As more businesses look to expand their payment options, ACH (Automated Clearing House) transactions have emerged as an attractive alternative to credit and debit card payments. However, validating ACH transactions can be challenging. In this blog post, we will discuss five crucial things you need to know about ACH validation techniques, their benefits, and their limitations.
1. The Challenge of Real-time Account Validation:
Unlike card networks, ACH transactions lack real-time account failure notifications. This poses a significant hurdle for merchants looking to accept ACH payments. However, recent advancements have eliminated this challenge, providing real-time validation of account details such as ownership, ABA/DDA, account type, and balance.
2. NACHA’s Role and Standard Entry Class (SEC) Code:
The National Automated Clearing House Association (NACHA) serves as the governing body for ACH transactions. With the growth of online payments, NACHA introduced a standard entry class code called WEB to label internet-authorized transactions. However, these improvements fell short in terms of providing tools to ensure their success.
3. ACH Prenotification Entry (Prenote) Method:
Prenotes are a tool provided by NACHA to validate ACH accounts. This method involves sending a zero-dollar transaction to the consumer’s bank to verify the account’s existence. While it serves as a validation technique, it has drawbacks such as delays in initiating payment transactions, potential non-responsiveness from banks, and the inability to verify account ownership.
4. Micro-deposit or Trial-deposit Method:
The micro-deposit method involves sending small credits to the account and requiring the customer to verify the deposited amounts. This technique ensures the account’s existence and helps prevent fraudulent use of account numbers. However, it may result in delays, as customers may abandon the process before verifying the amounts, and responses from banks can take 2-3 days.
5. Account Verification Services and Instant Account Validation:
Account verification services utilize large databases to validate account information in real-time. While these services provide quick responses, they may not cover all US accounts, and they cannot determine account ownership. On the other hand, instant account validation leverages Open Banking principles, allowing customers to provide their online banking credentials for real-time validation. This method provides immediate validation, eliminates administrative returns, reduces errors, and even provides routing and account numbers directly from the bank.
Validating ACH transactions is essential for merchants to ensure successful payment processing. By understanding the available ACH validation techniques, such as ACH Prenotification, Micro-deposit, Account Verification Services, and Instant Account Validation, businesses can enhance the customer experience, reduce risks, and streamline their payment processes. Leveraging the latest advancements in ACH validation, merchants can now confidently accept ACH transactions, benefiting from lower processing costs and faster settlement.