Don’t Get Caught Up with a Catfish Originator

Amy Donaghue

By: Nicole Payne, AAP, APRP, CPA, CRCM, CIA, Vice President, Advisory Services

We’ve all heard the horror stories about the single friend who’s out looking for love in all the wrong places, but serendipitously finds Mr./Ms. Right on an online dating site. For that friend it’s a fun and magical time, filled with frequent status checks of the message inbox, and late-night conversations over the phone all about everything and nothing at the same time. Ahhh, new love, isn’t it wonderful? But the time eventually arrives to get to know the person IRL(in real life)! So exciting! So invigorating! So…not like anything Mr./Ms. Perfect claimed to be! Drat. Your friend has been catfished! As described by Wikipedia, “Catfishing is a deceptive activity where a person creates a fictional persona or fake identity on a social networking service, usually targeting a specific victim. The practice may be used for financial gain, to compromise a victim in some way, to intentionally upset a victim or for wish fulfillment.” Unfortunately, the practice has become common enough, there is even a reality TV show on MTV called “Catfish: The TV Show” all about the truths and lies of online dating.

The sad news is, this kind of deceitfulness is not limited just to the realm of online dating. It happens in the ACH world as well. Many an ODFI can also tell stories of Mr./Ms. Perfect Originator, only to find out that they are as crooked as they come. What can be done to reel in this terrible behavior? Lots! Don’t let your ACH Origination Program get caught up with the fishes; here are some things you can do to protect your financial institution from Mr./Ms. Catfish Originator.

Use a Good Fishing Pole
Although the old adage is that there’s plenty of fish in the sea, you’ll never catch a good one if you never drop your pole in the water. This applies to payments, too. Your bait is your marketing materials and your fishing pole is your ACH Origination Application. To make sure you’re attracting the good fish, and not Mr./Ms. Catfish Originator, be sure your marketing materials address that ACH Origination Services is subject to approval and is presented to target audiences in industries that your financial institution has identified as acceptable. Once the ACH Origination application comes in, give it a thorough review and analysis. Capture information such as business name(s), the place of business (including physical address), business profile and the nature of the business, number of years in business and official information, such as Tax ID number, State Business License #, anticipated SEC codes, volume and frequency of files, beneficial owners, website address, etc. The better your fishing pole, the better the chance that you reel in the good catch, and not Mr./Ms. Catfish Originator.

Use a Good Fish Scale
Why is it so easy to weigh fish? Because they have their own scales! Once that fish comes out of the water, the avid outdoorsman (and the online dater) is in a hurry to get that fish weighed to see just what a great catch it was, and so should you with your potential ACH Originator. Bust out your best Know Your Customer and Customer Identification Program processes to make sure that the catch is a good one. Don’t stop there, though. Continue the investigative process to learn as much as you can about the potential Originator’s financial stability to prevent your institution from being catfished.

Do a Sniff Test
There’s no getting around it, catfish just stink, and so does Mr./Ms. Catfish Originator. On a regular basis, review the Originator’s actual activity against what was indicated on the ACH Origination application and what you know about their current business model and business activity. Look for unexpected deviations and don’t be afraid to ask the Originator to provide explanations for differences that are concerning. Also, consider doing a pre-approval On-Site Audit of the potential Originator to find out if that fish is worthy of mounting on a wall. Regular On-Site Audits are a great risk management tool to identify any Catfish Originators that were able to swim upstream and make it through your rigorous due diligence review.

Cut the Line
If you do find yourself smooching a sneaky swimmer, cut the line and get rid of that Catfish Originator. Make sure your agreements with your ACH Originators have a strong Termination Clause that includes the ability to terminate for breach of the ACH Rules or the ACH Agreement and that the termination can occur as swiftly as possible. Don’t allow the Mr./Ms. Catfish Originator to string you along; continued processing may lead to greater losses.

If luck is on your side, you will experience neither the online dating nor the ACH Originator kind of catfish. Implementing the above practices into your ACH Risk Management program will help you avoid any nasty surprises when you see finally see your Originator face to face. And hopefully, if all ODFIs have strong ACH Risk Management Programs, the ACH Network will be able to avoid a spinoff reality TV show called “Catfish: The Trials and Tribulations of ACH Origination.”

If you’re concerned that your ACH Risk Management Program might be smelling a little fishy, we can help! Our staff of payments experts can review your ACH Program, policies, procedures, agreements, you name it! Or, we can conduct an ACH Risk Assessment and ACH Audit to help you identify opportunities to enhance your ACH Risk Management Program and verify compliance with the ACH Rules. Contact us at advisoryservices@epcor.org for a free, no-obligation quote!