Much of the news about Nacha’s account validation rule that goes into full effect next month (March 2022) has focused almost exclusively on its use for account openings. New user registrations or on-boarding, typically involve satisfactory vetting process (Know Your Business or Know Your Customer), validating source of funding, and then actually moving the funds in real-time. While this use case is very compelling, especially leveraging the bank ACH rails in the U.S., there are several other reasons why Nacha’s account validation makes common sense.
The ACH Network has steadily grown over the years (including a record $29.11 billion payments and having moved over $72.62 trillion in 2021) and it is continuously evolving and keeping up with the growing financial services and payments economy. Nacha mandates are in place to help financial institutions and money movement providers ensure safe and secure best practices. Nacha created the WEB Debit Account Validation Rule to address concerns of fraud on the ACH Network. The rule requires any ACH originators of web debit entries use a "commercially reasonable fraudulent transaction detection system" to screen web debits for fraud. But fraud doesn’t happen only during an initial account opening phase. Fraudulent activity on the ACH network can be minimized through continued account verification.
Simply stated, this rule isn’t about the first time you open up an account, it applies to any bank transaction. You need to make sure nothing has changed.
Not Just for First Time Account Openings
There are several reasons why the financial services industry will want to comply with Nacha’s account validation rule on an on-going basis.
Reason #1: Take advantage of other rules, including increased dollar limit
This rule paves the way for other rules Nacha will be rolling out this year, including an increased same day dollar limit from $100,000 to $1 million. The $1 million limit will be beneficial for many types of payments, from insurance claim payments and payroll funding to business-to-business and tax payments, and many more. While individuals may not have to move $1 million on the same day, this solves for cashflow and liquidity options for the small and medium-sized business (SMB) sector. To cover any liabilities in a high-value transaction and provide customer confidence, continued account verification is a must.
Reason #2: Provide protection for payouts
The ACH network isn’t just for “pulling money” from an account, but also for “pushing money” into an account. Payouts use cases manifest in traditional payroll transactions and has taken on more meaning in today’s gig economy. For example, Uber or any other gig economy providers will want to make sure that they validate the destination bank account before sending out the money. To avoid unnecessary delays due to closed or inactive accounts, continued account verification is a must.
Reason #3: Reduce fraud and fraud costs
The ACH network boasts the lowest fraud rate, by value, among major payment rails. And it’s also very cost-effective – transaction fees are far less than card interchange fees and wire transfers. By using ACH instead of credit cards, checks or wire transfers, businesses can help reduce their losses and risks due to fraud – including substantial Not Sufficient Funds (NSF) and Overdraft Fees. To ensure low-cost, reliable and safe money movement, continued account verification is a must.
Reason #4: Pave the way to real-time payments
This updated rule is part of a long-term strategy to modernize the ACH system to meet the demands of faster payments. While the ACH network isn’t a real-time payment network, the enhanced account validation capabilities now required of its members are essential to the future viability and security of faster payments and eventually, real-time payments. To ensure almost real-time settlements and guaranteed funds transaction, continued account verification is a must.
The right account verification solution will go beyond meeting the basic requirement of the Nacha rule. Over the last year, Envestnet I Yodlee has invested into building out open banking connections with the largest financial institutions. This confirms that the bank account, the ownership, and the most recent balances have been sourced directly through the financial institutions. The value of leveraging the trusted link to bank accounts can help protect against fraud and mitigate risk, while enabling high value and quicker money movement, at a very low cost. Continued account verification is not only a must, but the capability that drives further customer adoption and satisfaction.
Envestnet I Yodlee Account Verification satisfies the Nacha requirement while also providing new back-office efficiencies through seamless account opening, onboarding and validation.
Learn more about the Envestnet | Yodlee Account Verification solution.