2010 Utility Payment Conference
What’s New, What’s Coming: Innovation and
Transformation to Help Meet a Changing
Payments Environment
Nancy E. Grant, AAP
Senior Director, Payments Convergence and Research
NACHA – The Electronic Payments Association
703-561-3911; ngrant@nacha.org
October 19, 2010
© 2010 NACHA — The Electronic Payments Association®. All rights reserved. No part of this material may be used without the prior
written permission of NACHA. This material is not intended to provide any warranties, legal advice, or professional assistance of any kind.
Personal photographs of the speaker are not copyright by NACHA.
Where the
ACH Network
is Now
Strategic
Directions for
ACH and
NACHA
What’s in the
Pipeline
Supporting and
Protecting the
Network
© 2010 National Automated Clearing House Association. All rights reserved.
What’s New
As Our World
Continues to
Change….
2
Where We Are:
ACH Supported the Economy in 2009
Provided efficiency and savings when it is needed most…
• Federal government saved $1B* in 2009 by using ACH
• Despite ~10% unemployment, Direct Deposit grew
– “Split deposit” to encourage regular savings
– Building FI deposits – good source of liquidity
– Saving businesses money
* FMS reports $0.925 in savings for every ACH credit issued instead of a check http://www.fms.treas.gov/eft/index/html
© 2010 National Automated Clearing House Association. All rights reserved.
3
Moving Toward Economic Recovery –
But What are the Sources of Future Aggregate Demand?
•
•
•
•
•
•
No high-leveraged, consumer-driven economy
Increasing exports – if we can be effective
Health care – big demand (baby boomers) / big concern
Environment – big concern / every government is
investing
Education – baby boomlet / R&D to stay competitive
Efficiency – clearly required – especially if no robust
growth
© 2010 National Automated Clearing House Association. All rights reserved.
4
What’s the ACH Strategy?
2009 – New Quadrennial Strategic Plan
Strategic Direction Statements – For the ACH Network and for
NACHA
• The ACH Network facilitates global commerce by serving as
a safe, efficient, ubiquitous and high-quality electronic
payment system.
• NACHA, led by depository financial institutions and payment
associations, supports the growth of the ACH Network by
managing its development, administration, and governance,
and by providing superior services to its members and the
payments industry.
• In today’s economy, the imperative is to capitalize on the core
competencies of the ACH Network and of NACHA
– The industry cannot afford duplication
– Leverage the asset that has been built
© 2010 National Automated Clearing House Association. All rights reserved.
5
ACH Network: Logical and Physical
•
ACH Logical Network
– ACH rules set and associated
SEC (Standard Entry Class)
Codes and formats owned by
NACHA
•
– The technology and communications environment, and associated
product set, needed to initiate,
clear and settle ACH txns between
counterparties
– Allows counterparties to logically
and confidently pass transactions
to each other, knowing how they
will be recognized and dealt with
•
NACHA holds the role of the
Network…
– Administrator
– Rules Creator
– Rules Enforcer
– Educator
– Supporter
– Protector
ACH Physical Network
– The physical environment required
to move transactions
•
Operators take the role of…
– Processing & routing txns
• Maintaining access to all
sending and receiving
endpoints
• Inter-operator exchanges
– Services to help FIs manage ACH
volume and risk management
– Interbank settlement
– Network reporting to NACHA
© 2010 National Automated Clearing House Association. All rights reserved.
6
How do we best utilize the ACH Network?
Enabling participants to create valuable, innovative
and green solutions by leveraging ACH core competencies –
Direct transfer of funds and data from one entity’s account to another
Universal
Access
Innovative
Green
ACH
Network
Information
Efficient
Value
© 2010 National Automated Clearing House Association. All rights reserved.
7
Key NACHA Roles
Support for the industry, facilitating the balance of risk and innovation
Dialogue
Advocacy
Rules
Creation
Education
Risk
Enforcement
Collaboration
© 2010 National Automated Clearing House Association. All rights reserved.
Innovation
8
Where We Are Now
… ACH volume has nearly tripled over the last decade, reaching nearly
19 billion transactions in 2009.
Annual ACH Transaction Volume* 2000-2009
(Includes Interbank and On-Us)
2009: 18.8
billion txns
20
15
2000: 6.9
billion txns
2009 ACH dollar value
exceeds $30 trillion,
more than double
U.S. GDP
(2009: $14.3 trillion)
Billions of Txns 10
5
GDP Source:
U.S. Bureau of Economic Analysis
0
2000 2001
2002 2003
2004
2005
2006
CAGR = 11.7%
2007
2008
2009
Sources: NACHA; ACH Operators
© 2010 National Automated Clearing House Association. All rights reserved.
9
What do We See When Looking to the Future
• Capitalize on Payments + Information
– Support Industry Collaboration
• Keep the Rules Strong
– Support Innovation and Payments Convergence
• Capitalize Upon What We Have
– Invest in the Future
• Utilize strength of the NACHA Operating Rules
– Balance innovation and risk management
© 2010 National Automated Clearing House Association. All rights reserved.
10
What’s New in ACH
•
•
•
•
•
•
•
•
•
•
•
•
Mobile Payments: Included in WEB
EBIDS: Into production
International: Expanding services
Healthcare: Moving toward electronic payments
Rules Simplification: Making the rules easier to use
Enhancements to ACH Applications: Expanding uses and
opportunities
DCT: Filling a gap in check conversion
Secure Vault Payments: Commercially available
PayItGreen: Active membership group
Direct Access: Registration is underway
Originator Watch List: Now operational
Taxes: State Tax Change Portal
© 2010 National Automated Clearing House Association. All rights reserved.
11
Mobile Payments in the ACH Network
• Members voted to approve a ballot on May 27, 2010 to
establish a framework in the NACHA Operating Rules for
mobile payments by:
– Expanding the definition of the SEC Code WEB Internet-Initiated Entries (WEB) - to include ACH
debits authorized and/or initiated via wireless
networks
– Requiring those payments to utilize “WEB”
– Establishing an implementation date of
January 1, 2011
• Originators and Third-Party Service Providers that do not
already use the WEB SEC Code for mobile ACH debits
may begin doing so as soon as possible, but must use
WEB no later than the effective date.
© 2010 National Automated Clearing House Association. All rights reserved.
12
EBIDS and PayOnly
• EBIDS – Electronic Billing and Information Delivery Service
– Opt-in
– Uses ACH for payment information transactions (eBill
enrollments, eBill maintenance, eBill presentment)
– Uses existing infrastructure with standardized
transactions
– Allows billers to deliver electronic bills to customers’
online banking accounts via ACH and to receive
authorized credit payments via ACH to minimize risk
– Billers pay consumer banks for presenting consumer
eBills
• PayOnly
– Designed for billers that do not distribute eBills
electronically but can receive electronic ACH Payments
from customer online banking accounts
© 2010 National Automated Clearing House Association. All rights reserved.
13
EBIDS: eBilling for Everyone
• Green – takes the paper out for everyone
• Consumers – provides privacy and timing
of payment
• Billers – reduces billing cost
– Reduces exception processing
– Provides data necessary for reconcilement
• FIs – Brings all parties together
– Secure connection to consumers via online banking
– Provide valued service for billers
Electronic Billing and Information Delivery Service
www.nachaebids.com
© 2010 National Automated Clearing House Association. All rights reserved.
See Appendix
A for more info
on payment
flow.
14
PayOnly: ACH Bill Payment “Phone Book”
• Begin by using the PayOnly business directory
– Provides retail banks with instructions on how to
send ACH credit payments to participating billers
– Offers wholesale banks a low cost
payment receipt option for their treasury
and payment concentration services
customers
– Presents billers with an opportunity to receive low
risk ACH payment credits from the growing
volume of customers who pay their bills through
online banking services
© 2010 National Automated Clearing House Association. All rights reserved.
15
IAT: Supporting Our Global Economy
• IAT – International ACH Transaction …the information is available with the payment
– Regulatory compliant (OFAC)*
• Everybody plays by the same rules
– Interoperable with major global payment systems
– Cost-effective solution to initiate international
payments
• Global ACH: Cross-border payments through multiple
in-country, non-urgent electronic payments systems
Don’t Leave Money on the (International) Table!
* U.S. Office of Foreign Assets Control
© 2010 National Automated Clearing House Association. All rights reserved.
16
FedGlobal ACH Payments
• New services utilizing NACHA cross-border format (IAT):
• New Geographies:
• Send & receive credit payments to and from
Canada & Mexico
• Send debits to Canada
• Send and receive commercial credit payments to
and from Panama
• 12 additional Latin American countries / 22 SEPA
destinations
© 2010 National Automated Clearing House Association. All rights reserved.
17
1
FedGlobal ACH Payments
• New Applications:
• Send funds to an unbanked receiver
– Retrieved at a bank or trusted third-party
provider service
• IAT includes all data necessary for regulatory
compliance
http://gpf.nacha.org
• Leverage International Payments Framework
– Provides rules, standards, operating procedures, and
guidelines to improve cross-border payments.
© 2010 National Automated Clearing House Association. All rights reserved.
18
1
IAT Enhancements: What’s Under Consideration
•
•
•
•
•
•
•
•
•
•
•
Clarification on Effect of Illegality
Revise minimum description standards/ statementing
Gateway-ODFI agreements
Clarifications to Originator ID Field
New Transaction Type Code for worker remittances
Return code for Entry Returned per OFAC Request
Return and/or Change code for domestic-coded entries
that should be IAT
Clarify R80-R84 for Outbound IAT only
Additional remittance information capacity
Messaging for rejected inbound IAT
Issues with Secondary SEC & returns
• Next step:
– Develop RFC/RFI for 3Q 2010
© 2010 National Automated Clearing House Association. All rights reserved.
19
• Newly formed, part of NACHA’s Global Payments Forum
– Educate FIs and their customers on all aspects of
international payments
– Enable financial institutions to leverage International
ACH Transactions
– Influence the development of international ACH
payments in the U.S.
• Open to all industry stakeholders
http://gpf.nacha.org/c/USIC.cfm
© 2010 National Automated Clearing House Association. All rights reserved.
20
2
Healthcare Payment: Moving to Electronics
• Healthcare spending represents 17% of GDP.
– Congressional Budget Office expects government to achieve
$11.6B in operational savings over the next ten years
• Legislation calls for administrative transactions to drive
simplification – both standards and operating rules
– 25 of 40 cents of every dollar spent on healthcare is actually
consumed by administrative costs
• Healthcare participants must comply with:
– Health Information Technology for Economic and
Health Act (HITECH)
– Patient Protection and Affordable Care Act (PPACA)
– EFT is now considered a HIPAA transaction and FIs must
comply with HIPAA
* McKinsey Quarterly, Overhauling the US Health Care Payment System, June 2007, page 8
© 2010 National Automated Clearing House Association. All rights reserved.
21
What’s Needed to Move Forward in Healthcare
Payments?
• EFT standards and operating rules – to reduce
complexity and drive efficiency
• The new healthcare legislation requires use of “EFT” but
does not define “EFT.”
• Transactions need to:
– Include payment plus information
– Be HIPAA compliant
• Many (probably most) look to the ACH Network for “EFT”
because the network:
– Is ubiquitous
– Can provides automatic reconciliation
– Is secure
– Is widely used for many types of payments
© 2010 National Automated Clearing House Association. All rights reserved.
22
Looking ahead: What is NACHA Doing in Healthcare?
NACHA:
• Is working with key industry groups to encourage use of
ACH Network for administrative transactions
• Has created a Healthcare Resources page on nacha.org
www.nacha.org/HealthcarePaymentsResources.cfm
• Has created a Rules Work Group to work
on healthcare transaction-related rules
• Has testified before the Department of
Health and Human Services on the
use of ACH
• Is reaching out to members (and vice versa) to prepare
to prepare for next steps
© 2010 National Automated Clearing House Association. All rights reserved.
23
Rules Simplification: Expanding Uses and
Opportunities
• Rules Simplification Proposal ballot was approved by
voting members April 23, 2010
• Implementation Date: January 1, 2011
• New and Improved Format:
– Organizing rules by participant
– Identifying and correct inconsistencies
– Reworking language
© 2010 National Automated Clearing House Association. All rights reserved.
24
Progress on Enhancements to Several ACH
Applications
• Issued RFC mid summer to evaluate enhancements:
– Collecting retailer, merchant and biller returned-item
service fees
• For some types of payments, results in “notice
equals authorization”
– Allowing recurring TEL payments
– Removing barriers to check conversion
• Dollar cap
• Opt-out
– Allowing XCK for some unprocessable check images
• Currently evaluating responses (100!) and determining
next steps
© 2010 National Automated Clearing House Association. All rights reserved.
25
Collecting Service Fees
• Using ACH for collection of service fees (for returned items,
typically checks) can be a challenge
– Merchants/Originators frequently use RCCs
• When ACH is used, Receiver (consumer) may not be
able to identify that a given entry (payment) is a
service fee
• 2007 Reg E amendment allows collection of service fee via
single electronic debit with notice to consumer; NACHA
Operating Rules are more restrictive than Reg E
• State laws typically govern when (timing) such fees can be
assessed, the circumstances under which they can assessed,
and the amounts of the fees.
© 2010 National Automated Clearing House Association. All rights reserved.
26
Collecting Service Fees
• The proposed enhancement is to allow service fee collection
via ACH for an underlying ACH or check transaction that is
returned unpaid.
– If the underlying payment was an ACH, the transaction
may be authorized at the same time and in the same
manner, and use the same SEC Code
– If a check, may be authorized by Reg E-compliant notice,
and use the SEC Code most appropriate to the manner of
authorization (most likely BOC or ARC)
• Propose to include identifier (check serial number) in the
Company Entry Description field
• Only allow one service fee per original debit
© 2010 National Automated Clearing House Association. All rights reserved.
27
Allowing Recurring TEL
• Currently, TEL (telephone-initiated entries) are authorized one
at a time.
– This restriction was modeled on the1995 Federal Trade
Commission’s Telemarketing Sales Rule.
– In addition, at the time the TEL SEC Code was developed,
Federal Reserve Board’s Official Staff Commentary
on Regulation E explicitly stated that audio
recording of consumer’s oral authorization
taken over the telephone did not constitute
authorization for preauthorized (recurring)
debits.
– This prohibition removed in the 2007 Official Staff
Commentary.
• Single entry TEL transaction impractical in some situations.
© 2010 National Automated Clearing House Association. All rights reserved.
28
Allowing Recurring TEL
• Proposed Rule would amend TEL rules to allow recurring
transactions.
– Experience with TEL suggests likely that typical
How TEL is Used
recurring payments would be for
recurring bills (utilities, mortgages,
Everything
else *, 5.1%
household services, loans, telecom, Purchases,
6.3%
ISPs, cable, credit cards, etc.).
• Authorization requirements would be
Bill payments,
slightly different for one-time payments,
88.6%
requiring recording the conversation and following up
with written notice confirming the authorization before the
first TEL payment is settled.
© 2010 National Automated Clearing House Association. All rights reserved.
29
2
Barriers to Check Conversion
• Dollar cap – raise it, drop it, leave it as is?
– Current cap of $25,000 included for risk management and to
exclude business checks
– Small volume of checks would be eligible for conversion if cap
raised
– Proposal to raise limit to $50,000
• Aux On-Us rule still prevents conversion of business checks
• Is any dollar cap needed at all?
• Individual ODFIs could choose to use lower caps
• Opt out – removing the requirement to allow opt out
– Not included in original ARC but added later in response to
industry concern
– Market acceptance of conversion is high
– Opt-out not required by Reg E
– Proposal to remove requirement for opt out; merchant could still
choose to offer ability
© 2010 National Automated Clearing House Association. All rights reserved.
30
Using XCK for Some Unprocessable Check Images
• XCK as an application began in 1992 for lost/destroyed cash letters
• Some check images cannot be imaged, or their images cannot be
processed, and are increasingly expensive to collect:
– Checks that create images that can’t be read
– Checks missing part of the MICR line but can be repaired for
ACH
– Check images that don’t pass standard quality test
– Checks that are unreadable, obscured, or mutilated but have
intact MICR
• Propose to allow collection via ACH as XCK entries
• Proposal includes keeping certain elements of XCK:
– $2,500 limit
– Optional for both ODFI & RDFI
– RDFI 60-day return timeframe
© 2010 National Automated Clearing House Association. All rights reserved.
31
DCT: Filling a gap in check conversion
• DCT provides a new clearing option for any ODFI (Collecting
Bank) for low-value consumer checks drawn on any RDFI
(Paying Bank) that have been deposited to the ODFI.
• Why now? – Working to fill a gap: Places where checks are
received but cannot yet converted.
– Leverages existing ACH infrastructure
– Reduces unit processing costs for DCT-eligible checks for
Paying and Collecting Banks compared to other clearing
options
– Efficient exceptions/returns
– Paying Bank has 60-day right of return through the ACH
Network
www.nacha.org/dct
© 2010 National Automated Clearing House Association. All rights reserved.
32
Basic DCT Transaction/Process Flow
P
A
CLEARING
DECISION
Payers
Remit
Checks
Payee/
Depositor
Deposit
Physical
Checks
and/or
Images
Collecting
Bank/ODFI
Determines
Best
Routing
Y
I
• Image Exchange
N
• Paper
G
• IRD
• ACH Truncation
[DCT]
B
A
N
K
S
© 2010 National Automated Clearing House Association. All rights reserved.
33
DCT Pilot
• NACHA is operating an 18-month pilot that went live in
August among a group of community banks in Iowa and
Minnesota.
• Any FI can join the pilot – it is an open pilot.
• Pilot participants exchange items only among
themselves.
• Goals of pilot:
– Determine cost savings
– Assess customer acceptance
– Determine any operational issues
• Issued press release in late August; good pick-up:
American Banker, Digital Transactions, others
© 2010 National Automated Clearing House Association. All rights reserved.
34
Secure Vault Payments (SVP) is Commercially
Available
• NACHA solution to facilitate private, secure online
consumer payments is out of Pilot
• Businesses benefit from authorized ACH credit payments
(Good Funds Model, No NSFs, No PCI Compliance
requirements)
• NACHA serves as governing body – creating,
maintaining and enforcing operating rules
• Consumers authorize payment to the merchant / retailer /
biller directly out of their online banking services so do
not have to share personal account number info
• eWise is exclusive Switch operator and technology
provider
www.securevaultpayments.org
© 2010 National Automated Clearing House Association. All rights reserved.
35
PayItGreen® - We Have the Tools for Change
• Industry initiative led by NACHA – The Electronic Payments
Association
• Focused on educating consumers and businesses on the positive
environmental impact of choosing electronic bills, statements and
payments over paper
• Tiered membership program that provides member companies with
marketing tools and research assets to incorporate into their own
outreach efforts
www.payitgreen.org/business
© 2010 National Automated Clearing House Association. All rights reserved.
36
Direct Access Registration: Now In Effect
• The Direct Access Registration Rule requires all ODFIs to register
their Direct Access status with NACHA.
• Direct Access: A situation in which an Originator, Third-Party
Sender, or a Third-Party Service Provider transmits credit or debit
entries directly to an ACH Operator using an ODFI’s routing number
and settlement account. (The transaction does not flow through the
ODFI.)
• Direct Access Debit Participant: Originator, Third-Party Sender, or
a Third-Party Service Provider with Direct Access
for origination of debit entries except: (i) a
Third-Party Service Provider that transmits ACH
files solely on behalf of an ODFI where that
Third-Party Service Provider does not have a direct agreement with
an Originator (and is not itself an Originator), or (ii) an ODFI that
transmits files using another Participating DFI’s routing number and
settlement account.
© 2010 National Automated Clearing House Association. All rights reserved.
37
Direct Access Registration
• The Direct Access Registration Rule requires all ODFIs
to register their Direct Access status with NACHA.
• An ODFI must complete their registration by either:
(1) acknowledging a statement to the effect that they
have no Direct Access Debit Participants or
(2) providing specific information about each Direct
Access Debit Participant
• When an ODFI registers or provides subsequent
updates to their Direct Access status, a copy of the
registration or update will be sent to the financial
institution contact email address provided on the
registration form(s).
© 2010 National Automated Clearing House Association. All rights reserved.
38
Originator Watch List: Operational
• The Originator Watch List identifies Originators and Third-Party
Senders that meet certain risk criteria, but does not introduce or
imply any prohibition on initiating entries for entities listed
– ODFIs are encouraged to consider this information as part of
broader underwriting and risk management process.
– The OWL is designed to augment other risk assessment and
decision-making measures used by ODFIs.
• The Originator Watch List is available to employees
of financial institutions that utilize the ACH Network,
Regional Payments Associations, and ACH
Operators.
• To access the Originator Watch List, users create
and maintain a NACHA website account and to complete a separate
registration process specific to the Originator Watch List.
• NACHA's Risk Investigations & Services staff administers the
Originator Watch List.
© 2010 National Automated Clearing House Association. All rights reserved.
39
• Alerts financial institutions and payment processors to
updates in taxing authority ACH routing and format
requirements, such as new RTNs, code updates, tax
changes and the like
• Provides states the ability to communicate such changes
easily, creating timely changes and help to minimize
returns for businesses paying state taxes through the
ACH Network
• Functions as a listserv
• Goals: Provide more timely information with longer lead
times; reduce risk of misdirected payments (and any
fees or penalties); facilitate use of the ACH
www.NACHAtaxportal.org
© 2010 National Automated Clearing House Association. All rights reserved.
40
What’s Coming
• Addressing pain points in the rules
• Aligning timeframe for adjustment entries with Reg E
recredit requirements
• Applying NACHA rules beyond the obvious
• Studying ECC and echeck expansion / enhancements
• Eyeing mobile rules, phase 2
• Assessing ACH security
• Studying XML-Formatted Addenda
Records
• Whither Accelerated Processing?
© 2010 National Automated Clearing House Association. All rights reserved.
41
Addressing Pain Points in the Rules
• “Pain points” are:
– Areas of chronic misunderstanding or noncompliance with Rules
– Areas of chronic problems in the ACH Network
– Areas that are inconsistent
– Obsolete sections
• Examples:
– Revocation language for single entry debits debits
(inconsistent)
– ODFI to provide return info to Originator (inconsistent)
– Days an FI is Closed and Warranties of Associations
(obsolete)
– NOCs for single-entry debits (RFI)
– Authorization for corporate payments (RFI)
42
© 2010 National Automated Clearing House Association. All rights reserved.
*Category C: Technical changes that do not have a great impact; corrections to formatting or punctuation; syncing up
Next Step: RFC/RFI Has Been Issued
RFC Issues
• Third-Party Sender audit requirement (clarification)
• Days an FI is Closed (obsolete)
• Revocation language for single entry debits
(inconsistent)
• ODFI to provide return info to Originator (inconsistent)
• Obligation to return credit entries (inconsistent)
• Reasons for dishonor/contested dishonor (clarification)
• Warranties by and to Associations (obsolete)
© 2010 National Automated Clearing House Association. All rights reserved.
43
Next Step: RFC/RFI Has Been Issued
RFI Issues
• NOCs for single entries
• Authorization for corporate payments
• Use of return reason codes for stop payments
(stop one, stop multiple, stop all future)
© 2010 National Automated Clearing House Association. All rights reserved.
44
Aligning Timeframe for Adjustment Entries with Reg E
Recredit Requirements
• Purpose: RDFIs currently have Reg E recredit
obligations that extend beyond NACHA return timeframe
– Changing return timeframe to 90 days from
settlement would allow sufficient time for RDFIs to
submit adjustment entries for virtually all entries for
which RDFIs are required to give credit to consumers
under the Federal Reserve Board’s Regulation E.
• Next steps:
– RFC responses supportive
– RWG gathering data to compare decreased risk for
RDFI to increased credit risk for ODFI
– Targeting ballot for summer 2010
© 2010 National Automated Clearing House Association. All rights reserved.
45
Timeframe for Adjustment Entries: Example
• August 31 – consumer periodic statement closes
• September 1 – unauthorized debit posts to consumer
account
• September 30 – consumer periodic statement
containing debit closes
• October 30 – extended return via ACH
window
window closes
• November 30 – Reg E recredit obligation ends
• If consumer reports unauthorized debit to RDFI Oct 31
– Nov 30, RDFI must recredit but can not
systematically return, must manually work the return
© 2010 National Automated Clearing House Association. All rights reserved.
46
Applying NACHA Rules Beyond the Obvious
• Rules apply to entries through ACH Operators
• Rules do not apply to on-us, direct send, and inter-bank through
other channel
• There are risks to using ACH infrastructure without clear Rules
coverage
– Uncertain legal status
– Greater customer confusion and dissatisfaction
– Additional oversight by regulators/legislators
– Less effective enforcement and risk management
• Proposal would apply Rules to all ACH entries - regardless of
clearing channel
• Next steps
– Committee to review Rules proposal
– RFC in 2010
© 2010 National Automated Clearing House Association. All rights reserved.
47
Working on echeck Expansion/Enhancements:
Electronic Check Council
• As noted, enhancements to check conversion services
being considered – they are in the rule making process
• Additional ECC Hot Topics:
– Industry verticals that produce significant
check volume
– Best practices for check conversion
– Prevent and decrease converted check fraud
– Analyze Fed study for check electronification
implications
– Healthcare transactions
– B2B
http://ecc.nacha.org
© 2010 National Automated Clearing House Association. All rights reserved.
48
Eyeing Mobile Phase 2: New Rules Needed?
• As noted earlier, new mobile rule adopted effective
1/1/11
• What will the future bring?
– Rules-based solution for P2P/A2A
– Study whether mobile payments require new,
different, changed rules from current WEB rules.
– Do mobile payments raise issues that other WEB
transactions do not? And if so, are these issues best
addressed by changes to WEB rules?
© 2010 National Automated Clearing House Association. All rights reserved.
49
Assessing ACH Data Security
• Comprehensive approach to ACH data security in the Rules
• Scope of coverage:
– Data security requirements for all Network participants
• Secure capture, transmission, storage and disposal of banking
information used for ACH payment
• Data breach notification
• Expanding data security audit requirement for WEB
Originators to all SEC codes
– Minimum or commercially reasonable authentication and
fraudulent transaction detection system for all ACH entries
initiated via the Internet
• Next steps:
– Internet Council/RMAG recommendations
– Develop RFC for 4Q 2010
© 2010 National Automated Clearing House Association. All rights reserved.
50
Studying XML-Formatted Addenda Records
• Proposal to allow XML-formatted data in PaymentRelated Information field of addenda records for B2B
payments (CTX, CCD)
• Next steps:
– Is there one or a small number of existing XML XML
XML standards that would satisfy business needs of
both large corporations and SMEs?
• ISO 20022
– Trading partners could exchange other XML or
proprietary formats by agreement under auspices of
NACHA Opt-In Group
– Develop ballot or new RFC as appropriate, 4Q2010
© 2010 National Automated Clearing House Association. All rights reserved.
51
Whither “Accelerated Processing” – “Improved
Schedules” – “Same Day ACH”
Let’s look at the Fed’s service: SameDay Service
• Allows converted check payments (ARC, BOC, POP,
and RCK) as well as TEL and WEB payments.
– All debits
– All consumer txns.
• Same-Day forward items may be sent between 2:15 a.m. and 2:00
p.m. ET, delivered by 4:00 p.m. ET, and settled at 5:00 p.m. ET.
• Return of Same-Day forward items can be sent between 2:00 p.m.
and 4:30 p.m. ET, delivered by 5:00 p.m. ET, and settled at 5:30
p.m. ET. Alternatively, RDFIs can use the existing “immediate”
return service at 2:00 p.m. ET.
• RDFIs are not required to return Same-Day forward items by the
above schedule. For return of Same-Day forward items, the current
return deadline rules apply.
• ACH inter-operator same-day settlement for forward payments is
not supported.
© 2010 National Automated Clearing House Association. All rights reserved.
52
Fed SameDay Service Description
• Service is opt-in for both the ODFI and RDFI, by agreement, and is
available to any FedACH customer.
• For each RTN, participants may choose to be an ODFI only, an
RDFI only, or both an ODFI and RDFI for forward payments.
– RDFIs can opt-in for any or all ODFIs using the unilateral/
multilateral service.
– ODFI participants can originate payments to all opt-in RDFI
participants agreeing to accept such payments.
• Same-day and next-day payments can be comingled in
the same batch and included in the same input file.
Non-eligible payments settle next day.
• The proposed service does not require any non-standard use of
NACHA file, record, or field formats.
• Service launched in August 2010 with 6 FIs (and 8 RTNs)
© 2010 National Automated Clearing House Association. All rights reserved.
53
Fed Service: Initial Assessment
• Fed service benefits:
– Provides tangible benefits to ODFI and Originator
– Relies on existing infrastructure, processing & settlement
windows
– Eligible transactions represent a sizeable percentage of all
txns.
– A building block for future Network enhancement?
• Fed service restrictions:
– Limited to consumer transactions
– Limited to certain debit entries
– Opt-in for both ODFI & RDFI
– Limited to one Operator currently
– RDFI benefits limited to no clearing fee on same-day entries
Can and should the Network build on what the Fed has begun to
accommodate the speed of commerce?
© 2010 National Automated Clearing House Association. All rights reserved.
54
Accelerated Processing – Issues for the Network
• Many RDFIs do not pick up files more than once a day.
– They do not see benefit to the cost of doing so (or
having their processor doing so).
– It is difficult to ascertain a workable once-a-day
pickup that would allow picking up and processing
same-day items with a feasible return timeframe for
the same-day items
• What about opt in or opt out?
– Keeping track is a challenge.
– Some in business don’t see value to same day unless
everyone does it.
• Next steps: Working on these issues
© 2010 National Automated Clearing House Association. All rights reserved.
55
Supporting and Protecting the Network
© 2010 National Automated Clearing House Association. All rights reserved.
56
Support and Protect the Network
• Proactively assess Network trends via network-wide view
– Enforce NACHA Operating Rules and identify trends
– Promote sharing of information to help mitigate risk
• Monitor and adapt to new technology
– Define changing roles and responsibilities
– Anticipate areas where risk may be infused
– “Don’t leave the keys on the doorstep”
• Rules Simplification
– User-friendly, lower barriers to ACH usage
– Improve compliance and achieve higher quality
– Re-organize the Rules by participant role
© 2010 National Automated Clearing House Association. All rights reserved.
57
ACH: Fewer Fraud Attempts and Losses vs. Checks
• AFP 2009 Fraud Study:
– 17% of organizations with ACH fraud attempts incurred
losses
– Didn’t follow best practices
• no debit block / no ACH positive pay / not timely
return
• Treasury Strategies:
– “Businesses must use the tools available to them”
– Companies and FIs can protect their cash with the
combination of internal process improvement and
adoption of any of the fraud prevention products on the
market. “Stop using checks.”
Sources: AFP 2009 Fraud Study
Treasury Strategies: 11/09 Fed Retail Payment Risk Forum
© 2010 National Automated Clearing House Association. All rights reserved.
58
Risk Mitigation Efforts have been Robust
• ACH Debit Transactions grew 18.1% CAGR, while unauthorized
returned debits grew at 5.9% CAGR.
• The impact of solid Network-wide Rules shows in the downward
trend of the absolute volume of unauthorized debit returns.
Network Enforcement Rule
Unauthorized Volume
09
09
4Q
3Q
09
600,000
09
2009
2Q
2008
08
2007
1Q
2006
08
2005
4Q
2004
08
2003
2Q
2002
3Q
2.0
2001
08
2,000,000
650,000
2Q
3.0
07
2,500,000
700,000
1Q
4.0
07
3,000,000
750,000
4Q
5.0
07
3,500,000
800,000
3Q
6.0
07
4,000,000
850,000
2Q
7.0
06
4,500,000
900,000
1Q
8.0
06
5,000,000
950,000
4Q
9.0
06
5,500,000
Company Name Rule
1,000,000
3Q
10.0
Number of Unauthorized Debits
6,000,000
ACH Debit Volume (Billions)
Unauthorized Debit Volume
ACH Debit Volume and Unauthorized Debit Volume
ACH Debit Volume
© 2010 National Automated Clearing House Association. All rights reserved.
59
It’s Not the “New” SEC Codes with Higher Return Rates!
Recurring
Debits,
usually bill
payments
Went into effect:
2.61%
PPD Debits
ARC
0.34%
2002
1.59%
BOC
2007
1.18%
POP
2001
1.59%
WEB
0.00%
0.50%
1975
1.00%
1.50%
2.00%
2001
2.50%
3.00%
Overall Return Rate
PPD Debit also has the highest unauthorized return
rate: 0.05% compared to <0.006% for ARC, 0.01%
for BOC, 0.02% for POP and 0.03% for WEB.
© 2010 National Automated Clearing House Association. All rights reserved.
60
As Our World Continues to Change….
• Rely upon a solid Rules foundation
• Build upon differentiating attributes of ACH
– Information with the payment
– Efficiency
– Universal access
• Support change and innovation
– Stay nimble
– Engage the industry in dialogue and education
– Tackle new and expanding payment opportunities
© 2010 National Automated Clearing House Association. All rights reserved.
61
6
The Key to Driving Value
• NACHA’s Councils support innovation and risk collaboration
–
–
–
–
–
Council for Electronic Billing and Payments
Electronic Check Council
Global Payments Forum
Internet Council
Affiliates
Efficiency
Collaboration
Risk Mitigation
© 2010 National Automated Clearing House Association. All rights reserved.
Innovation
62
Support Payments Convergence
• ACH Network - increased utility for the future
• Use the existing railways – Information plus the payment
– Efficient
– Managed risk
Everyone thinks of ACH and
check convergence – but don’t
forget cards … wire … and …
© 2010 National Automated Clearing House Association. All rights reserved.
63
© 2010 National Automated Clearing House Association. All rights reserved.
64
Appendix: EBIDS: Bill Presentment via ACH Network
• By utilizing the Network’s ability to pass information
Zero-Dollar CTX Bill Presentment
3. ACH Operator routes CTX to CFI,
CFI updates bill presentment data
system with new bill
Consumer Financial Institution (CFI)
2. BFI transmits CTX to ACH
Operator for delivery to the
CFI
ACH Operator
Biller Financial Institution (BFI)
1. After enrolling consumer, Biller
transmits zero-dollar CTX with bill
summary data embedded in an
addenda record
4. Consumer logs on to CFI to
view bill
Consumer
© 2010 National Automated Clearing House Association. All rights reserved.
Biller
65
EBIDS Bill Payment
• By minimizing customer service and payment cost
CIE Bill Payment
3. ACH Operator routes CIE to
appropriate BFI, BFI credits
Biller account
2. CFI sends CIE to biller via the
ACH Operator
Consumer Financial Institution (CFI)
ACH Operator
1. Consumer authorizes payment to
Biller after viewing summary bill on
their own FI system
Biller Financial Institution (BFI)
4. BFI routes Biller remittance
identifier data to Biller; Biller
credits consumer account
Consumer
© 2010 National Automated Clearing House Association. All rights reserved.
Biller
66