Demystifying ACH
Payments to Canada
NACHA Payments 2008
May 18-21, 2008
Elizabeth McQuerry
Assistant V.P., Retail Payments Office
Federal Reserve
Doug Kreviazuk
V.P., Policy & Research
Canadian Payments Association
Presentation Overview
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Opportunities for X-Border Payments
Canada – U.S. Comparison
Role of the Canadian Payments Association
Canadian Rules for Credits & Debits
X-Border ACH Payment Flow
Processing Tips & Considerations
Future Opportunities
1
Opportunity for X-Border Payments
Top 5 U.S. Trade Flows
2007 U.S. Exports
2007 U.S. Imports
(In Billions of U.S. Dollars)
(In Billions of U.S. Dollars)
300
350
$249.9
250
300
200
250
$136.5
150
$321.5
$313.1
$210.8
200
$145.5
150
100
$65.2
$62.7
$50.3
50
$94.4
100
50
0
Canada
Mexico
China
Japan
United
Kingdom
0
China
Canada
Mexico
Japan
Germany
(Source: US Census Bureau)
2
Opportunity for X-Border Payments
U.S. – Canada Trade Increasing
Total U.S. Trades with Canada
(In Billions of U.S. Dollars)
600
500
400
300
200
100
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
(Source: US Census Bureau)
3
Opportunity for X-Border Payments
Long-Term Non-Immigrant
U.S. Admissions of Canadians
300,000
# of Admissions
250,000
200,000
150,000
100,000
50,000
0
1996
1998
1999
2000
2001
2002
2003
2004
2005
2006
(Source: U.S. Department of Homeland Security )
4
Canada – U.S. Comparison
(2007)
CANADA:
Canadian Payments
Association
Population: 33 million
GDP: $1.6 trillion (US)
Retail Payment Volumes: 5.5 billion
Avg. Transactions per Person: 167
UNITED STATES:
ACH
Federal Reserve
NACHA
Population: 301 million
GDP: $14.1 trillion (US)
Retail Payment Volumes: 14 billion
Avg. Transactions per Person: 46
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Role of the Canadian
Payments Association (CPA)
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Oversees Canada’s national clearing system
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Not an ACH
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Automated Clearing Settlement System
U.S. Dollar Bulk Exchange System
Large Value Transfer System
Clearing & settlement only (member to member)
Establishes domestic rules framework
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CPA Rules for Credits
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Set out in CPA Rules Section F - Automated Funds
Transfers
Focus on inter-member exchange
Only contemplate domestic transactions
Recourse for misdirected credits:
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Initiated by originating FI: error correction must be done
within 4 days after delivery or 3 days after the date funds
are to be made available
Originators encouraged to get a void check to avoid
misdirected credits
Initiated by receiver: currently no restrictions on timing
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ACH Gateway Cross-Border Transaction
(Direct Deposit Example)
ACSS
US$ or CDN$
Receiving FI
Payee
Handles currency
exchange & format
conversion.
Canadian Receiving
Gateway Operator
Originating FI
US$
U.S. Originating
Gateway Operator
• Originates credit using NACHA
formats & SEC codes CBR/PBR.
• Pays all fees (no fees for
Canadian receiver).
Payor
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CPA Rules for Pre-Authorized Debits
 Rule H1 – Only contemplates domestic PADs
 Underlying Agreements required between:
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Payee & Originating FI (Letter of Undertaking)
Payee & Payor (Payor’s PAD Agreement)
 Mandatory elements for Agreements
 Requirements for remote PAD Agreements
 Recourse: Consumers 90 days, Businesses 10 days
 10 days notice required for variable date PADs
 Additional authorization required for variable date PADs
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Upcoming Changes to CPA PAD Rule
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Mandatory minimum elements for all PAD
Agreements
New process for remotely authorized PAD
Agreements (e.g. over the telephone/Internet)
New requirements for canceling PAD Agreements
New notice requirement in cases where a Payee’s
name has changed
Properly authorized one-time debits will be
permitted
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Implementation of CPA’s New PAD Rule
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New rule effective June 20, 2008 (will be published
on www.cdnpay.ca)
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Grace period: compliance mandatory by February
28, 2010
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Existing PAD Agreements grandfathered (i.e. will
not have to be re-established/re-signed)
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Processing Tips &
Considerations…
Learn Canadian
NACHA Terminology
Originator
ACH agreement (between the Payee/Originator and
Sponsoring member/ ODFI)
Receiver
Pre-authorized debit authorization form between the
Payor and Payee
Originating Depository Financial Institution (ODFI)
Receiving Depository Financial Institution (RDFI)
Consumer returns are permitted for up to, and
including, 60 calendar days after settlement date
CPA Terminology
Payee
Letter of undertaking
Payor
Payor's PAD agreement
Sponsoring member
Processing member
Consumer returns of PADs are permitted for up to,
and including, 90 calendar days after settlement
date1
Corporate returns are permitted for up to, and
including, 2 banking days after settlement date
Corporate returns of PADs are permitted for up to,
and including, 10 business days after settlement
date1
Variable date notice:
7 calendar days prior
Variable amount notice: 10 calendar days prior
Variable PAD date: additional authorization required
Variable PAD amount notice: 10 calendar days prior
Pre-notification is a ‘test entry’ in advance of any
real’ entry
Pre-notification is used to describe each written
notice sent to the Payor/Receiver in advance of a
recurring debit
1) The timeframes allowed by the CPA exceed those in the current NACHA rules.
13
Account Numbers are Different
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To use the numbers on a Canadian check to populate the NACHA
record:
Average Company Ltd.
N408911
0234567 = Foreign Receiver’s
Account Number
(max. 12 digits)
408911: 95042 : 002 : 0694:0234567
95042 = Branch Transit Number
555 Main Street East
Toronto, Ontario M5K1X1
________20___
Pay to the order of ___________________________________________$_______
VOID
______________________________________________________/100 DOLLARS
The Scotiabank Bank
Toronto Centre Branch
55 King St. W. & Bay St.
Toronto, Ontario M5K 1A2
408911: 95042 : 002 : 0694:0234567
002 = Institution Number
To create Foreign Receiving DFI Identification ⇨ 000295042
1) Add leading 0 to Institution Number
2) Combine with Branch Transit Number
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Understand Differences in Rules
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Longer Return Timeframes for Debits
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Consumer PADs – up to 90 days after the debit
Businesses PADs – up to 10 days business days
Credits – error correction process within 3-4 days
No Dishonored Returns
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All disputes regarding returns must be handled between
the ODFI and the receiver
15
Understand Differences in Rules
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Debit rules vary substantively
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See previous section on rules differences
One time debits not currently allowed (will be permitted
as of June 20, 2008)
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NACHA Reversals not allowed
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NACHA Pre-notes not allowed
16
Learn Processing Schedules
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Fixed to Variable (FV) and Fixed to Fixed (FF) items have
different ACSS processing schedules
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Canadian RDFIs can post funds according to their own
internal procedures
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10:00 ET – exchange of FV and FF items
14:30 ET – exchange of FV items
A survey of posting times varied:
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FV items - 17:30 ET on Day 1 to 08:00 ET on Day 2
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FF items - 11:00 ET on Day 1 to 08:00 ET on Day 2
Processing schedules may be leveraged to guarantee posting
of payroll and pensions
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Other Tips
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Banking holidays vary somewhat
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No trace requests for items under US $20
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Generally 10 days each; some provinces may observe an
additional heritage day
Only send low value test payments to accounts where you
have a direct relationship and can verify result
Returned CAD payments may have different value
due to foreign exchange conversions
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If in doubt on the account number, send a low value test
payment first
18
Prepare for IAT
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International ACH Payments must use SEC Code
“IAT”
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IAT payments must include “Travel Rule”
information as set out in the Bank Secrecy Act
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Applies to all international payments made via the
ACH Network
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To be implemented in March 2009
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Future Opportunities
 CPA Strategic Priority:
Facilitate interaction and global interoperability of
the CPA’s systems with other payment-related
systems.
 CPA work with NACHA & Fed. Reserve
 Format interoperability
 Rules framework
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Discussion
Elizabeth McQuerry
Doug Kreviazuk
Assistant V.P., Retail Payments Office
Federal Reserve
404-498-7888
Elizabeth.mcquerry@atl.frb.org
Vice President, Policy & Research
Canadian Payments Association
613-238-4173 ext. 3281
dkreviazuk@cdnpay.ca
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