meet these requirements but also improves the customer journey by empowering customers to validate themselves in real time.

How Nacha’s Account Validation Rule Impacts the Payments Landscape

Nacha’s 2021 rule change increases detecting fraud detection standards, requiring ACH originators of WEB debits (internet-initiated transactions) to use a “commercially reasonable fraudulent detection system” that now includes “account validation” for the first use of an account number, or for any change to previous account numbers. While it went into effect in March 2021, enforcement has been delayed until March 2022 to give the payments community more time to implement it.

This new rule is in response to the growing fraud the payments community – and the ACH network specifically – is experiencing due to the corresponding growth in digital payments and skyrocketing digital usage. Jamison noted ACH transaction volume grew by 8.2% in 2020, with 26.8 billion transactions.1 Transaction volume also grew in 2021, by 8.7%, reaching 29.1 billion payments.2 “However,” Jamison cautioned, “we’re also seeing that year-over-year, 33% of financial organizations are hit with some measure of ACH fraud, on either the credit or debit side.”3

How Nacha’s New Rule Increases Opportunities for Financial Institutions

Given the relationship between payments and fraud growth, it’s no wonder customers are seeking solutions. But here’s where regulation can actually unlock value. Jamison explained “Our customers are always asking us how they can grow their digital footprint while securing their environment, and here’s where we look at compliance as an opportunity.”

Jamison detailed how complying with Nacha’s new rule offers an opportunity to protect reputation, reduce fraud costs, introduce operational improvements and increase consumer satisfaction. To underscore the utility of bank account validation, he outlined how FinTechs and financial institutions both use the Envestnet | Yodlee Account Verification solution today for everything from account openings and pre-paid cards to disbursements, marketplace payments, payment setups and user verifications.

“We believe the key is to use a service (to meet Nacha’s new rule) not as a barrier but as a way to engage those customers in new and different ways,” he said, “and we think if it’s done properly, it can really increase that satisfaction with your customers and their experience with you.”

Attaining Nacha Compliance Using Envestnet | Yodlee Account Verification

Account verification from Envestnet | Yodlee enables validation of U.S. financial institutions in real time. It meets Nacha’s new rules for screening online payments, is easy to deploy and customize via APIs and developer-friendly tools, and supports Open Banking.

“Our solution really helps streamline that onboard experience for your customers, helps reduce abandonment, and most importantly, reduces any type of fraud that you see within your experience. And it’s done with the highest level of security and data privacy” noted Jamison.

He concluded by saying, “As we think about our payments solution and how we want to get customers to transact, we want to make sure we’re ripping down, as best we can and as securely as we can, any barriers to entry because using digital experiences is becoming table stakes.”

Nacha Account Validation Rule FAQ

What Is the Nacha Account Validation Rule?

Nacha’s rule specifies that “account validation” is required as part of every commercially reasonable fraud detection system for increased fraud prevention. This means that originators of WEB debits must validate customers’ account numbers the first time a consumer checking account is used for a payment processed through the ACH Network. The account number used for online payments must also be validated if the customer changes it to a new one. Read more about Nacha rules.

What Will the Nacha Account Validation Rule Change Do?

Nacha states that originators of WEB debits are in the best position to detect and prevent fraud related to ACH payments they are initiating – and they note that recent risk events perpetuated by social media indicate that not all ACH originators are screening WEB debit transactions.4 Nacha’s new rule requiring account validation aims to remedy that and prevent the introduction of fraudulent payments into the ACH Network.

How Will the Account Validation Rule Impact Originators?

Nacha recognizes that complying with the new rule will have a number of possible impacts on originators. Some originators may have to re-tool their existing fraud detection system or deploy protection for WEB debits for the first time.4 These changes may increase costs, but in the long term may save originators money by reducing the number of fraudulent payments and returned transactions, decreasing non-sufficient fund and user-input errors, eliminating friction in opening and onboarding accounts, and improving the customer experience overall.

Why Partner with Envestnet | Yodlee to Meet Nacha’s Account Validation Rule?

Satisfying the new NACHA requirement requires a solution like Envestnet I Yodlee Account Verification, which validates that an account exists, the initiator has access to the account, and the right person’s account is used for payment setup – all in seconds. It also checks the account balance to help avoid the possibility of payment return. As a result, originators can comply with NACHA’s new rule, boost consumer satisfaction, and enable new back-office efficiencies with seamless account opening, onboarding, and validation. Nacha agrees our Account Verification tool meets the new Nacha regulations, and has named Envestnet | Yodlee a Preferred Partner of Nacha, as a trusted source of technology for securing electronic messaging and payments.5