Posted by NationalACH on Feb 02, 2016
Preventing ACH Payment Fraud

Innovation within the payment industry frequently leads to the opening of new opportunities for fraudsters. In order to avoid the costs associated with fraud attacks, all parties involved in the payment process need to improve their fraud prevention strategies.

Fraudsters display unparalleled resourcefulness when it comes to discovering and exploiting loopholes.  The best moment to do so is when the payment environment undergoes some major change.

How ACH Fraud Is Possible

ACH merchant account fraud can be perpetrated both over the phone or on the internet.

For example, in a common fraud scheme, the fraudster will convince the account holder to disclose their confidential financial information over the phone.  The information is then used to defraud the account holder.  

The most sophisticated type of ACH fraud involves the infection of computers with a virus that will start looking for specific keystrokes performed by victims while they log into their bank accounts. Fraudsters will use this information to create their own login credentials and transfer funds from the hacked accounts to their own untraceable overseas accounts.

It is not surprising that the volume increase of ACH payments has been going hand in hand with a proliferation of fraud attempts. Since fraudsters rely on the human factor to pull off their fraud attacks, raising awareness about fraud and popularizing means to protect oneself from them seems to be the right way to go.

The Information Security Media Group carries out a yearly survey of banking institutions that is meant to provide an overall industry perspective on fraud and how it evolves. The 2014 Faces of Fraud survey shows that the biggest stumbling block against fraud prevention is the lack of awareness among customers regarding fraud, and their unwillingness to accept additional security features or more sophisticated authentication methods.

Impact of Same-Day ACH on Fraud

Lack of customer awareness places additional burdens on financial institutions and companies to prevent fraud through other means, such as data analysis, automated software, or manual review. The introduction of Same-Day ACH, a new feature that will decrease the settlement time of ACH payments, will prove to be a game changer in terms of fraud prevention as well.

Guardian Analytics describes some possible scenarios that Same-Day ACH will make possible. Fraudsters will most likely try to take advantage of the spike in volume that will occur right before the deadline for transaction submission. For example, they might submit a high number of relative low-value transactions or they might take the time to harvest information about the account holder that would enable them to create payments which will seem legitimately enough to pass a fast review.

Prioritizing Fraud Prevention

A comprehensive fraud prevention strategy includes customer profiling, real-time transaction monitoring, data analysis, and secure authentication.  Guardian Analytics suggests that the successful strategy after the introduction of Same-Day ACH should rely on the automation of some existing fraud prevention tasks, which should enable financial institutions to assign more resources to complex behavioral analytics.

Regardless what strategy financial institutions will eventually implement, the introduction of Same-Day ACH will confirm the widely-accepted assumption that fraud is a constantly changing phenomenon.

Do you want to prevent fraudulent ACH payment transactions and safeguard your business?