With Rising Popularity of ACH Comes Rising Risk

As use of the ACH as a payments mechanism rises in popularity, so too does the risk around such transactions. BS&T asked Gary Roboff, a senior consultant at BITS and The Santa Fe Group, for his take on the risk of ACH-related payments fraud.

Roboff says any increase in ACH fraud is a direct function of the increasing use of ACH "to accomplish so-called 'spontaneous' transactions between counterparties who may not have had any prior relationship."

He notes that 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. There are some single merchant ACH debit programs but most are operating with limited success, he adds.

"However, we may see that reality change if the mobile wallet—resident on a smart phone—emerges as viable form factor for initiating ACH payments at the physical point-of-sale," Roboff comments.

He notes that companies like NCR have developed applications that enable mobile phones to interact directly with ATMs. Furthermore, he says First Data recently received a patent on a scheme for enabling processing of any ACH payment application, among others, seamlessly at the checkout counter.

"I think that directionally, over time, that's where we're headed, especially if interchange rates do not fall materially and merchants encourage customers to utilize any of the ACH-based alternative payment applications that are now emerging online," he explains. "So a key point is that economics (in terms of interchange avoidance for merchants) and technology (in terms of the mobile phone's development as a viable payments form factor) may come together to enable a spike in ACH transactions at the physical point-of-sale."

And if this does happen, Roboff says banks will respond by increasing their efforts around integrating fraud detection and mitigation capabilities across payments types.

"Some banks are moving aggressively to do this already, even uprooting existing internal organization structures," he says, citing Bank of America as one example.