ACH Bank Account Verification – Is Your Company Ready?

E-Complish Breaks Down Three Bank Account Verification Methods to Satisfy Nacha WEB Rule Changes Coming March 2021

A New Nacha Rule change becomes effective with regard to the acceptance and processing of an ACH WEB transaction. A “WEB” transaction is an ACH transaction that is initiated by the bank account holder through the Internet. Hence it is coded as “WEB” in Nacha ACH terms. Come March 2021; the ACH WEB Rule change requires some sort of account verification BEFORE the ACH WEB transaction can be processed. According to NACHA, this Rule Change is meant to slow down the processing of fraudulent, or “No Account Found” transactions through the ACH Network that cause additional work and backlog.

With that said, we have researched and rated the three Bank Account Verification methods that Nacha will accept.

• Commercially available validation service and using APIs;
• ACH zero-dollar prenotification;
• Micro-transactions.

For our analysis, we looked at the SPEED, STEPS NEEDED, ACCURACY, and COST of each of the verification methods. We then rated the method with a 1-10, (with ten being the best), by taking into consideration all of the previously stated factors. We should say up-front that we have found that there is no perfect “Third-Party Account Verification Service” that will verify all bank accounts. It really comes down to what works best for your company.

Let’s take a look at each of the methods so we can be informed and make the best decision for our company/organization.

Commercially Available Validation Services and Using APIs

The Commercially Available Validation Services and Using APIs method of account verification using a third-party ‘Account Verification Provider’ to verify the bank account information provided by the account holder. Please note, most third-party ‘Account Verification Providers’ that we have talked to, tout that they can verify all U.S.-based bank accounts. Still, in reality, we have found that the coverage is somewhere around 35-65% of all U.S. Bank accounts, and it is depending on the ‘Account Verification Provider.’ Furthermore, in all cases, the third-party verification companies that we have talked to are charging for the “lookup” of the bank account information, no matter whether anything was verified, found, or not. This is because the information is derived from an ATM Network of some sort. Using the ATM Network, the Account Verification Providers can tell whether the account is 1) An Open Account, and, 2) The account has more than a $0.00 cent balance. That’s it.

With that said, until more banks participate with a “lookup” (thru an API, ATM Network, or some other method), to verify that the bank account exists and is open, it should be expected that this method is at best, 35-65% accurate. Additionally, the company should be expected to be charged for each “lookup,” even if the bank account is not found, which will normally come back as ‘Not Participating’, ‘Not Found’, or something the equivalent.

Overall Rating for Commercially Available Validation Service and Using APIs:

• SPEED: In seconds
• STEPS: Can be done through an API (Real-time), or batch upload
• ACCURACY: About 35 -65%
• COST: High

E-Complish Overall Score: 7 (out of 10)

ACH Zero-Dollar Prenotification

The ACH Zero-Dollar Prenotification (aka, Prenote), has been around for a long time, (more than three decades). It is a proven method to verify whether an account is valid, but it is slow. A Prenote must be transmitted through the ACH network at least six (6) days before the actual ACH Transaction (also called the ACH entry), is scheduled to be processed. ACH Zero-Dollar Pre notifications were initially developed as a means to set up an ACH Recurring Debit for a date in the future; think Insurance Payments every month.

A Prenote is slow but accurate, and it still works on the premise “that the ACH transaction is good until told otherwise,” just like depositing a paper check. This is how the U.S. Banking and ACH Network works with the Federal Reserve.

The problem with this method is that you may not know you have the wrong bank account for 3-4 days. It is 3-4 days because the RDFI (Receiving Depository Financial Institution), has up to three (3) days to respond to whether the Prenote was bad. Because of the wait time, you are forced to set up a “hold-time process”. Meaning the account holder is allowed to enter their ACH transaction online first, but the ACH transaction must be held to allow time for the ACH Prenote to process.

In other words, you will need to decide when to “process the payment from your customer” based on the number of days with “no bad news” from the ACH Network. To make this a bit clearer, let’s say a hold-time process for a Prenote might be:

1. Process the Prenote on a Monday.
2. Hold the payment for one week (until next Monday).
3. If no ACH Return of the Prenote (after 3-4 business days), then process the payment from the customer.
4. S-L-O-W

The good thing about a Prenote is that the customer does not need to be involved like a Micro-Deposit process requires (below). This means the payment can be collected at the time of entry and held while the Prenote is processed. Then, based on the results of the Prenote, the payment can be processed or not.

• SPEED: Requires at least 3-4 days at minimum before you process the ACH Transaction given by the bank account holder.
• STEPS: It does not require the customer to verify anything, but a hold-time process is required before you can process the original ACH transaction/payment.
• ACCURACY: Extremely accurate but requires a hold-time process be put in place before processing of the customer’s payment.
• COST: Very Low

E-Complish Overall Score: 6 (out of 10)

ACH Micro-Transactions:

The ACH Micro-Payment approach is to gather the banking information from the bank account owner and then send one or two transactions to the bank account number given by your customer/bank account owner. The customer bank account owner will then need to verify one or two transactions via your online website. The ACH transaction(s) can be a single deposit, a deposit & deposit, deposit & debit, or debit & debit. The small amounts have to be verified, (by the bank account owner), online before the original ACH transaction can be processed.

This is where the whole process becomes slow. Not only are one-to-two transactions processed (which does cost something), but you are forced to wait for the customer to go online with their bank, then go online with you to enter those deposit/debit amounts.

Note: This is all BEFORE you take an ACH transaction from the customer. This is by far the slowest process of all available methods, but also the most secure and accurate.

Additionally, this process usually requires some sort of reminder (email, text, or mail) for the customer to go and verify the micro-transactions. This is where it becomes prolonged.

• SPEED: Usually about a week, but depends on how fast the customer can verify the micro-transactions
• STEPS: Can be done online but requires a two-step approach before payment can be accepted. Would also need some sort of reminder to be sent to the customer
• ACCURACY: Extremely Accurate
• COST: Low

E-Complish Overall Score: 5 (out of 10)

With regards to the above Bank Account Verifications methods, we can say that E-Complish has not decided on a process yet with regard to offering bank account verification to its clients. In all honesty, our team is not sure if we are going to go with one approach or offer all three. It’s been a hard decision for us!

As a bit of good news, we know that Nacha is working on a Verification System within the ACH Network that operates on a same-day turnaround. Unfortunately, this is not expected until 2022-23.

E-Complish Client?

Note: If you are a client of E-Complish, we are here to help! We can provide one of the ACH Verification Services (listed above), or we can connect to your existing ACH Verification Service that you already have in place. You choose, but it needs to be in place by March 2021.