ACH Fraud Prevention Strategies For Your Business & Customers 

Anonybit’s decentralized biometric authentication solution helps organizations detect and prevent fraud before it affects customers. Our solution creates a unique anonymous profile for each user based on their biometrics. Instead of relying solely on traditional identity verification methods, we use this profile to establish a baseline of normal activity and quickly identify unusual behavior that may indicate fraud.

Table of Contents

• What Is ACH Fraud?
• 7 Common Ways Hackers Commit ACH Fraud & Who’s Liable For The Losses
• Liability in ACH Fraud 
• What Is The Impact Of ACH Fraud On Businesses?
• How To Detect ACH Scams
• Can ACH Payments Be Traced?
• How Do You Ensure ACH Fraud Protection?
• Book a Free Demo to Learn More About Our First-Party Fraud Prevention Software

What Is ACH Fraud?

ACH fraud involves the unauthorized or illegal use of the Automated Clearing House (ACH) network to conduct fraudulent financial transactions. The ACH network is a system used for electronic payments and transfers, including:

• Direct deposits
• Bill payments
• Other types of electronic fund transfers

ACH fraud occurs when fraudsters exploit the ACH network to steal funds, make unauthorized transactions, or deceive individuals and organizations. This type of fraud can take various forms, each targeting different aspects of the ACH system. 

The Growing Threat of ACH Fraud: Case Study and Recent FBI Warnings

ACH fraud tends to affect medium-sized banks, businesses, and schools. In September 2022, the Federal Bureau of Investigations (FBI) Cyber Division issued a notification relating to cybercriminals increasingly targeting healthcare payment processors to redirect victim payments. In one case, a large healthcare company lost $840,000 in an ACH scam, where a hacker impersonated an employee and changed the ACH instructions. 

6 Common Ways Hackers Commit ACH Fraud & Who’s Liable For The Losses

1. Fraudulent ACH Returns: The Sneaky Return Process  

Fraudsters exploit the ACH return process through fraudulent returns. They initiate an ACH transfer, quickly access the funds, and wait for the transaction to return due to insufficient funds. 

When the return is processed, the fraudster has already spent or moved the money, leaving the business with a loss. A scammer can claim a legitimate transaction was unauthorized, resulting in a chargeback while still keeping the product or service.

2. Phishing Attacks: Business Email Compromise

Phishing, specifically BEC (Business Email Compromise) emails, is a tactic where fraudsters trick individuals into revealing sensitive banking information through fraudulent emails or messages. These communications often appear from legitimate sources, such as a bank, and lead victims to fake websites where their information is stolen. 

This stolen data is then used to make unauthorized ACH payments. In 2021, 68% of organizations were targeted with a BEC scam. The Accounts Payable (AP) team is the most susceptible department in this attack, with 58% of those surveyed noting their AP teams were compromised. 41% of organizations noted that ACH and wire transfer payments were targets of BEC scams in 2021.

3. Ghost Funding: Accessing Unsettled Funds

Ghost funding occurs when users are granted access to funds that haven’t been fully settled yet. The user might initiate an ACH transfer to an investment app, which credits their account before the transfer is complete. The user then spends or transfers the credited amount, and once the ACH payment is processed and returned due to insufficient funds, the app is left out of pocket.

4. Insider Threats: Fraud from Within 

The threat comes from within the organization. Employees or contractors with access to sensitive information can engage in fraudulent activities, such as approving fake invoices or altering payment details for personal gain.

5. Account Takeover Fraud: Gaining Control  

This occurs when a fraudster gains control over a legitimate account through social engineering or other methods. They can make unauthorized ACH transactions or use the account for other fraudulent activities, such as ghost funding.

6. Check Kiting Scams: Exploiting Delays  

This involves exploiting the time delay between a check being deposited and the funds being available. Fraudsters write checks on one account and deposit them into another to illegally inflate their balances. 

Many of these methods reveal other information that can lead to identity and/or account takeover fraud. The Financial Crimes Enforcement Network (FinCEN) has frequently highlighted the connection between ACH fraud and identity fraud, with money being illegally transferred via ACH transfer to accounts set up with stolen or fake identities.

Preventing ACH Fraud with Anonybit

At Anonybit, we help companies prevent ACH fraud with our decentralized biometrics authentication solution. With Anonybit, companies can use biometrics to verify wires and ACH transactions, either from a web or mobile application or via the help desk.  We aim to protect companies from data breaches, account takeover, and synthetic identity fraud.

To achieve this goal, we offer security solutions that cover the user lifecycle such as:

• 1:N deduplication, synthetic and blocklist checks upon account origination
• Passwordless login
• Step up authentication
• Account recovery
• Secure storage of biometrics and other PII data

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, enable strong authentication to eliminate account takeovers, and enhance the user experience across the enterprise using Anonybit. 

Book a free demo today to learn more about our integrated identity management platform.

Liability in ACH Fraud 

The liability for ACH fraud typically depends on the specifics of each case and can involve multiple parties:

Consumer Liability 

The Electronic Fund Transfer Act (EFTA) limits consumer liability for unauthorized transactions in the US, provided they report the fraud within 60 days. Consumers are protected if they act promptly and follow the reporting requirements.

Business Liability

Businesses may be liable for fraud if they cannot demonstrate that they have adequate controls to prevent such incidents. Implementing robust fraud prevention measures is crucial for mitigating risk and protecting against financial loss.

Bank Liability

Banks also have a responsibility to ensure their security procedures are adequate. They may be liable if their protocols are insufficient or fail to adhere to agreed-upon security standards.

Resolving liability in ACH fraud cases often involves negotiation and may require legal intervention to determine fault. To minimize risks, businesses should focus on preventive solid measures and clear documentation of transaction processes.

Related Reading

• Identity Providers
• Liveness Detection
• Biometrics Identity Verification System
• New Account Fraud
• Online Banking Authentication
• Fraud Detection In Banking

What Is The Impact Of ACH Fraud On Businesses?

ACH fraud can hit companies hard. The immediate financial costs associated with fraud can be staggering. Businesses may face losses due to fraudulent transactions and the expenses of investigating and resolving these incidents. Organizations often spend significant resources—time and money—to remediate these incidents, which can strain budgets and divert resources from growth initiatives.

The Reputational Risks of ACH Fraud

Reputational risk is a significant concern for businesses facing ACH fraud. According to a 2023 global compliance survey, over one in three senior compliance professionals identified reputational risk as a major driver for organizational change. 

This concern is well-founded, as executives attribute much of their company’s market value to its reputation. A single fraud incident can tarnish a company’s image and diminish consumer confidence, which can have long-lasting effects on market position and competitive advantage.

The Unseen Consequences of ACH Fraud

ACH fraud can lead to other business challenges, including increased chargeback fraud. In these cases, a consumer requests a refund or chargeback from their card issuer even though they have received the goods or services. 

This results in financial losses, complicates transaction reconciliation and can increase operational overhead as businesses deal with the fallout.

Related Reading

• Third Party Fraud
• Payment Fraud Prevention
• Fraud Detection Analytics
• AI Fraud Detection Banking
• Payment Fraud Trends
• First Party Fraud Detection
• Fraud Management System In Banking
• Fraud And Identity Management
• First Party Fraud vs Third Party Fraud
• Biometrics In Banking
• Real Time Transaction Monitoring
• Digital Injection
• Payment Fraud Trends
• First Party Fraud Detection
• Fraud Management System In Banking
• Fraud And Identity Management
• First Party Fraud vs Third Party Fraud
• Fraud Detection Software For Banks

How To Detect ACH Fraud

Biometrics can include physical characteristics (like fingerprints or facial recognition), linguistic traits (such as voice patterns), and behavioral attributes (like typing speed or mouse movement). By verifying the identity of the person interacting with the system, biometrics can help confirm that the transaction is being carried out by a legitimate account holder rather than a fraudster.

Enhanced Behavioral Analytics Detects ACH Fraud 

Employing machine learning-powered behavioral analytics can provide valuable insights into account activity. Organizations can detect anomalies that may indicate fraudulent activity by analyzing patterns of expected behavior and identifying deviations from these patterns. This approach enables near real-time detection and response to potential threats.

Transaction Monitoring: How to Spot the Red Flags of ACH Fraud

Effective transaction monitoring tools are essential for spotting red flags. Here are some specific signs to watch out for: 

• Geographic discrepancies: ACH transactions occurring in unusual locations or across different regions might indicate fraud. 
• Device or account changes: Customers using new devices or accounts that differ from their usual ones could indicate compromised credentials. 
• Security protocol violations: Employees breaking security protocols may signal insider threats or compromised accounts. 
• Phishing signs: Watch for customers showing signs of being phished, such as unexpected changes in account details or communication patterns. 
• High chargeback rates: A high frequency of ACH chargebacks can indicate fraudulent activity.

Can ACH Payments Be Traced?

ACH (Automated Clearing House) payments can be traced, which is a crucial feature for addressing fraud concerns. When an ACH transaction is processed, banks have access to a range of data that can be scrutinized for any suspicion of fraudulent activity. 

Each ACH transaction includes several key pieces of information, such as:

• Timestamps
• Location data
• IP addresses

In theory, this data helps banks track and verify the transaction’s authenticity. But in practice, without biometrics, given fraudster’s sophisticated tactics, it is often impossible to know if the person who conducted the transaction is the authorized user. 

How Do You Ensure ACH Fraud Protection?

Start with cutting-edge identity verification solutions, particularly biometric authentication. Biometric methods—such as fingerprint recognition, facial recognition and voice recognition are powerful tools for ensuring that the person initiating the ACH transaction is the legitimate account holder. 

Anonybit’s decentralized biometric authentication solution is a prime example of a platform that can be used to prevent ACH fraud. Anonybit enhances security by ensuring that people are who they claim to be, using biometrics that are stored safely and securely Anonybit’s approach ensures that only authorized users can complete transactions, significantly lowering the risk of ACH fraud.

Educate Customers and Employees About Phishing Scams

Phishing remains a common method for fraudsters to gain unauthorized access to accounts. Educating both customers and employees about how phishing scams operate can be a first line of defense. 

Awareness sessions should cover recognizing suspicious:

• Emails
• Verifying URLs
• Safeguarding personal information

Proactively preventing phishing can reduce the likelihood of compromised credentials leading to fraudulent ACH transfers.

Related Reading

• Fraud Systems For Banks
• Fraud And Authentication Management
• Identity Verification For Banking
• OTP Fraud
• Multi Factor Authentication Banking

Book a Free Demo to Learn More About Our Fraud Prevention Software

At Anonybit, we help companies prevent data breaches and account takeover fraud with our decentralized biometrics technology. With our decentralized biometrics framework, companies can enable passwordless login, wire verification, step-up authentication, help desk authentication, and more. 

Comprehensive Security Solutions for Companies

We aim to protect companies from data breaches, account takeovers and synthetic identity on the rise, privacy regulations, and digital transformation. To achieve this goal, we offer security solutions such as:

• Secure storage of biometrics and PII data
• Support for the entire user lifecycle
• 1:1 authentication and 1:N matching for lookups and deduplication

Balancing Privacy and Security with Anonybit’s Integrated Platform

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, reduce account takeover fraud, and enhance the user experience across the enterprise using Anonybit. Book a free demo today to learn more about our integrated identity management platform.