Important NACHA Changes: Account Validation

Starting March 19, 2021, the National Automated Clearing House Association (NACHA) will require businesses to perform online verification of bank accounts before they accept or process ACH payments. This will not just require effort, but it also will have some logical challenges for merchants. Let’s take a closer look at this situation and how to simplify the process for you. If you are wanting to learn more about NACHA, check out this insightful article.

Why the changes?

ACH payments play a significant part in online payment acceptance options.  This network allows transfers from and to different banks for the payment of goods and services. NACHA’s recent figures revealed that in 2018, U.S customers sent and received approximately 23 billion individual electronic transactions. This accounts for close to 82% of all U.S payments, summing up to more than $15 trillion.

NACHA worries this high volume of transactions on the ACH network opens the way for fraud. As such, they are pushing for more robust controls against fraud, and one of them is this new rule that requires account validation.

Understanding the New Requirements

With this rule, businesses that debit funds for the payment of online orders will be required to implement robust fraud detection methods like minimum account validation as part of a fraud detection system. Also, as part of the validation process, merchants must ensure any bank account submitted for an ACH transaction is valid.

Account Validation Approaches

There are five approaches to account validation under this new rule – let’s look at all in-depth:

1. Manual validation involves merchants obtaining a consumer’s voided check or linking with the bank in which the check is drawn for verifying routing and account numbers. The downside is that this process is time-consuming as it can take upwards of a week to complete.
2. The micro-deposit method requires merchants to make one or two deposits of a few cents into a customer’s account. Then, the client confirms the amounts deposited. This is also not a fast option, as it takes a few days to complete. Plus, it’s not full-proof as some customers don’t complete the two validation steps.
3. Pre-notification transactions are like micro-deposits, but they do not require customer confirmation. Instead, they send a no monetary value transaction through the ACH network to confirm an account is valid. However, pre-notes also take two or three days to complete, and the merchant can only initiate payments. Also, NACHA’s guidelines state businesses must wait for three days after sending the pre-notes before placing an actual debit instruction to transfer funds.
4. Database verification encompasses a platform maintained by several banks that are used to cross-reference account and routing numbers. This method proves a bank account exists, and only a few seconds to complete. However, it doesn’t show the person who initiated the cross-reference owns that account. Therefore, it still puts a business at risk of fraud and expensive errors.
5. Instant account verification uses Application Program Interfaces (APIs) to connect to a bank digitally. A consumer’s routing and account numbers are directly retrieved from an account being authenticated. Once a customer chooses their bank from a given list, enters their bank login and password, accounts are then connected digitally. This process takes only 7-11 seconds.

Which validation approach is best for your business? 

Merchants still have time to prepare for the March 2021 deadline to update their account validation method. Each method has pros and cons. You need to consider how your customer completes the checkout process and adopt a process that is transparent and quick. Anything less may increase your abandonment rate and risk of failed transactions. Don’t worry – this process is not as intensive as it sounds. Give our knowledgeable payment experts a call to discuss your business needs, and we’ll guide you to the best option to receive more payments for less.