The ACH network facilitates several payment types, each with its own risks and dedicated detection methods. To effectively identify and mitigate fraud risks associated with ACH, banks should consider implementing solutions that monitor both incoming and outgoing NACHA files.
A common form of ACH fraud is account takeover, which can cause serious loss to banks and customers. Criminals use schemes like phishing, theft of credentials, malware, and social engineering to gain access to the systems of a bank’s business customers. Once fraudsters take over a customer account, they can initiate unauthorized ACH transactions.
Another common, but less intrusive scheme is executive impersonation fraud or “CEO fraud.” This occurs when fraudsters send fake emails with access to a company’s bank account to an unsuspecting employee. The emails appear to come from an executive or key business relation requesting urgent fund transfers.
While institutions take measures to protect their payment systems and networks, it is much harder to prevent and detect account takeover on the customer side. IT security and awareness differ per customer, and a determined fraudster can easily find a weak link. Strong authentication procedures and detection systems monitoring location, session, and device information form a strong first layer of defense against account takeover. However, this alone is not sufficient. A fraudulent transaction may be initiated by a malware-controlled system of the actual customer or properly authenticated by a misguided employee.
Robust solutions to counter this type of fraud usually employ several methods on each outgoing ACH transfer. This helps to protect customers and institutions against account takeover. The solution verifies whether an account should be allowed to initiate an ACH transaction, make an international transfer, or have debits or credits posted on it through ACH. Outlier models flag payments that do not follow the typical pattern of a particular account or customer. These models can also check for known suspicious patterns. Additionally, having the ability to score outgoing payments based on the receiving account’s reputation is another effective way of preventing account takeover. Some key considerations for scoring outgoing payments include:
- Whether the account has a history of doing business with the counter-party account.
- How many other accounts within the bank have had transfers to or from that counter-party account.
- The frequency of past disputes, missed payments, or reports of fraud involving the counter-party.
For more information download our interview: Fraud & AML Solution Overview
