With a New ACH Rule Looming, Open Banking Takes on Added Urgency

Online account debiting has grown in usage and prominence as consumers and businesses turn to e-commerce in the face of the coronavirus pandemic. But now many businesses are reckoning with a rule that will take effect in March that requires sellers using the automated clearing house to perform more rigorous checks for fraud.

That looming requirement led to an announcement on Friday that Southwest Business Corp., known as SWBC, will use Mastercard Inc.’s Finicity network to scope out buyers’ accounts. San Antonio, Texas-based SWBC sells insurance, mortgages, and wealth-management services, but it also enables its clients to receive both ACH and card payments at call centers, on Web sites, and via mobile devices.

The company’s latest arrangement will rely on Finicity Pay for real-time verification of accounts. Salt Lake City-based Finicity is one of a number of data networks that enable the trend called open banking, or the ability to link to accounts at a wide range of financial institutions to verify account ownership and to facilitate money transfers. The method aims to replace older techniques such as micro-deposits. SWBC will also use another service, Finicity Connect, to allow consumers to grant permission for an ACH transfer.

“Our partnership with Finicity will allow SWBC to deliver new security capabilities protecting consumers and the institutions that serve them,” Tucker Stovall, vice president of product strategy at SWBC, said in a statement. “In addition, instant verification allows for speedy enrollment and immediate access to ACH transaction initiation, a significant improvement to the user experience.”

Another benefit to the arrangement, besides compliance with the upcoming ACH verification rule, is fast service. “Instant data verification is the best way to enable consumers to pay, get paid, or set up accounts,” said Steve Smith, Finicity’s chief executive and co-founder, in a statement commenting on the deal with SWBC.

The new WEB Debit Rule, set by Nacha, the governing body for the ACH network, takes effect March 19 and says businesses that debit funds through the ACH for online orders must use what the rule calls a “commercially reasonable fraudulent transaction detection system” to screen for fraud. WEB is an ACH transaction code for online payments. The network handled 1.9 billion Internet transactions in the third quarter last year, up 14% year-over-year, according to the most recent numbers from Nacha.

Mastercard’s $825-million deal to acquire Finicity was announced in June and closed in November. The transaction was mirrored by a $5.3-billion offer Visa Inc. announced a year ago to acquire Plaid Inc., a Finicity rival. Visa withdrew its offer earlier this week following a lawsuit by the U.S. Department of Justice, which argued the acquisition would allow Visa to stifle competition in debit transactions. Visa denied the claim.