ACH Popularity Heralds Rising Risk
As the automated clearing house (ACH) rises in popularity as a payments mechanism, so too does the risk around such transactions, says Gary Roboff, senior consultant at financial services consortium BITS and The Santa Fe Group. Any increase in ACH fraud is due to the increasing use of technology to accomplish so-called “spontaneous” transactions between parties just beginning to use this payment channel, Roboff tells Bank Systems & Technology.
Check fraud remains the most prevalent form of corporate payments fraud, according to the Association for Financial Professionals' 2009 Payments and Fraud Control Survey. But ACH debit fraud comes in second with 28% of organizations reporting actual or attempted payments fraud in 2008. That's followed by consumer credit/debit cards at 18%, and corporate/commercial cards at 14%.
Historically, ACH payments enabled recurring credits generated by the government or commercial interests and were considered secure. That's changing now that ACH debit has become prevalent for Internet- and phone-based payments. “There's potential for some sophisticated fraud activity because you can now authorize ACH debits on the Web or phone,” says Lars Skari, partner and practice manager for banking and capital markets with Infosys Consulting, a division of Infosys Technologies.
When compared with other consumer payment applications, the use of the ACH to pay for goods and services on a one-off basis has been largely Internet based. That's because it has been difficult to transport an ACH payment application to multiple merchants in the physical world. “We might, however, see that reality change if the mobile wallet—resident on a smart phone—emerges as a viable factor for initiating ACH payments at the physical point-of-sale,” Roboff says.
Companies like NCR have developed applications that enable mobile phones to interact directly with ATMs. First Data recently received a patent on a process for enabling any ACH payment application at the checkout counter.
“That's where we're headed, especially if interchange rates do not fall materially and merchants encourage customers to use any of the ACH-based alternative payment applications now emerging online,” Roboff explains. “So a key point is that economics and technology may come together to enable a spike in ACH transactions at the physical point-of-sale.”
If this does happen, Roboff says financial institutions will respond by increasing their efforts to integrate fraud detection and mitigation capabilities across payments types. “Some financial institutions are moving aggressively to do this already, even uprooting existing internal organizational structures,” he adds.
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