Episode 704: ACH Payment Trends and Avoiding Fraud in Higher Ed

As higher ed institutions continue to evolve to offer more cashless payment solutions, automated clearing house (ACH) payments are becoming more popular. This week, Brad Smith, senior director of industry engagement and advocacy at Nacha, joins FOCUS to discuss the benefits of ACH payments for campus transactions. Learn more about ACH payments on campus, Nacha, and efforts to update the ACH rules for better risk management in the network.

What are ACH payments?
ACH payments are direct transactions involving a bank account. Most online payments attached to a bank account number are ACH, which allows transactions to be reflected to the account in near real-time. ACH payments are popular with different merchants because of the lower fees compared to other payment methods, reliability, and security.

“If you get paid by direct deposit, you know what the ACH network is,” said Smith.

In 2022, 30 billion transactions were made through the ACH network totalling $76.7 trillion. Business-to-business payments through same-day ACH saw a 44% growth in 2022, and in the first quarter of 2023 alone, same-day ACH transactions grew by 94% compared to first quarter of 2022.

Institution implementation
As Smith explains, ACH is most practical when used for large payments. ACH may not make sense for smaller purchases like at campus stores, sporting events, or dining halls. However, opportunities exist for ACH to be used for tuition payments, payroll, and business-to-business payments for accounts receivable and accounts payable.

Nacha’s role in ACH payments
Nacha owns and manages rules for the ACH network. Merchants, also known as ACH originators, enter an originator agreement with their bank, credit union, or third party processor, like TouchNet, to follow a specific set of standards to comply with. New rules are highlighted on the Nacha website.

For institutions implementing more ACH payment options on campus, Nacha is also working on a suite of tools to help educate students, parents, and vendors on why ACH is a good option.

Avoiding fraud
According to Smith, risks for fraud in regards to ACH do not vary greatly from other payment methods. The trend now is vendor impersonation. For example, a bad actor will call a staff member acting like a vendor who needs to change banking information. Next thing you know, payments are going to the bad actor instead of the actual vendor.

To help, Nacha provides a risk framework for partners that helps merchants address fraud. The first part of the framework are strict rules to set a solid anti-fraud foundation, which now includes a provision to validate transactions without needing to give out routing and account numbers. The second part is the operating guidelines that show merchants how to apply the rules to their processes.

Nacha recently rolled out new supplemental data security requirements to ensure data is secure while it’s at rest. This means that account information is unreadable, deleted, or masked properly any time ACH data is not being used. Third party vendors also held to the same standards as ACH originators to keep security a priority.

Best practices
As previously stated, the best opportunities for institutions to use ACH to reduce costs and increase efficiencies are for tuition, payroll, and business to business with vendors.

Smith believes one of the ways to stay vigilant against fraud is to continue education on the latest trends. This can be managed with an institution’s relationship with their bank or processor and completing regular training to stay up-to-date on compliance and fraud trends. There are also different organizations that offer training to colleges and universities on the latest ACH rules, risk courses, and audit courses.

Learn more about ACH rules and alleviating risk at www.nacha.org/rules/new.

Special Guest: Brad Smith.