New Account Verification Rules Offer Opportunity for Both Consumers and Financial Institutions

The payments landscape is undergoing a sea change, as consumers embrace a growing array of payment options and move away from cash and paper checks. A recent Worldpay survey found at least 140 online payment methods currently deployed, and that global e-commerce volume is expected to surpass $4.6 trillion a year by 2022, with more than half of that taking place without the use of debit or credit cards.

Cash still is used heavily at the point-of-sale, but Worldpay expects that to drop by 5% in the next five years as contactless payments through mobile wallets — including Apple Pay, Samsung Pay and Google Pay — are joined by the issuance of millions of contactless cards, led by major issuers with smaller institutions expected to follow.

Fraudsters Follow the Money Too

Online payments aren’t the only thing on the rise. So is digital fraud. The Automated Clearing House (ACH) channel, long considered relatively resistant to fraudsters, is increasingly a target. Fraud in the ACH channel is occurring in a global payments theft environment that has seen more than 40% of all consumers worldwide experiencing a fraudulent event online at some point, according to Experian’s 2019 Global Identity Fraud Report.

ACH transactions are attractive because of the channel’s ubiquitous adoption and cost-effectiveness — transaction fees are far less than card interchange fees and wire transfers — but the vast network also is attracting some unwanted attention.

The ACH payment itself isn’t often compromised. Instead the fraud usually happens because of attacks on the processes that precede the transaction. These attacks – including phishing and other social engineering attacks and data breaches – provide fraudsters the information they need to steal legitimate identities and take over accounts, or to create synthetic identities and create new accounts. To protect themselves, their customers and members, stronger internal controls are needed.

Enter New Rules for Account Validation

Nacha, the primary ACH network operator, is doing something about it. They’ve just adopted a new rule explicitly requiring financial institutions to go beyond the long-standing “commercially reasonable” standard for providing security to web-based debit transactions. As of March 19, 2021, account validation is required as part of a fraud-detection system.

Nacha recognizes complying with these new rules will have possible impacts on both originating depository financial institutions (ODFIs) and receiving depository financial institutions (RDFIs), including increased costs due to possible re-tooling of existing fraud-detection systems or deploying such protection for web-based debits for the first time.

However, compliance presents an opportunity to protect reputation, reduce fraud costs and introduce operational improvements — including reducing non-sufficient fund and user-input errors — that can save your organization money while increasing consumer satisfaction.

The best solutions provide those results quickly and seamlessly, while providing an experience that consumers, especially the growing global cohort of digital natives, expect as they do business online. That’s because if its slow or frustrating, consumers will abandon the process entirely. Reducing abandonment requires digital solutions that eliminate the friction in opening and onboarding accounts. Assuring continuing use after account opening requires account validation tools that seamlessly verify identities and available balances when they’re used to send and receive ACH payments.

The Envestnet | Yodlee Solution

Envestnet I Yodlee Account Verification is a flexible and innovative risk management solution that enables financial service providers to seamlessly receive payments and deposits, from a number of different sources — including checking, savings, and investment accounts. Nacha agrees our Account Verification tool meets the new Nacha regulations, and we are one of their Preferred Partners. This recognition confirms our leadership and innovation in advancing ACH network as well as helps  firms find compliant solution providers.

Surveys conducted for the Experian Global Identity and Fraud Report found consumer confidence in traditional security methods remains important for two-thirds of global consumers. Envestnet I Yodlee Account Verification satisfies the new Nacha requirement while boosting consumer trust and satisfaction, as well providing new back-office efficiencies through seamless account opening, onboarding and validation.

Learn more about the Envestnet | Yodlee Account Verification solution here.