You need to move money, but with that comes risk. How do you know a customer has enough funds available in their account? The answer: balance checks. With balance checks, you can guarantee that a customer has sufficient funds to facilitate confident money movement. And with live balance checks, you can get the most accurate, most up-to-date account information. Let’s dig deeper into how that works.
What Are Balance Checks?
Many payment solutions rely on balance checks to ensure that an account has the funds necessary to make a payment. For card payments, this comes in the form of a network authorization. For ACH transfers, balance checks help mitigate financial risks like payment failures, overdraft fees, and NSF fees, all of which can happen if an account holder tries to move money they don’t have.
Why Implement Balance Checks?
Balance checks deliver visibility into a customer’s bank account balance so payment facilitators can move money confidently and mitigate risk. Implementing balance checks into your workflow can produce benefits like:
- Streamlined payment experiences
- Reduced ACH payment errors
- Higher rate of payment success
- Mitigate money lost due to payment failures
- Better decision-making thanks to more accurate, up-to-date data
- Improved consumer experience with fewer fees and more successful payments
Altogether, balance checks help payment facilitators build better experiences for consumers that in turn yield better business outcomes.
How Finicity Enables Live Balance Checks for Streamlined, Lower-risk Account Funding
As part of our Finicity Pay solution set, we offer several balance check options so that payment facilitators can enhance the payment experience and move money confidently. Some balance checks are cached, meaning that you receive lightning fast account balance data with timestamps. For the greatest accuracy, live balance checks deliver real-time, instant balance information at the moment of the request. This might be ideal for higher value or riskier payments.
Our live balance call delivers real-time balance information (both cleared balance and available balance) complete with time stamps directly from a consumer’s financial institution. And thanks to the speed of our high-quality data connections, you can get that important balance information in seconds.
For use cases that may not require a live balance check, we also offer balance checks that occur throughout the day at regular intervals so you can retrieve lightning fast results.
These balance check solutions rely on our open banking platform, which is founded on secure data connections that ensure a seamless, low-friction experience, and consumers permissioning their data for their use. At Finicity, we empower the consumer to benefit from their financial data. That means they remain in control of their data and get a trustworthy experience.
Live balance checks aren’t the only payment-experience-improving solutions that Finicity offers. To complement live balance checks, our Finicity Pay solution set also enables you to verify:
- Account and routing number
- Account owner and address
Live balance checks are the key to more successful, more confident money movement. To see Finicity’s instant balance insights in action, request a demo today.
Whether your company uses direct deposit or other direct payments through the ACH network, you’re likely leveraging WEB debit transfers in some way. And if you’re using WEB debits, you should be adhering to Nacha’s WEB debit rule. Doing so will not only keep you on good terms with Nacha, but it’s also an opportunity to enhance payment experiences and protect your company. Here’s how.
How Prevalent Is ACH Fraud?
Nacha’s WEB (meaning internet-initiated entry) debit compliance rules are designed to protect both the ACH network and your company from rising ACH fraud. The Association of Finance Professionals (AFP) 2020 Payments Fraud and Control Survey Report found that 81% of businesses were targets of payments fraud and 55% of businesses were directly impacted by ACH fraud, with 33% of that fraud from ACH debits and 22% from ACH credits.
Fraud usually occurs when a criminal accesses a customer’s account and submits an unauthorized ACH transaction. In the past, all a criminal needed was an account number and a bank routing number. How many abandoned checkbooks might be floating around in the landfill, waiting for an eager fraudster?
With a third of businesses falling victim to ACH WEB debit fraud, it’s no wonder Nacha is updating its rules to protect both the ACH network and your company.
What Are the Nacha WEB Debit Compliance Rules?
Nacha has established operating rules that keep the ACH network secure. As part of those operating rules, originators of WEB debit entries must use a “commercially reasonable fraudulent transaction detection system” to screen those debit transactions for fraud. What that detection system specifically looks like has been largely up to the businesses initiating ACH transfers.
However, Nacha has recently augmented this requirement and now specifically requires that the “fraudulent transaction detection system” includes account validation. Under the new rule, an account must be validated with the first use of the account number, or after any changes to the account number. This updated rule aims to cut down on the WEB debit fraud that continues to climb.
When Do Businesses Need to Be in Compliance?
Nacha had originally set January 1, 2020, as the effective date for the new WEB debit rule. The Board of Directors then approved an extension to March 19, 2021 to allow businesses to educate themselves and implement the new processes. As of now, the WEB debit rule is in effect. Originators of WEB debit payments have one year from the effective date of the rule to implement an account validation solution.
How Can You Ensure Your Payments Are Compliant?
To be compliant with Nacha’s WEB debit rule, your payment solution must include some form of account validation. This validation can take several Nacha-approved forms:
- Prenotification entry: The payment originator sends a zero-dollar entry through the ACH network to the account several days prior to the live entry.
- Micro-deposit verification: Small amounts—usually between a couple cents and a dollar—are sent to an account and must be verified by the account holder.
- Instant account validation: The customer provides consent to access their account information, ideally through a direct API connection to the customer’s financial institution. Of these verification methods, instant account validation delivers the most accurate information in real time and doesn’t rely on the customer manually keying their account and routing information. They simply log in to their account and provide consent for the validation.
Nacha also notes that companies may leverage other validation means. For example, proving that an account has a reliable history of prior successful payments may act as a sufficient validation. Ultimately, Nacha recognizes that every company’s position and situation is unique, and so determining whether an account validation method is “commercially reasonable” will differ, and each company should consult their own attorneys, risk department, or other advisors to ensure the validation method is compliant.
How Finicity’s Instant Account Verification Prevents Fraud and Enables A Better User Experience
Through our Finicity Pay™ solution set, we offer instant account validation that satisfies Nacha’s updated WEB debit rule and provides additional valuable data to improve the experience and efficiency of ACH payments. Our instant account validation enables money movers to mitigate fraud and maximize the accuracy of payment transactions by providing account and routing numbers, account owner verification, and balance checks to streamline and secure ACH payments. And with easy and fast consumer permissioning, our validation solution empowers consumers to benefit from their own data to have better financial services experiences.
In addition to validating account information, the consumer-permissioned data Fincity’s open banking platform provides can be used to check balances prior to processing payments to avoid fees and returns due to insufficient funds. It can also support Know Your Customer (KYC) by providing the name and address of the account owner on file at the financial institution. While this data is useful for payments, it can also be leveraged in account opening, digital wallet or prepaid card funding, or other use cases where similar information is needed.
Don’t just take our word for it. Nacha has named Finicity a Preferred Partner, which guarantees that our validation solution aligns with Nacha’s core strategies to advance the ACH networks. According to Nacha, those who are preferred partners:
- Facilitate efficiencies in the use of ACH information and messaging formats and standards
- Improve ACH risk management and transaction quality that is conducive to ongoing innovation in the ACH network
- Conduct business according to the highest standards
Nacha’s WEB debit rule protects you and ensures better ACH payment experiences. And with Finicity’s instant validation solution, you’ll also empower your customers and get access to the highest-quality real-time data. To see our instant account validation in action, request a demo today.
Automated Clearing House (ACH) transfers may feel like one of those invisible processes that go largely unnoticed yet have become essential to everyday life, especially in business. When you received your last paycheck through direct deposit to your bank account, that was made possible through an ACH transfer. When you paid your utility bill directly from your checking account, you likely used an ACH transfer.
If you’re already passively benefiting from ACH transfers, imagine the positive outcomes that could come from actively leveraging the ACH network. Here are six fundamentals to get you started.
What Is ACH?
“ACH” stands for “Automated Clearing House,” which is a payment network built by the National Automated Clearing House Association (Nacha). An ACH payment is an electronic bank-to-bank payment enabled through the ACH network, rather than through a card network. ACH payments are also frequently called ACH “transfers” or ACH “transactions.” The ACH network is used in the United States, but there are also International ACH Transactions (IAT).
Banks and other financial institutions use the ACH network to aggregate transactions for batch processing. In a given year, the ACH network processes around 25 billion transactions, likely including your paychecks and monthly bill payments. There are three types of transactions:
- Direct Deposits: These transactions are any electronic transfer made from a business or government entity to a consumer. Direct deposit transactions may include:
- Paychecks and other employee expense reimbursements, bonuses, and commissions
- Social security payments and other government benefits
- Pension/401(k) disbursements
- Tax refunds
- Interest payments
- Split Deposit: This transaction enables deposits to be split into different accounts. For example, an employee could have a percentage of their paycheck deposited into a savings account while the rest is put in checking.
- Direct Payments: If you’re sending money through the ACH network, then you’re making a direct payment. Payment solutions can enable any consumer to make these kinds of payments with their bank account:
- Charity donations
- Bill payments
- Tuition payments
- Send money through social payment apps
- Send money to friends and family
- Make ACH-enabled purchases
How Do ACH Transfers Work?
The ACH transfer happens in two key steps: initiating the payment and receiving the payment. Before you can initiate the transfer as the payment originator, a customer must first give the business approval to initiate the transfer. This approval usually happens by signing an ACH authorization form or through verbal agreement. During this initiation process, the customer can set up one-time payments, recurring payments, split deposits, and so on.
Once the customer has authorized the transfer, your bank account will “pull” the payment from the customer’s bank account. If your customer has insufficient funds, then the payment can “bounce” just like a paper check.
“Pulling” money from an account is known as an ACH debit transaction. An ACH credit transaction, on the other hand, allows you to “push” money from one bank account to another.
What Are The Benefits Of Accepting ACH Transfers?
More and more businesses are leveraging ACH transfers in their business transactions. That increasing adoption has likely come as more businesses realize the benefits of ACH transfers for both them and their customers:
- Low cost: ACH transfers tend to be a cost-effective method of moving money. We’ll cover more on costs below.
- Open and inclusive: As long as you have a bank account, you can pay and receive money through the ACH network. No need to worry about having a credit or debit card.
- Fast and easy: ACH transfers are much faster than delivering checks through snail mail, and you don’t have to worry about losing payments in the mail or dealing with paper check deposits.
- Better customer experience: Since ACH transfers can be customized for recurring purchases, customers don’t have to worry about receiving and paying a bill, which reduces friction between them and your business. ACH transactions are also easier than customers filling out a check, which may additionally increase the chances of converting prospects.
What Are The Costs Of ACH Transfers?
ACH transfers will save your business much more than processing fees or wire transfers (which we’ll get to in more detail shortly). The median cost per transfer is $0.29, but that number can rise or fall depending on:
- The average transaction size
- Volume of transactions you submit
- Whether or not a bank uses same-day ACH
- Size of the bank
- Other incidental or bank fees
What’s The Difference Between ACH Transfers and Wire Transfers?
In many instances, ACH transfers have replaced more traditional wire transfers. But that doesn’t mean that wire transfers have completely lost their utility. For example, wire transfers happen in real time, which means they can process within minutes or hours, where ACH transfers could take a few days. However, wire transfers cost more, typically between $20 and $30 for the customer, and the recipient frequently has to pay a fee as well.
The bottom line: wire transfers are likely better for large-sum, international, or time-sensitive transactions, where ACH transfers are more appropriate for smaller, more frequent transactions that can stand to take a little longer to process.
How Does Finicity Enable ACH Transfers?
What does all of this have to do with Finicity? On March 19, Nacha implemented a new WEB Debit Rule that requires account validation with the first use of an account number, or following changes to the account number. The purpose of the rule is to reduce the chances of fraud.
In order to help businesses satisfy Nacha’s new operating rule, Finicity delivers an instant account validation solution as part of our Finicity Pay solution set. In fact, Finicity is a Preferred Partner of Nacha for using instant account validation to mitigate fraud and maximize the accuracy of payment transactions by providing account and routing numbers, account owner and balance checks to make ACH payments even simpler. The speed and security of our open-banking-powered validation solutions also empower consumers with a streamlined, easy, digital-first experience.
ACH transfers are an innovative way for both businesses and consumers to move money while also cutting costs and saving time. Learn more about how Finicity is enabling secure and less risky ACH transfers.