Strengthening financial institutions’ risk management: Navigating third-party sender relationships and the implications of upcoming Nacha operating rules for fraud monitoring

Abstract

Traditionally, financial institutions have been the trusted place to hold funds in a safe and sound environment where consumers and nonconsumers receive products and services to maintain their financial well-being. Financial technology (FinTech) companies have emerged as a major alternative to traditional banking for many consumers, according to an October 2023 report by McKinsey & Company.1 These FinTechs, however, still need to rely on traditional financial institutions to provide their path to the payment channels through the Federal Reserve System. These relationships with third parties offering products and services to consumers bring opportunities for large deposits but also expose them to risks that require strategic risk management programmes. This paper explores these third-party relationships, how they function, the evolving automated clearinghouse (ACH) risk management requirements from the National Automated Clearing House Association (Nacha), mitigation controls to reduce related risks and recommended measures for the industry to strengthen the financial system and reduce fraud losses. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.