New Fed Service Focuses on ACH Risk Mitigation
The rapid growth of one-time debit payments over the Internet, telephone, and at the point of purchase has added considerable volume to automated clearinghouse (ACH) networks. Additional ACH volume has in turn increased the risk of fraud.
|Solid ACH risk management begins at the financial institutions that originate the transactions.
A recent Association of Financial Professionals survey lists checks and ACH debits as the most common vehicles for payments fraud. Mitigating ACH risk, therefore, is more critical but at the same time increasingly complex. To help combat this problem, Federal Reserve Financial Services introduced FedACH Risk Origination Monitoring Service in May 2006.
Managing risk early is key
In the view of Richard Oliver, executive vice president of the Atlanta Fed and manager of the Fed’s Retail Payments Office, solid ACH risk management begins at the financial institutions that originate the transactions. The National Automated Clearinghouse Association’s rules hold originating institutions liable for most returned items.
Yet mitigating ACH risk has become more difficult for originating institutions, Oliver points out. To monitor and thus contain the risk, the originators must know not only their own customers but also their customers’ customers, who are sending transactions over the ACH network.
Fed service improves risk management
As a payments processor, the Fed seeks ways to help monitor the risk associated with new types of payments such as onetime transactions over the telephone and Internet. As part of that strategy, FedACH Risk Origination Monitoring Service is designed to help originating banks monitor their ACH risk.
Part of the Federal Reserve’s FedACH Risk Management Services, the Risk Origination Monitoring Service offers numerous capabilities. For example, an originating bank can use it to establish a cap on the daily dollar amount of debits or credits its customers generate. If the cap is reached, the service automatically notifies the institution via e-mail. Separate caps can also be applied to an originating bank’s individual customers.