Being one of two leading national payment networks in the US, the ACH network processed over 426.3 million payments in 2021, which are valued at $2 trillion. If you accept or make ACH payments, you should know NACHA, its requirements, and how it influences the ACH payment network. This article tells you all you need to know about NACHA, including its operating rules and how they may affect you.
Nacha, short for National Automated Clearing House Association, is a not-for-profit organisation that manages the administration, development, and governance of the ACH network. The ACH network, divided into the two US national operators, The Clearing House and FedACH, is the American system for transferring funds between banks. While The Clearing House deals with private banks and accounts, the FedACH deals with government entities and accounts.
It was founded in 1974 and represents close to 11,000 financial institutions in the US that also fund the organisation. Some of NACHA’s tasks include:
NACHA provides unequivocal guidance for its members and participants. You can find a whole website section on the rules NACHA enforces on their website. These rules are based on pressing topics within the industry, including fraud detection and higher security, audit requirements, speeding up payments for a better customer experience, and improving the network quality. Participants that must follow this rule include payment processing partners, merchants, and even individuals that use the ACH network to process payments.
In 2021, NACHA developed a new rule to prevent payment fraud. This rule dictates that any business that sends ACH debits must include account validation. That means companies must ensure the account numbers they provide are valid and that the bank account is open and connected to the ACH network. More rules may be enforced regularly, and you can check all of these here.
NACHA’s requirements have the primary purpose of protecting customers’ information and preventing fraudulent payments and cyber-attacks. Ultimately, this results in more seamless operations and higher payment success rates. The list of requirements that NACHA imposes on its participants and members is long and detailed so we will go over some of its most relevant sections:
All payment data must be encrypted and sent through secure web forms or emails such as Microsoft Office 365 Message Encryption. Merchants need to ensure that their Payment Service Providers have the proper encryption tools and standards to comply with this NACHA rule, as any unencrypted sensitive information is prohibited.
NACHA requires participants and members to validate their customers’ routing numbers before accepting transactions. This rule applies to the first-time use of routing numbers or routing number changes. Already verified accounts don’t need to be validated again. As we mentioned before, this rule was imposed in 2021 and aimed to strengthen the security around validating accounts and preventing fraud. There is no specific method that businesses must follow to ensure this, as long as they have a detailed process plan that covers routing numbers.
KYC or Know Your Customer is an already well-known term representing a set of rules any company that deals with money must follow. One of KYC’s requirements is the performance of CDD or Customer Due Diligence, which essentially means ensuring that the customers’ details are legitimate. This can be done by matching bank account details with official documents such as a passport or driving license or requesting customers to take a selfie (facial recognition) to ensure they are the same person as they say they are. Customer verification is also one of NACHA’s rules, and companies can use third-party solutions to ensure they meet the standards.
NACHA requirements also include having a clear set of policies that cover all payment methods you take. If you are already PCI-compliant (check the full PCI compliance checklist here), your company certainly has this documentation already. However, if you take or accept ACH payments, include all the relevant regulations and procedures for ACH payments.
Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using a variety of payment technologies and providers around the globe.
In a world where consumers’ payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.
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