Participation in the Automated Clearing House (ACH) network provides financial institutions with many significant opportunities. Compared to paper-check processing, ACH offers numerous advantages including enhanced efficiency, reduced processing costs, clearly defined settlement times, control over payment timing, new revenue streams and increased customer retention.
One primary advantage is faster ACH payments. As of September 2016, credit-based ACH payments are now being settled within the same day. Same-day ACH debit payments will go into effect September 15, 2017. By March 2018, all receiving financial institutions will be required to make funds available to receipts by 5:00 p.m. the same day the transactions were initiated. Many financial institutions are in favor of same-day ACH, as offering this value-added service brings them a competitive advantage and the opportunity to earn higher fees for processing payment requests within shorter time frames.
However, there are problems: greater risk due to reduced transaction review items, increased transaction volumes and intensified interest from fraudsters. Previously, financial institutions had two- to-five days to analyze suspicious transactions, but now, in some cases, they have merely hours.
Many financial institutions (especially smaller financial institutions) are not equipped to deal with the new risks posed by same-day ACH. Their fraud systems, controls and secondary checks assume that they have plenty of time to perform those checks. They will have to increase their fraud analytics and security efforts to reduce fraudster attacks. Therefore, as ACH payment speeds improve, the banks systems and processes will also need to be improved.
To mitigate the risks involved with same-day ACH, financial institutions will need technology that monitors user behavior in real-time, transaction monitoring with web security to ensure that the user is valid, provides risk scoring to help prioritize the highest risk alerts, and blocks suspicious transactions before they are sent to the processing system.
In conclusion, there are many rewards to be had by using same-day ACH, but along with that comes additional risks to financial institutions. If you have any questions regarding same-day ACH, or if you would like to have a NACHA audit performed for your financial institutions, please contact Schneider Downs.