Reassessing ACH: Are the Risks Outweighing the Benefits?

In the world of business transactions, the method of payment chosen can significantly impact the security and efficiency of operations. For years, Automated Clearing House (ACH) payments have been seen as a modern, cost-effective, and convenient alternative to checks. However, with the rising tide of identity theft and its tight correlation to ACH fraud, it's time to reassess whether the benefits of ACH truly outweigh the risks.

The Hidden Costs of ACH

ACH payments, while initially appearing cheaper and faster than checks, carry hidden costs in the form of increased fraud risk. According to the Payments Dive article, "Fraud Concerns Mount as Verifying Identities Becomes Harder," ACH is a significant area of vulnerability in the payments industry. The rise of faster digital payments and artificial intelligence innovations are seen as potential factors that could exacerbate fraud.

Data provided by the Federal Trade Commission shows that bank transfer payments such as ACH represent the largest dollar losses in the US in 2021 and 2022 by a significant margin.

Data from the Federal Trade Commission (excludes the cash, cryptocurrency, debit, money order, gift card and payment app categories for graphic clarity).

The Threat of Identity Theft

The ease of identity theft in the digital age has made ACH payments a prime target for fraudsters. Synthetic identity fraud, where some pieces of authentic information are used to create the appearance of normalcy, is a growing threat. In the context of ACH payments, fraudsters can use these synthetic identities to initiate fraudulent transactions, leading to significant financial losses.

The Case for Checks

While checks have their own set of vulnerabilities, they do not expose businesses to the same level of risk as ACH payments. Checks do not require the sharing of sensitive bank account information, reducing the risk of identity theft. Furthermore, checks have physical features that can be verified, providing an additional layer of security.

The Future is Virtual Cards

While checks may offer a safer alternative to ACH, they are not the future of business transactions. That future belongs to virtual cards. Virtual cards are unique, digitally-generated card numbers that can be used for specific transactions. They offer enhanced security, improved efficiency, and reduced risk of identity theft, making them the modern, safe approach to AP.

Do The Risks Outweigh the Benefits?

As businesses navigate the evolving landscape of payment methods, it's crucial to consider not just the apparent benefits of a payment method, but also the hidden costs. While ACH payments may seem like a modern alternative to checks, the increasing ease of identity theft and the tight correlation to ACH fraud suggest that the risks may outweigh the benefits. By switching to virtual cards, businesses can embrace the future of payments while ensuring the security of their operations.

Interested in learning more? Click here to request a consultation with one of Finexio's payments experts, and learn how leveraging AP Payments as a Service enables businesses to take advantage of the most modern payment security measures and fully maximize the adoption of virtual cards with their suppliers.

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