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We have been receiving requests from customers to allow reverse wires where, for example, a customer’s payroll company would initiate a wire request rather than the customer. Have you seen this practice, and are you aware of heightened fraud for this type of transaction? On receiving such a request, we would call our customer to confirm its legitimacy and have the customer sign an agreement in which they would provide the account number where the wire is to be sent. Any additional insights related to this process would be helpful.

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We believe that reverse wires may pose higher risks of fraud than traditional wire transfers, since they are initiated by the recipient of the wired funds, but we believe that the risks can be reduced using fraud prevention measures such as those described in your question.

We are aware that some payroll companies require payment to be made through reverse wire transfers, also known as drawdown requests or 1031 Fedwire requests. Payroll companies favor this type of transfer because it protects them from loss if the employer does not have sufficient funds to cover its payroll, unlike an ACH payment that may be returned. Some information on reverse wire transfers published by financial services companies is included in the resources below.

Although there may be an increased risk of fraud related to allowing a third party to initiate a wire transfer from your customer’s account, we believe the procedures you have described —obtaining your customer’s confirmation that a wire request is valid and their agreement to provide an account number where the funds are to be transferred — would reduce this risk. We also recommend using any other fraud prevention measures that you would use with comparable traditional wire transfers.

For resources related to our guidance, please see:

  • National Payment Corporation, Reverse Wires White Paper (“A reverse wire is a B2B transaction in which the bank account holder authorizes another party, such as a vendor, to withdraw funds from their account via a wire transfer. It is called a reverse wire because it is initiated by the recipient of the funds, rather than the sender. This is in real time, like a wire, so it will not bounce, whereas an ACH debit or check can bounce. Reverse wires are also known as draw-down requests, reverse draw-down wires, or reverse-wire requests. The benefit to the funds recipient is that the transfer is secure; the benefit to the payer is that once they have authorized their bank in writing to respond to future draw-down requests, no work is required on the payer’s part to execute a transfer.”)
  • National Payment Corporation, Reverse Wires White Paper (“Reverse wires are of particular use where the payment is 1) high-risk, 2) on a recurring basis, and 3) for a variable amount. (If the payment is not high risk, ACH is a viable alternative. If the payment is not recurring, a traditional wire is simpler to execute. If the payment is not variable, a repeating traditional wire is most efficient.) Typical reverse-wire scenarios include 1) high-volume, variable dollar purchases of perishable inventory, and 2) payroll services.”)
  • Cachet Financial Services, A Wire By Any Other Name (November 20, 2018) (“[[i][/i]I]f you’ve ever wondered what a reverse drawdown is, or a drawdown request, or a 1031 Fedwire request, here’s the good news: Understand one and you understand them all. They’re all different ways of referring to the same process. The ‘1031’ Fedwire request is the term most often used by banks. It’s the banking code associated with a specific wire request initiated by the recipient.”)
  • Cachet Financial Services, A Wire By Any Other Name (November 20, 2018) (“The primary reason that payroll providers choose to use a reverse wire is to mitigate the risk of being left on the hook for a payroll that goes out without sufficient funds to cover it. Depending on the size of the payroll, that’s a loss that could leave a smaller payroll provider in a very big hole. With reverse wire authorization, the paychecks don’t go out until the money to cover them has been transferred to the processor making the payment.”)