In an effort to reduce fraud, Nacha is moving forward with implementation of a rule enhancement for authentication of account numbers that are accepted for the first time by merchants. The rule was first slated to take effect a year ago, but Nacha agreed to extend the implementation until March of 2021. The good news is that any existing customer with ACH payment account on file that has been successfully used to process a payment meets the requirements of Account Authentication. This rule will specifically apply to new ACH transactions that are WEB debits.
There are three methods of authentication Nacha cites as acceptable:
1. Pre-notification transactions (prenote)
2. Micro transactions (penny tests)
3. Third-party authentication services
The issue with the first two is timing. It can take several days to confirm an account number is live and able to accept ACH debits (a core requirement for this new rule). The use of third-party authentication services can be significantly more expensive, but many have ancillary services that can go as far as Account Owner Authentication (AOA). In addition to confirming the account is open and suitable for ACH, it confirms the user is authorized to make transactions against this account. For many, the cost of this higher level of scrutiny may be overkill, but it takes authentication as far as possible without guaranteeing payment.
The key benefit to using a third party is to receive account status in real time. This will tell you whether an account has a valid account number associated with the routing number and can even tell you if the account is in good standing as of the previous day. Information like this can allow merchants to reduce costly Administrative ACH returns (account closed, unable to locate), and even NSF. Though it’s not able to confirm the available funds in the account, it can tell you if an account is in NSF status, which can help decisioning.
Nacha has a great resource to help merchants not only understand the rule, but also to provide lists of partners that provide these services. It also indicates if the partner carries Nacha credentials. The link below is a must read for every merchant accepting ACH payments. https://www.nacha.org/content/account-validation-resource-center
The date to be compliant is approaching quickly. Any merchant not meeting the minimum requirements of this new rule by March 19 will need to demonstrate progress toward compliance. If you have any questions about your readiness or need help defining your ACH strategy, feel free to reach out to me at jim@optimizedpmts.com.
