FIRM: ACH Alert
CEO: Debbie Peace
PRODUCT: Corporate ACH fraud prevention
INTERCEPTED: Industry analysts say getting in the middle of the ACH process is a novel way to solve come of the current fraud problems affecting the corporate payments industry
Sometimes innovation happens accidentally, or to be more precise, a new product solves a problem other than the one it was intended to. That's the case with ACH Alert, a system designed to notify bank customers of ACH debits to their accounts, and give them the opportunity to stop fraudulent ones before they're complete.
What the industry is finding though, is that the product also provides an answer to the ACH fraud issue that's vexing small and medium-sized corporate customers whose online banking credentials have been compromised, and are then used to arrange fraudulent outgoing transfers.
As it was designed, ACH Alert sits between the ACH operator and the financial institution, intercepting ACH debits before they post to the customer's DDA account. The company halts those debits and sends out a notification to the customer according to whatever parameter they've set up-SMS, email, or automated voice call. If the debit is a good one, the customer does nothing and it goes through. If it's a bad transaction, the customer uses the system to return the item and automatically fill out a return entry document, says Debbie Peace, CEO of ACH Alert.
"Let's say they don't respond by the cutoff time, and the transaction still posts, they can still respond as long as they're within the NACHA window," says Peace.
The solution is particularly useful in combating attacks that make use of "mules."
With this model, if a fraudster logs in to a corporate account and attempts to send an ACH to a money "mule" account, the customer would be informed of that offsetting debit, which "gives them and the bank the ability to pull those credits back."
Industry analysts say the ability to get in the middle of the ACH process is a novel approach to solving and preventing some of the current fraud problems.
"It turns a batch system into an interactive one that requires customer confirmation of transactions," says Avivah Litan, vp and distinguished analyst at Gartner, who says there are still challenges.
"Problems may arise however because ACH batches often run in the middle of the night-when account holders are asleep and can't be expected to answer their phone or respond to a message. So the latency may cause problems in the system," she says. "But still it's a good concept and definitely an improvement over what's done today."
Peace argues that the lag time isn't a significant problem because many banks run ACH processes in the morning, and even if a customer misses the cutoff time to stop a transaction from posting by a few hours, as long as it's within the NACHA cutoff window the item can be returned.
Peace knows a thing or two about how banks process ACH transactions. This is her second ACH-related startup, Peace sold her first ACH business, ACH Commerce, to MoneyGram in 2005. She stayed on with the firm for two years to help with the integration, "the longest two years of my life."
Her latest venture is off to a hot start, the product was launched less than a year ago and already has agreements for beta tests with three banks, and two more set to go live this summer. One of the five financial institutions is a top 10 US bank, Peace says.