Electronic payment systems are constantly evolving to keep up with the ever-changing landscape of how we do business. This is especially true for real-time payments, which are growing in popularity due to their speed and convenience. To ensure that these payments are processed smoothly and securely, the National Automated Clearing House Association (NACHA) has updated its rules.
What Is NACHA?
NACHA is a not-for-profit organization that governs the ACH Network, which is how most electronic payments are processed in the United States. The ACH Network processes billions of transactions each year, ranging from direct deposit payroll to bill payments.
What’s Changing?
A new NACHA rule has been implemented to standardize Micro-Entry procedures and format.
The reason for this change is to improve the effectiveness of account validation and fraud prevention for real-time payments and to provide more flexibility for financial institutions when it comes to fraud prevention and risk management. In the past, there were few no real-time ways to verify if an account holder had authorized a payment. This left the door open for fraudsters to exploit the system.
This change also defines “Micro-Entries” as ACH credits of less than $1 and any corresponding ACH debits used to authenticate the receiver’s account. This means that real-time payments will now be authenticated by micro-entries before they are fully processed.
With the new NACHA rules in place, financial institutions will now be able to use real-time data and AI to verify if a payment is authorized. This will help to prevent fraud and protect consumers.
What Does This Mean for You?
For consumers, the new NACHA rules should not have any direct impact. Financial institutions may need to implement new procedures to comply with the rules, but consumers should not experience any major changes.
For business that use ACH payments, you may need to update your procedures to comply with the new rules. For example, you may need to start using real-time data to verify payments. You should contact your financial institution for more information on how the new rules will impact your business.
Financial institutions will need to update their procedures and should seriously consider implementing an anti-fraud system that operates in real-time as the ACH system nearly does.
When Will This New Rule Take Effect?
The new NACHA rule will be implemented in two phases.
Phase 1 will take effect on September 16, 2022
For account validation, “Micro-Entries” will be defined as ACH credits, or offset debits as less than $1. Credit must have a bigger value than a debit, and both must be sent in at the same time for the transaction to be considered settled. Additionally, in the company entry description area, originators are required to type “ACCTVERIFY.” Finally, the receivers must be able to recognize the company name quickly, and it should be the same as, or very similar to, what will be used in later entries.
Phase 2 will take effect on March 17, 2023
Originators are required to employ fraud detection methods that are appropriate from a business perspective. This involves keeping track of the volume of Micro-Entry entries that are sent forward and returned.
Benefits of the New NACHA Rules
The new NACHA rules will help to better enable the identification of Micro-Entries and reduce the risk of fraud. This is a major benefit for both consumers, financial institutions, and businesses alike.
Also, it will deliver the effectiveness of the Micro-Entry process for the validation of accounts which should result in greater customer satisfaction. It will also give more flexibility to financial institutions when it comes to fraud prevention and risk management of real-time payments.
In the long run, these benefits should result in increased confidence in real-time payments, which will lead to more widespread adoption of this payment method.
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