To combat what they characterize as a growing problem, two U.S. subsidiaries of the Dutch financial services giant ABN Amro Holding NV have come out with a new method of blocking fraudulent automated clearing house transactions.
Both LaSalle Bank Corp. of Chicago and Standard Federal Bank of Troy, Mich., worked with CheckFree Corp. to develop ACH Control.
The system functions much like the positive pay application most corporations use to keep tabs on the paper checks that are posted to their accounts; when somebody tries to submit an ACH debit to a company, ACH Control will temporarily put the transaction on hold until the company approves the payment.
The feature is being introduced this month through both banks, which have a shared Treasury division but separate sales personnel.
Without this type of feature, just about anybody could initiate a debit to a company's accounts through the ACH network as long as they know the bank's routing number and the account number, said Elaine Mikols, a vice president and the ACH product manager at LaSalle.
When such transactions arrive the banks have no way of knowing which are valid and which are bogus, and without some sort of security mechanism on the account they will simply process every debit. "This provides fraud protection on the account because it allows corporates to make a decision about which transactions to pay," Ms. Mikols said.
She said other vendors' ACH fraud protection services fall into two basic categories: ACH blockers, which prevent any ACH debits from being posted to an account, and partial blockers, which will only permit debits from a pre-authorized list of payees.
Both services can reduce fraudulent transactions, but they can also block valid ones, Ms. Mikols said. "The problem is, what happens when a customer has a new payee. There has to be some way to identify the vendors that can be paid."
ACH Control solves that by notifying corporate clients when an outside customer tries to initiate an ACH debit, Ms. Mikols said. The company can choose to receive notification by e-mail, which costs $1 per message, or by accessing the log on the bank's Web site, which is free. The customer can also set up profiles, allowing approved vendors to submit ACH debits at any time, or with predefined dollar limits, without triggering a notification.
"We think [ACH Control] is a big step forward," said Denny Oswalt, a senior vice president and the general manager with the ACH business unit of CheckFree. "There is a lot of concern in the industry that ACH fraud could become a huge issue."
CheckFree, of Norcross, Ga., says it provides ACH processing software to about 80% of the 50 largest banks.
Ms. Mikols said the better flexibility of ACH Control is expected to attract new business, which is why LaSalle has no plans to license it to other financial institutions. LaSalle is testing it with four Midwest companies and expects 10 more to be ready to go next week.
Ms. Mikols said she expects at least 600 corporate clients to be using ACH Control by the first quarter of 2004. Several companies have also said they are interested in moving their accounts to LaSalle, she said, specifically to take advantage of the service. "Nobody else has this feature."
Two years ago "there was no such thing as ACH fraud, but now it's ramping up," Ms. Mikols said. "It's actually getting pretty big, which is bad news."
Standard Federal has made another addition: It said Wednesday that it had added 466 automated teller machines to its network. That gave the network 1,260 ATMs, tops among Michigan banks. The 466 are in southeast Michigan CVS drugstores and in Speedway gas stations throughout the state.
