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How to Prevent ACH Payment Fraud

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedApr 20232 min read

You might already know about encryption and other tools used to protect credit card holders, but what are your options when it comes to ACH fraud protection? If you accept ACH payments, you’ll need to know how to recognize and prevent ACH payment fraud. We’ll discuss the tools available for businesses in this guide.

What is ACH fraud?

ACH payments are sent and received using the United States Automated Clearing House network. This connects the country’s banks and other financial institutions, facilitating safe, secure electronic fund transfers. While the transfers themselves are secure, if a fraudster obtains some basic information through phishing or other tactics, they can use this to access the network. All the information a criminal might need is your business account and routing number to initiate a fraudulent transfer.

Even with security checks in place, some ACH fraud is committed using malware that monitors your keystrokes to obtain passwords. With bank account numbers and passwords, a criminal can access your account.

There are many common ACH scams out there, some targeting businesses and others targeting individuals. One common scam involves the fraudster pretending to be a bank representative. They will send official-looking emails or letters requesting checking account details. Additional scams might involve offering free products, transferring money overseas, or offering a position to someone seeking a job. The fraudster offers to send money for one of these reasons, requesting bank account details for payment. The money is never received, however.

How common is ACH fraud?

Despite the security of the ACH system, ACH fraud is unfortunately on the rise. It’s estimated that losses are in the hundreds of millions of dollars, with the exact number unknown as many victims are too embarrassed to file an official report. Small and medium businesses are usually targeted more frequently than large enterprises because they may not have dedicated cyber security teams. Activities such as applying for loans or jobs online might also open the door to being scammed.

Why is ACH fraud protection important?

There are several reasons why you should pay attention to ACH fraud prevention. If a criminal can access your business checking account, you run the risk of losing funds slowly over time as small amounts are stolen. Consumers are protected against ACH fraud thanks to federal regulations that make it easy to dispute unauthorized transactions with the bank. This can be a headache for merchants, who sometimes shoulder the loss.

How to prevent ACH fraud

There are several tactics that businesses can use to guard against ACH fraud.

1. ACH fraud filters use a confirmed list of transaction types for automatic approval. Any unusual activity is flagged for extra checks.

2. ACH blocks prevent any unauthorized transactions from being sent to your bank account. They must be approved first. You can even choose to block all incoming ACH payments until they’re manually approved first.

3. One-time authorizations let you streamline the authorization process one payment at a time. If you’re working with a new company, this lets you verify the first transaction before accepting additional ACH payments.

4. ACH activity alerts keep you updated with real-time bank account activity. Alerts can be sent to your email address or via SMS messaging so you can keep up with all transactions as they occur.

GoCardless helps small businesses tackle ACH payment fraud with our Verified Mandates tool. When you’re onboarding a high volume of new customers each day, it’s difficult to use the strategies mentioned above while still providing a smooth, efficient checkout experience. With Verified Mandates, you can check bank account details during checkout. This tool is powered by Plaid, taking customers directly to their online banking login for immediate verification. While normally it can take US businesses up to three days to identify fraudulent ACH payments, this catches them at the time of checkout. It’s also compliant with all NACHA ACH rules, for a fully secure experience.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.