What you need to know: Nacha’s changing regulations

With information circulating about Nacha’s changing regulations, we wanted to take an opportunity to share a bit about what specifically is changing, what our clients need to know, and how Flywire is responding.

What is Nacha and what do they do?

First things first, Nacha is a non-profit organization that oversees the development, administration, and governance of the ACH network, which connects all U.S. financial institutions to enable secure and efficient money transfers from one bank to another. Nacha manages a set of Operating Rules that help ensure ACH network participants cooperate to seamlessly complete transactions.

How are the Nacha Operating Rules changing

Presently, ACH originators of WEB 1 debit entries are required to screen WEB debits for fraud. The upcoming WEB Debit Account Validation Rule change impacting Article Two, Subsection (Additional Warranties for Debit WEB Entries) mandates enhanced fraud detection for ACH transactions (note: this does not apply to debit card or credit card transactions). Beginning March 19, 2021, this rule will require that a fraudulent transaction detection system must, at a minimum, validate the account to be debited.

What does the updated Nacha rule require?

The updated rule requires that the originator must determine that the account number to be used for the WEB debit is for a valid account before processing. Therefore, the originator must validate that the account to be used is a legitimate, open account to which ACH entries may be posted. Accounts can be validated through a variety of methods: pre-notes, micro-transactions, manual validation, database verification, and instant account verification.

What you need to know: Nacha’s changing regulations

How is Flywire responding?

Flywire has always been committed to maintaining the highest level of security and privacy standards to protect our clients and the payers they serve, and this is no exception. In fact, our CTO David King served on the Nacha eBilling & Payments Council for three years and understands the importance of this association’s guidelines. To respond to Nacha’s changing regulation and remain compliant, Flywire is currently implementing an industry-standard API into our platform to enable clients to easily validate account authenticity for WEB debit entries. Our clients can feel confident that all ACH transactions processed through our global payment network will continue to meet the standards set forth in Nacha’s guidelines.

What do you have to do?

At this time, no action is required for our clients to continue processing ACH payments through Flywire. We suggest that you ask all of your payment vendors to demonstrate that they are practicing one of the following recommended verification methods:

  • Pre-Notes: issuing an ACH pre-note transaction for the first time a bank account is used before running a true monetary ACH transaction
  • Micro-Transactions: running micro-transactions and requiring validation of each micro-transaction from the payer before executing a true monetary ACH transaction
  • Validation & Verification Services: using a viable validation or database / instant account verification service

To learn more about the updated Nacha rule, take a look at this Fin article or read more about it on Nacha’s website.

1 Internet-initiated Entries (WEB) can be a single entry or a recurring ACH debit that takes place when the consumer's request for a transfer of funds is received via the Internet.