Are ACH Payments or Transfers Safe?

August 31, 2021

Are ACH Payments or Transfers Safe?

If you do encounter any fraud or ACH errors, then you are protected under federal law. However, the only catch is that you need to report any problems within sixty days. 

In 2020, the Association for Financial Professionals (AFP) surveyed businesses and asked them to report how much fraudulent activity occurred. Payment technology security is seen as crucial by experts because of the conclusions drawn from their research. 

The results reveal that 81% of the companies had been attacked by payment fraud the year before. Businesses faced more danger of being defrauded than in the past because their risk percentage increased to its highest level in nearly a decade. 

The Automated Clearing House (ACH) is a federally-regulated electronic network used by banks to send and receive bill payments, eChecks, direct deposit statements, and other types of transfers. This convenient payment option uses a network that is similar to what financial institutions use for wire transfers, but ACH usually works best for batched, automated, or recurring electronic payments. 

Contrasted with credit card processing, ACH provides considerable cost savings, both for merchants and customers (consumer ACH transfers), while still giving them access to funds. The cost to process some types of ACH electronic fund transfers is zero (zero cost of transfers). 

While the ACH network is generally considered to be secure, but does it have any vulnerability to common scams and any other form of fraudulent activity? How secure are ACH payments or transfers? 

How Safe Is an ACH Payment? 

The ACH payment method is safer than writing checks. For instance, you only need to enter your bank account information once to establish ACH forms of payment. Conversely, paper checks expose your bank information each time you write a new check. 

Furthermore, a check can get stolen or lost. An Automated Clearing House payment will do the payment processing of your money and move it straight from your account to the intended recipient. 

With ACH payments and transfers, there's is federal protection for people who encounter any fraud or ACH errors. However, such people need to report any problems to their bank within sixty days. 

Also, an ACH transfer, unlike a bank wire transfer, isn't irrevocable, immediate, or difficult to reverse--making it harder for fraudsters to run with your money. 

An ACH payment is also safer than using some money transfer services because the recipient of the funds usually needs an American bank account. This means recipients give enough identification for law enforcement to find them should fraud or other illegal activity be involved. 

Which is safer, ACH or Wire Transfer? 

ACH payments and transfers are not only more secure than wire transfers, but they also have a better level of fraud protection and more cost-savings benefits. In most B2B transactions, ACH is the better option compared to Wire Transfer. 

The only caveat is that ACH is only available within the U.S., while Wire Transfers can cross international lines (international transfers). Wire Transfers are also faster for rare occasions where funds have to be transferred immediately. But when security is the primary issue, ACH is safer. 

Which is safer, ACH or Credit Card? 

 Generally, in the U.S., credit card transactions have a greater level of fraud protection. Additionally, you will avoid having your operating capital depleted by a potential credit card fraud incident. 

However, when handling a large number of transactions at once, it may not be a wise decision to process thousands of credit card transactions a month. And on top of that, you'll have to take time out of your busy day to go pay your credit card bill, which you'll probably do with a check or some other electronic payment system like ACH. 

Which is safer, ACH or Check? 

While a check might seem safer for a vendor since none of their banking info is required, they'll be making available a hard copy of their bank account and routing numbers, which, for security reasons, is not advisable. 

Internal Controls Offered by NACHA and Merchants 

ACH is regulated by the federal government and managed by the National Automated Clearing House Association (NACHA). To register within the network, users must register their usernames, passwords, bank details, and routing numbers. While these measures are comparable to what is obtainable in the credit card industry, further security protection is provided in the way of: 

Micro Validation 

The payment processor puts two micro-deposits of small amounts of money into a user's bank account after forming a relationship with a merchant. To transfer money, users must verify that the amount in their deposit was correct to the penny. 

Secure Vault Payments (SVP) 

SVP is an online payment option that is added to a checkout page on a website. It allows users to initiate ACH transactions without ever sharing sensitive financial data on the merchant’s website. Users authorize all transactions directly through their online bank accounts. 

Tokenization and Encryption 

Many ACH service providers offer ACH services with data encryption and tokenization. You will recognize many of these measures from the measures already found in the credit card industry. 

Merchant-Specific Registration 

Users must formally create individual relationships with payees and recipients by supplying the necessary routing number and bank account information. 

ACH payment and Transfer Fraud Prevention Tips 

Security is a big concern for ACH and wire payments. If you want to stop hackers from accessing your private financial information, you need to be aware of the dangers. When using these tools, your business can reduce the risk of ACH and wire fraud and monitor your accounts on a frequent basis to recover funds you lose through theft. 

Look for merchants who use some or all of these security features. But there are things you can do to protect your data even if someone tries to look at it. It's important to remember that the same rules and regulations apply to all types of transactions, including those using ACH transfers, credit card payments, and online banking. 

Following are some important security tips: 

  • Use the credit-only account for issuing ACH and wire transactions. Allow no debits on this account.  
  • Know your vendors and be aware of any suspicious transactions on your account. 
  • Set limits and review periods on ACH/wire transfer transactions. 
  • Have the latest anti-virus and malware prevention programs running on your desktops where payments are processed. 
  • Never respond to emails, download programs, or open attachments from foreign or misspelled email addresses asking for business account information. 
  • Stay up-to-date on news topics concerning ACH and wire fraud and have regular discussions with your employees, customers, and banker.  

For quite some time, ACH and wire payments have been a staple for business and bank transactions, allowing businesses to make electronic transfers between financial institutions. Only account and routing numbers are required. As technology advances, it has become easier to use new ways to avoid background checks and steal sensitive information from businesses before it's too late. If you learn to recognize common scams, you'll avoid falling victim to ACH and wire fraud and recognize a scam when you see one. 

A business can potentially suffer when it fails to keep an eye on ACH and wire payment activity. While not all dishonest actions are simple to identify, implementing these preventive measures will make it harder for someone to harm your company's finances. 

Banks require only one business day to release money. Your financial data is most at risk if you are not protecting it. Keep in mind that electronic payments and no-touch payments are safer than mailing a check and exposing your account details in that way. The alternatives are worse, such as exposing your account details by keeping pre-printed check stock on hand. 

Let us show you what we can do. Contact us to find out more. 

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