Data-Driven Strategies to Help Prevent ACH Fraud

Anybody using ACH to process transactions should use data analytics technology to optimize their cybersecurity and fight fraud.
using data-driven cybersecurity to fight ACH fraud
Shutterstock Photo License - Gorodenkoff

There is no question that advances in data technology have led to some major changes in the financial industry. A growing number of banks, insurance companies, investment management firms and other financial institutions are finding creative ways to leverage big data technology.

The market size for financial analytics services is currently worth over $25 billion. It is growing rapidly as more financial companies discover the wonders of data analytics. Automated Clearing House (ACH) is one of the companies most impacted by developments in big data.

Automated Clearing House is a financial network used for money transfers and electronic payments. ACH payments allow users to transfer cash from one bank to another online. In this article, we highlight the benefits of ACH payments and strategies that involve using big data to combat ACH fraud.

Benefits of ACH payments

The world has gone digital, and customers no longer rely on cash or paper checks to make payments. The 2019 Federal Reserve Payments Study shows that the rate of ACH transactions grew at an annual rate of 6%, while over 20 billion paper check transactions declined. This means that you need to embrace ACH transfers for your business to remain relevant and competitive. Here are seven benefits of ACH payments.

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1. Lower costs

Most businesses accept credit and debit card payments for convenience. However, the processing costs that accompany these transactions tend to be high, often two to four percent per transaction without including the setup and operational fees. While paper checks have the lowest transaction fees, with some banks even offering small businesses free checks for their accounts, they require a lot of time and labor to process. Payments by ACH transfers are more affordable, and the savings on such transactions could pile up significantly more so when accepting recurring payments from your clients.

2. Accuracy

An error in a financial transaction, whether transposing a number when making a manual entry or losing a check, could have severe ramifications for the business and clients. According to a report by IBM Security, human errors result in 23% of cases of data loss. It also estimates that data breaches caused by human error could cost a business $3.3 million per breach. ACH transfers reduce physical handling of payments reducing error rates. This reduces the time spent resolving problems and researching to focus on other crucial business tasks.

3. Speed

Time is of the essence in every business organization, which is why you should consider accepting ACH payments as they have a fast-processing time. Unlike the traditional checks, ACH transfers are made online, meaning that they are not held up by the time it takes a check to be mailed, do not require manual entry, and cannot be lost. An ACH payment can take place in seconds, giving you confidence that funds will be sent or received on time.

4. Ideal for recurring billing

If your business operates on a subscription-based model, ACH payments can be an excellent option for you and your clients. Subscription-based businesses face various challenges, including processing costs due to recurring monthly transactions. Customers may also forget to pay their bills leading to cash-flow problems and unpaid invoices. With ACH transfers, funds can automatically be debited from bank accounts when payments are due. This saves you time on routine transactions and alleviates the hassle of following or harassing clients due to delayed payments.

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5. Convenience

ACH payments are convenient for you and your customers. With an ACH transfer, you do not have to make entries in a ledger, receive or review checks, endorse checks and deliver them to the bank, allowing you to save on transportation, ink, postage, and labor. It also frees your customers from making trips to the post office or remembering to fill paper checks and stamp envelopes regularly.

6. Eco-friendly

Since ACH payments are electronic transactions, they eliminate the need for the paper required to print envelopes, checks, and stamps. You also do not require carbon prints used to deliver and transport bills. This helps you reduce operational costs and conserve the environment.

7. Security

According to a survey by AFP Payments Fraud and Control, paper checks remain the most vulnerable means of payment to fraud in 2021.  This is because statements can be lost during transfer. Different entities also handle them before they get to the recipient, making them susceptible to tampering and signature forgery. ACH payments are more secure than paper checks as they do not require intermediaries or transferring via mail. By adopting ACH payment, you improve the chances of customers feeling safe and secure when doing business with you.

Data-Driven Strategies to prevent ACH Fraud

ACH payments are more secure than paper checks, but this does not mean that they are immune to fraud. Thanks to advancements in big data technology, cybercriminals and hackers are developing more sophisticated ways to access private information such as your bank routing number and the business checking account number. Fortunately, big data is also a boon for cybersecurity as well. AI and big data make it easier to thwart cyberattacks when used strategically.

With this information, unauthorized personnel can pay for goods and services both online or by phone or transfer funds to themselves, leaving you to clean up the mess. A fraud attempt also makes your business vulnerable to future attacks, so you need to develop ways to combat fraud and protect your business and customer information. The following are effective ways to use big data to prevent ACH fraud:

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1. Place ACH blocks on all accounts

Placing an ACH block on your accounts is one of the easiest and arguably the best ways to combat fraud. An ACH block allows you to review and approve any transaction before it is completed. This eliminates the possibility of non-reviewed or automatic fraudulent transactions.

2. Create an authorized user-list in your database

If your business often deals with recurring transactions with a particular number of parties, you should consider creating a database with an authorized-user list. Be sure to specify the date ranges, dollar limit and the amount, and one-time or recurring use. This ensures approval of only the transactions from the authorized-user list. If a request is received from a party not on the list or falls outside the set parameter, it will be rejected or placed on hold for review.

3. Set up multi-factor authentication

While creating a secure or complex password can help protect your business and customer information, cybercriminals have a way of figuring it out. To improve the security of your company’s data, consider investing in multi-factor authentication, also known as two-factor authentication.

Multi-factor authentication adds an extra layer of protection to company data. It requires inputting a randomly generated code sent via email or phone to access business accounts. This code is generated one time, so it is difficult for a hacker to figure it out, allowing only authorized company officials to access crucial information.

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4. Set up one-time authorization

A one-time authorization means that you authorize a single transaction by submitting the amount for that transaction and your business’s identification data. The bank then verifies the transaction based on the provided information and approves the single transfer and not others.

5. Do due diligence when onboarding

Unfortunately, most ACH fraud and theft happen from the inside. For this reason, you should run credit and background checks on all new staff and anyone who will access financial accounts.

6. Verify all transactions

With the rise in identity theft, you need to verify that you are dealing with the right person before making an ACH payment. Fortunately, data analytics tools make it easier. However, you still need to use traditional vetting methods.

Be sure to call the vendor, colleague, business partner, or client directly to confirm the payment information. Do not use the contact numbers provided on text requests or emails to call your target recipient. Instead, use previously known numbers. You could also monitor clients purchasing behavior to determine unusual buying.

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Endnote

ACH payments can improve your financial transactions’ accuracy, security, and speed. However, like any other mode of payment, they are vulnerable to fraud and theft. Implement the above strategies to ensure the safety of your financial accounts and protect the crucial company and customer data.