© 2010 nacha — the electronic payments association®. all rights reserved. no part of this...

© 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.

Nancy E. Grant, AAPSenior Director, Payments Convergence and ResearchNACHA – The Electronic Payments Association703-561-3911; [email protected] 19, 2010

What’s New, What’s Coming: Innovation and Transformation to Help Meet a Changing Payments Environment

2010 Utility Payment Conference

© 2010 National Automated Clearing House Association. All rights reserved. 2

As Our World Continues to

Change….

Supporting and Protecting the

Network

What’s NewStrategic

Directions for ACH and NACHA

Where the ACH Network

is Now

What’s in the Pipeline


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


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


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


ACH Network: Logical and Physical

• ACH Logical Network– ACH rules set and associated

SEC (Standard Entry Class) Codes and formats owned by NACHA

– 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

– The technology and communica-tions environment, and associated product set, needed to initiate, clear and settle ACH txns between counterparties

• 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


How do we best utilize the ACH Network?

Efficient

InnovativeInnovative

ValueValue

Information

GreenGreen

ACHACHNetworkNetwork

UniversalAccess

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


Dialogue

Education

Advocacy

Enforcement

Rules Rules CreationCreation

Risk Risk Collaboration Collaboration Innovation Innovation

Key NACHA RolesSupport for the industry, facilitating the balance of risk and innovation


Where We Are Now

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

5

10

15

20

Billions of Txns

Annual ACH Transaction Volume* 2000-2009 (Includes Interbank and On-Us)

2009: 18.8 billion txns

2000: 6.9 billion txns

CAGR = 11.7%

… ACH volume has nearly tripled over the last decade, reaching nearly 19 billion transactions in 2009.

2009 ACH dollar value exceeds $30 trillion,

more than double U.S. GDP

(2009: $14.3 trillion)GDP Source:

U.S. Bureau of Economic Analysis

Sources: NACHA; ACH Operators


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


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


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.


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


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

See Appendix A for more info on payment flow.


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


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 systemsDon’t Leave Money on the (International) Table!

* U.S. Office of Foreign Assets Control


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


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.


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


• 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 stakeholdershttp://gpf.nacha.org/c/USIC.cfm


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


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


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


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


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


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.


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


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.


How TEL is Used

Bill payments, 88.6%

Purchases, 6.3%

Everything else *, 5.1%

29

Allowing Recurring TEL

• Proposed Rule would amend TEL rules to allow recurring transactions. – Experience with TEL suggests likely that typical recurring payments would be for recurring bills (utilities, mortgages, household services, loans, telecom, ISPs, cable, credit cards, etc.).

• Authorization requirements would be slightly different for one-time payments, requiring recording the conversation and following up

with written notice confirming the authorization before the first TEL payment is settled.


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


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


• 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

DCT: Filling a gap in check conversion


Payee/Depositor

Deposit Physical

Checks and/or Images

Collecting Bank/ODFI Determines

Best Routing

P

A

Y

I

N

G

B

A

N

K

S

Payers

• Image Exchange

• Paper

• IRD

• ACH Truncation [DCT]

Remit Checks

Basic DCT Transaction/Process Flow

CLEARING DECISION


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


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 providerwww.securevaultpayments.org


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


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.


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).


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.


• 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


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?


• “Pain points” are:– Areas of chronic misunderstanding or non-compliance 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)

*Category C: Technical changes that do not have a great impact; corrections to formatting or punctuation; syncing up rules, etc.

Addressing Pain Points in the Rules


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)

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)

Next Step: RFC/RFI Has Been Issued


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


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


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


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


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?


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


Studying XML-Formatted Addenda Records

• Proposal to allow XML-formatted data in Payment-Related 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


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.


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)


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?


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


Supporting and Protecting the Network


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


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


Risk Mitigation Efforts have been Robust

ACH Debit Volume and Unauthorized Debit Volume

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Una

utho

rize

d D

ebit

Vol

ume

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

AC

H D

ebit

Vol

ume

(Bill

ions

)

Unauthorized Volume ACH Debit Volume

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

Num

ber

of U

naut

hori

zed

Deb

its

Company Name RuleNetwork Enforcement Rule

• 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.


It’s Not the “New” SEC Codes with Higher Return Rates!

1.59%

1.18%

1.59%

0.34%

2.61%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%

WEB

POP

BOC

ARC

PPD Debits

Overall Return Rate

Recurring Debits,

usually bill payments

Went into effect:

1975

2002

2007

2001

2001

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.


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


The Key to Driving Value

Risk Mitigation Innovation

Efficiency

Collaboration

• NACHA’s Councils support innovation and risk collaboration– Council for Electronic Billing and Payments– Electronic Check Council– Global Payments Forum– Internet Council– Affiliates


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 …


Appendix: EBIDS: Bill Presentment via ACH Network

4. Consumer logs on to CFI to view bill

3. ACH Operator routes CTX to CFI, CFI updates bill presentment data system with new bill

2. BFI transmits CTX to ACH Operator for delivery to the CFI

1. After enrolling consumer, Biller transmits zero-dollar CTX with bill summary data embedded in an addenda record

Zero-Dollar CTX Bill Presentment

Consumer Biller

ACH OperatorConsumer Financial Institution (CFI) Biller Financial Institution (BFI)

• By utilizing the Network’s ability to pass information


EBIDS Bill Payment

1. Consumer authorizes payment to Biller after viewing summary bill on their own FI system

2. CFI sends CIE to biller via the ACH Operator

3. ACH Operator routes CIE to appropriate BFI, BFI credits Biller account

4. BFI routes Biller remittance identifier data to Biller; Biller credits consumer account

CIE Bill Payment

Consumer Biller

ACH OperatorConsumer Financial Institution (CFI) Biller Financial Institution (BFI)

• By minimizing customer service and payment cost

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