ACH Payments: A Risky Business

Since its introduction in 2001, WEB ACH payments – electronic transactions initiated over the Internet – have become one of the fastest-growing types of ACH transactions. It has allowed entire new online financial industries, such as Internet payment giant PayPal, to be born. However, the ACH payment system, and the WEB transaction specifically, has several key risks to transaction originators not shared by other online payment types, such as credit card transactions. When evaluating what payment system(s) your business should use, it is important to keep in mind these liabilities.

• The ability to verify customer account numbers with ACH payments is limited. Unlike credit card processing, which verifies all information beforehand, an incorrect or fraudulent account number is usually not noticed until it reaches the Receiving Depository Financial Institution (RDFI) (the customer's bank) and is rejected.


• Unlike credit cards, there is no preliminary check with ACH payments verifying the availability of funds. A WEB ACH transaction must make its way to the RDFI, be declined, and then returned to your business before you become aware of the issue, which can take several days.


• Not all ACH routing numbers match the routing number on the customer's checks. While this situation is rare, it too can lead to failed transactions that you, as the originator, are ultimately responsible for.


• An RDFI has no responsibility to verify any customer information beyond the account number. There is no native protocol within ACH payments to automatically prevent, for example, Bob Smith from using Jane Doe's account number to initiate a fraudulent transaction. This is also not an issue with credit card payments, which verify the customer's information beforehand.


• Finally, in all ACH payments, the responsibility for any incorrect information causing a transaction to be declined – whether accidental or deliberate – ultimately falls onto the originator of the transaction, your business. There are very few safeguards in place to prevent your business from losing time and money dealing with rejected transactions.

In short, when dealing with WEB ACH payments, there are several key vulnerabilities in the system that can put your business at risk when fraud occurs or the payment is declined. If you are looking to use WEB ACH, you may wish to consider third-party solutions to help defray potential losses and ensure the greatest number of payments possible go through smoothly.