The ACH or electronic check world lacks the authorization component present with credit cards.
Unlike credit cards, where you are able to authorize at the time of payment that the customer has the requisite funds on their cards, ACH and check processing may require ACH Validation to mitigate payment acceptance risk.
For example, let’s look at client intake or onboarding. This can be a major pressure point for businesses that rely on future recurring payments (e.g. insurance companies with premium payments, or an alarm monitoring business collecting monthly monitoring fees)
User errors often occur as the customer provides their bank account and routing info, or a voided check might be taken.
ACH Validation solutions allow your business to validate that the account is open and in good standing before the account is loaded into a recurring billing engine. Therefore data entry errors or possibly closed account or even fraud can be caught before “booking” the sale.
Furthermore, compare the credit card authorization component with ACH and check processing: An ACH transaction processed today goes to the ACH network for debiting the customer tomorrow morning [assuming tomorrow is a banking day]. Two banks are involved: The bank that initiates the debit on behalf of their merchant [ODFI] and the customer’s bank [RDFI].Those two banks have another day to sort out any reasons for rejecting the debit eg NSF, closed account etc.
Payment rejects are known about only after payment is accepted; which can be up to days later. Imagine a business pays commissions for new customers. The sales team brings on a new client and is paid. Your bank reports back 5 days later the check payment rejected.
The business has multiple issues to address, the commission payment may need to be pulled back. That customer must also be contacted for payment, and accounting may need to be undone. For businesses that accept checks either as an ACH, Check 21 or Remote Deposit are at risk that the payment will result in a failed transaction. Mitigating loss through third party check verification services can be an essential part of the business that relies on ACH processing for check acceptance.
ACH Validation allows merchants to reduce check acceptance risk at the point of sale, in person or online, and options range from automated routing number check to near real-time examinations into current checking account status to negative database options.
Options to reduce check acceptance risk include:
- Routing number validation
- Proprietary Negative Database-should comprised of tens of millions of bad accounts and negative items from verification past data
- Real-time Status on Accounts. (via financial institutions)
- Negative Data (Basic and Premium) Services that provide negative information on unpaid items.
However, checking account verification services at this level do NOT provide:
- Funds availability or balance inquiry
- Bank account ownership. The name on the checking account is not being matched to the customer name provided — Checking Account Owner Authentication
To learn more [ including back testing your data ] contact AgilePayments today