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16 min

How safe are ACH payments

Are ACH transfers safe? Learn about the safety of ACH payments and discover essential tips to prevent ACH payment fraud. Stay secure with our expert advice.

Alanna Caplin
Published at
A small business owner using a laptop to send ACH payments to her vendors.

Paper checks are not as popular as they used to be. They are slowly being replaced by faster, safer, and more convenient digital payment options—including ACH bank transfers.

In 2024, 33.56 billion ACH bank transfers were initiated, amounting to a value of $86.2 trillion. According to Nacha, the body governing the ACH network, the value of ACH increased by 6.7% from 2023 to 2024. 

So what exactly is the appeal of this vast and growing payment method? Is ACH safer than credit card? Is ACH safer than wire payments? To answer these questions, it’s best to start at the beginning.

What are ACH transfers and what are they used for?

ACH (Automated Clearing House) is a highly-vetted nationwide network that coordinates electronic payments and money transfers between bank accounts. The network consists of financial institutions that ‘clear’ the transfer of funds (which is why they are known as ‘clearing houses’). Businesses can also choose non-banks to work with, who will process ACH payments on their behalf.

ACH is ideal for many kinds of payments, including recurring bills or vendor payments. For this reason, more businesses are opting for ACH as their preferred payment method.

Financial terms can be confusing, and you might wonder what’s the difference between ACH and EFT. So let’s sort things out. EFT stands for Electronic Funds Transfer, which is an umbrella term covering all kinds of digital payment methods. These include wire transfers, credit card payments, electronic checks, and direct deposits. It also includes ACH payments. So, what is an ACH payment? It’s just one type of EFT.

Learn more about ACH payments.Check out our complete guide to ACH

What’s keeping businesses from embracing ACH payments?

There is no doubt about it: payments by paper check are on the decline, and they have been for the past two decades.

Line graph showing trends in non-cash payment methods from 2000 to 2021, including checks, ACH transfers, credit cards, and debit cards.

Today, more businesses and consumers prefer digital paperless transactions, such as card payments and EFTs. 

ACH transfers are chosen due to their speed. Want to know how long ACH transfers take? When initiated by the bank, they generally take 1-3 days to process. When using an online payment platform to send the ACH transfer, it can take longer. When using Melio, ACH transfers arrive within 3 business days. Melio users who are eligible can expedite payment and send a same-day ACH or even instant transfers. 

But despite the benefits of ACH, there’s always a risk of fraud when moving money. Which leads to the question—are ACH payments truly safe?

Is ACH safe?

ACH is regulated by the federal government and managed by the National Automated Clearing House Association (Nacha), a non-profit organization that administers and monitors the ACH network. 

ACH fraud and errors are not common, but also not unheard of. Thanks to the rule guide set by Nacha and the preventative measures in the banking and fintech industry, the error rate is low, at only approximately 0.33% of transactions. Moreover, Nacha is continually revising and updating the rules to combat new threats and fraud schemes. 

But even though ACH payments are regulated and safe, every business owner should acknowledge, understand, and safeguard their payment process to reduce risk and ensure maximum safety of ACH transactions.

Internal controls offered by Nacha

When a business registers with the Nacha network to enable ACH transfer payments, it’s required to provide a range of identifying information, including usernames, passwords, bank details, and routing numbers. This data is the first step towards internal control of the payment process to reduce or prevent fraud.

On top of this information, merchants can leverage further guardrails to secure their ACH payments, such as working with payment providers who use encryption and tokenization, or micro-validation procedures to verify payment details before starting to send or receive money.

Which is safer: ACH or credit card?

According to the annual risk survey by the Federal Reserve Banks, 24% of financial institutions faced attempted credit card fraud in 2024. For attempted ACH fraud, the figure was higher , at 31%, but losses were only 11% for ACH compared to 12% for credit cards That’s why ACH payments are generally considered safer than credit card payments. 

However, credit card transactions have much higher fees than ACH payments (up to 3.5% for credit card fees vs. up to 1.5% for ACH payment fees). Due to their similar safety protocols, the lower cost of ACH payments gives them a distinct advantage.

Which is safer: ACH or wire transfer?

Like ACH payments, wire transfers are a common target for fraudsters. But is ACH safer than wire? Generally, yes, ACH payments are considered more secure than wire transfers. However, if you are looking for the fastest option of ACH or wire, wire wins. Wire transfers can be done on the same day, while ACH typically takes one to three days. Having said that, there are services that enable same-day ACH transfers , so the differences are evening out. 

Wire transfers are also more costly than ACH transfers. Given the better safety profile and lower fees of ACH payments, they come out as a clear winner for standard business payments.

Which is safer: ACH or a check?

While ACH payments, credit cards, and wire transfers are all quite similar in terms of safety, ACH is an absolute winner compared to checks. Paper checks remain one of the biggest sources of payment fraud, accounting for 32% of fraud loss according to the Federal Reserve Banks risk survey.

Checks do have various protection measures, but they carry an inherent risk as they’re still physical pieces of paper. They can be misplaced, lost, stolen, or tampered with.

Given the speed and convenience of ACH compared to checks, together with its significantly better safety profile, ACH payments are becoming more popular among small to medium businesses too.

Table comparing ACH, credit card, wire transfer, and check by security, speed, and cost.

Guarantee your information stays secure when using ACH transfers

There are several smart precautions you can take to ensure your ACH payments are smooth and safe. Here are a few recommendations for keeping your information secure when sending ACH transfers:

Trusted provider

‍To ensure security and safety in transactions made, it is highly recommended that all third-party payment processing systems be compliant with Nacha’s operating rules. Melio, for example, is trusted by businesses, banks, credit card issuers, and financial institutions throughout the U.S. 

Protect private information

Tokenization and encryption are two effective ways of securing information by reducing data exposure. 

Encryption is a process that encodes data to ensure it’s only read by its intended recipient. When it comes to ACH payments, Nacha mandates encryption technology when transmitting through an unsecured network. 

Tokenization replaces private information (such as an account number) with a unique and unrelated set of characters. This token number does not hold any value, making it worthless to others. It is recommended to use tokenization in ACH transactions made through third-party providers. 

Micro deposits

As an added layer of security, many third-party payment processors make small deposits into a user’s bank account to verify their identity before any formal financial transactions can be made. Melio uses micro-deposits as a validation procedure when connecting a bank account.

How to avoid ACH payment fraud

Sending and receiving payments is a fundamental pillar of any business. Unfortunately, whenever money is involved, culprits will see potential for scams and fraud. Every business is a target, no matter the size or industry. 

According to the Association for Financial Professionals, 79% of companies were victims of payment fraud, or an attempted fraud attack, in 2024. While most financial fraud attempts are still focused on checks, ACH payment fraud is prevalent.

Small and medium-sized businesses (SMBs) are especially vulnerable to financial fraud. That’s because they often lack both the resources to monitor and prevent it and the cash reserves to stay afloat despite the losses incurred. But that doesn’t mean you should avoid ACH, one of the most popular and cost-effective money-transferring methods.

Instead, understand the types of ACH payment fraud you might be facing, and learn what you can do to protect your business. 

Common types of ACH payment fraud that affect small businesses

Any theft of funds via an unauthorized or fraudulent ACH payment is considered ACH fraud. In most cases, once the offender has illegally obtained the money, they will quickly withdraw the funds to a debit card or another account before a dispute can be opened.

Here are the most common ways fraudsters target SMBs for ACH payment fraud.

Stolen credentials

The simplicity of ACH payments is also what makes life so easy for some fraudsters. All they need to do is retrieve your bank account number and routing number. They then use your bank information to send money to an account they control or set up payments for services and goods that you never purchased.

These are some of the tactics scammers use to get their hands on private banking information:

Data breach

Your bank information is likely logged not just in your systems but in those of your vendors, service providers, and customers. If any one of those is breached, this could make you vulnerable to an attack.

By the way, a data breach doesn’t have to be the result of hacking (more on that later). For example, if you keep a sticky note with your bank info on your screen for easy access, then anyone passing through your office could immediately gain access to your funds. Another scenario is accidentally capturing the note in an unfortunate selfie, then posting it online for all to see.

Bottom line, never keep your bank details out in the open for everyone to see.

Insider threat

Trust is an important component in every team, but sometimes employees may be tempted to stick a hand in the cookie jar and become offenders. They may then steal your credentials and use them to transfer funds themselves or trick another employee into unwittingly sending them money from your account.

Hacking

Some cyberattacks involve tricking legitimate users into installing spyware on the company’s computers. This type of malware includes keyloggers that record every key you press on your keyboard, such as your user names, passwords, and, of course, banking information.

Phishing attacks

In a phishing attack, you or your team receive an email or text message containing a link that leads to a website controlled by the attacker. The website may look exactly like your bank’s site or another service that requires a login. Once you fill in your username and password you will either be redirected to the right website or receive an error message. Either way, your attacker will already have your credentials and can start accessing your data and performing actions on your behalf.

Social engineering

In this scenario, an attacker will impersonate one of your employees or vendors to get you to transfer money to the wrong account. Identity theft often involves the use of some genuine stolen information to increase credibility and make it more likely for you to take the bait.

For identity theft-based ACH fraud, an attacker may use:

  • A legitimate but hacked email owned by the person they’re impersonating
  • A fake email with an address that looks similar enough for you to mistake it for genuine
  • Fake invoices with some of your vendor’s real details but the fraudster’s own bank information on them
  • SMS spoofing, which refers to text messages that appear to originate from the person being impersonated

Kiting

Kiting in an illegal activity in which the criminal utilizes the time it takes banks to process transactions to fraudulently gain credit or steal additional money.

In essence, they are using non-existing funds to artificially inflate their cash reserves by moving them around between accounts. This cycle may repeat until the offender is caught or gets enough cash to no longer have to kite. If you’re caught in the middle of the cycle, you may never notice the transgression but if your payment is caught in the end of it, you’ll be in for a loss.

Kiting was originally done with paper checks but can also be implemented with ACH transactions that typically take a few days to process.

Here are two scenarios to explain how ACH kiting may affect your small business.

Scenario 1:

The fraudster uses ACH to pay from one account with insufficient funds. Before the money is deducted, they use a second account with insufficient funds to send another ACH transfer to cover the first one. Doing so, they convert the ACH payment into short-term credit without the necessary financial backing.

Scenario 2: 

A customer makes a purchase and pays using an ACH bank transfer. They then claim there’s an issue with the product, requesting a full or partial refund in cash, via debit or any other immediate method while the ACH transaction is still being processed.

The unsuspecting business issues the refund only to discover a few days later that the original payment was rejected due to insufficient funds, as the scammer already drained the account.

The impact of ACH fraud on businesses

Like any financial fraud, ACH fraud has significant negative impacts on businesses, whether small, medium, or large. The consequences go beyond just the obvious financial loss, causing other types of damage to business continuity and customer trust. For example:

  • Operational disruption: When time and resources have to be spent on resolving fraud issues, this disrupts regular business operations, leading to potential delays in services or important projects.
  • Reputation damage: There is nothing more important to a business than a solid reputation in the marketplace. Insecure payments tend to weaken customer trust in the business, if not destroy that trust entirely. 
  • Increased costs: When ACH fraud occurs, the business loses more than just the money tied up in the specific transaction. There are additional costs such as fraud investigation, legal fees, and the costs of improving security measures to reduce the future risk.
  • Issues with cash flow: The financial loss and increased costs associated with ACH fraud can lead to cash flow issues, making it harder to meet payroll, pay supplier bills, and other business expenses. This can be a particular issue for small and medium-sized businesses who may already be operating with limited cash flow, and without a lot of wiggle room.

8 ACH payment fraud prevention strategies for small businesses

SMBs typically do not have a lot of resources to fight fraud attempts. However, not every precaution tactic has to cost money. By becoming more aware of the risks, keeping a close eye on details, and implementing a few extra security measures, you can significantly reduce your business’s exposure to ACH fraud.

Here are 8 tips to mitigate risks in ACH payment fraud without breaking the bank (or letting anyone break in):

1. Keep bank details on a need-to-know basis

Every individual who knows your bank account details, or has them written down or recorded somewhere, is a security risk. This increases the potential that criminals will access that info to pull funds from your account. So, it’s important to minimize the number of people who are exposed to this sensitive information.

Your bookkeeper obviously needs to have them, but not every employee that comes through the door should have this access. Use your good judgment to decide who really needs your bank details to do their day-to-day job. If an employee is only sending an occasional payment once every few weeks, it might be better to handle it yourself or send it to your accountant than to risk exposure.

2. Use 3-way matching

paying the right person for the right thing. This process includes comparing the contents of the invoice you received against your purchase order and order receipt. The most important details that need to be matched are the sum, the goods provided, and the vendor’s payment information.

3. Don’t click on random links

This cybersecurity best practice isn’t limited to preventing financial fraud. Malicious links are one of the most common tactics that hackers use to infect your devices with malware and spyware. These malicious programs can cause substantial damage to your business through fraud.

So, always be wary of links and only click them when you’re 100% sure you know who sent them and why, and that they are reliable.

4. When in doubt, call

Whenever anything looks suspicious—for example, an email riddled with typos or just an out-of-the-blue request to update the payment details—pick up the phone to double-check with your vendor or employee before sending a payment.

Don’t be tempted to simply text back as you could find yourself conversing with your attacker. With a call, you’ll have a much better chance of knowing you’re talking to the right person. Also, make sure the number you’re calling is the one in your files, not in the suspect invoice or message.

5. Educate yourself (and your team)

As technology advances, attackers are constantly getting more sophisticated so it’s important to stay up to date on the threats relevant to your industry. It’s also crucial to periodically train your team on potential threats and ways to detect them.

6. Make sure you’re covered

If you do fall victim to ACH fraud from an insider threat, having fidelity insurance can help significantly cut your losses. This type of insurance covers your company against monetary and physical damage caused by fraudulent or otherwise dishonest activity by someone on your team.

7. Keep an eye on your money

While Nacha and the bank offer protection against unauthorized and fraudulent ACH payments, it’s your responsibility to monitor the movements in your account and promptly report anything suspicious. So, it’s very important you know exactly what’s going on in your account at all times.

Check with your bank to see if it offers notifications via email or text whenever a transaction is made. This can help make sure no transaction goes unnoticed without requiring daily logins to your account.

8. Use digital payment platforms

A digital payment platform like Melio allows you to manage incoming and outgoing payments for your business while keeping your payment information safe. You no longer have to give out your details to customers in order to get paid or to your employees to allow them to pay.

When you input your payment and bank details, they are kept hidden and encrypted to ensure your money stays yours.

Platforms like Melio also allow you to establish payment approval workflows so you get the final say on every payment before it goes out.

ACH payments: Go for it!

If you are considering online ACH payments for your business, partner with a payment provider like Melio that offers built-in ACH transfer functionality, with extra security guardrails to keep transactions safe and secure. If you are looking for ACH credit vs debit capabilities, and an alternative to slow check payments, sign up for Melio today and unlock the benefits of ACH payments for your business. 

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.

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