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The Customer Not Present ACH Risk

Feb 02, 2012 Dave King

If you run a business that processes electronic payments, one of your biggest concerns is the threat of fraud. Because of the “blind” nature of Internet transactions, any online payment is potentially a Customer Not Present situation, and you have no way to know whether the customer has authorized the transaction or not. In these situations, the risk to you is highest when using ACH payments. For this reason, we wanted to examine the Customer Not Present ACH risk problem in a bit more detail, to help you decide how to handle it.

The main issue with the Customer Not Present ACH risk problem is that, with ACH payments, your business has very little protection from scams as well. In a typical scenario where a customer finds out their bank account has been accessed without their permission, the customer issues a Stop Payment or even reverses the charges, taking the money away from you. At this point, under the ACH system, it is solely your responsibility to try to recoup the lost money.

Further escalating the Customer Not Present ACH risk to you is the fact that banks actually have very little responsibility to verify any customer data. The system will verify the bank's routing number, but often times, even the customer's bank account is not checked until days after the transaction. Other details, such as their name, are often not verified at all.  

This is the crux of the Customer Not Present ACH risk: you can't wait days to provide a service, but if the charge is fraudulent, you are the one who loses money.

Other types of electronic payment systems mitigate this risk somewhat. Credit Cards offer more robust on-the-spot checking of customer details, but in most cases, a stolen credit card still contains all the necessary information. Other proprietary systems, such as PayPal, require password verification, which at least helps reduce fraud.

So far, the most popular solution to the Customer Not Present ACH risk problem is the use of third-party verification systems. Through a combination of fraud databases, computer-based risk analysis, and real-time data monitoring, these systems can alert your business to potential fraud, and often in time for you to intervene in the transaction before it goes through.

With proper shielding, your business can be mostly protected from the Customer Not Present ACH risk, helping make ACH payments a safer and more financially stable proposition.

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