electronic banking ach or icl? in-house vs. out-source payment processing utility payment conference

Electronic Banking ACH or ICL?

In-House vs. Out-Source Payment Processing

Utility Payment Conference

• Arizona Public Service (APS) is Arizona’s largest and oldest utility, serving since 1886

• More than 1.1 million customers in 11 of the state’s 15 counties, about 35,000 sq miles

• Current Payment Processing Distribution:– 55% Electronically – 35% US Mail– 10% Business Offices


In-House or Out-Source?Our Considerations:– Current system was 13 years old

– Mailed-in payments dropped from 72% to 38% of total payment volume between 1990 to 2008, but still significant

– Replace armored car pickup with electronic banking

– Leverage technology to process more than payments; anticipating continued payment volume decrease

– Centralize data input to better utilized skilled customer service representatives to address customer needs


OptionsBanks Non-Banks

- JP Morgan Chase - CDS Global- Wachovia - Regulus Group- Bank of America - First Data Corp- Wells Fargo

In-House BancTec (Unisys) Wausau Financial Systems J & B Software


Quantitative Results

Outsourcers: – Competitive process pricing for: • singles • clean payments

– Less competitive pricing for:• non-clean payments (white mail, checks only)• exception payments (research, correspondence)• non-payment transactions


Quantitative Results

In-House:– Over an 8 year period projected payment processing

costs were competitive

– Advantage is gained in managing exception transactions


Qualitative Results

Out-Source Advantages– As volume decreases over time so would costs

– Technology remains current

– Built-in Disaster Recovery


Qualitative Results

In-House Advantages– Maintain control of customer data

– Same day exception processing (Customer PR)

– Timely exception transaction processing

– Reduce costs by leveraging technology for non-payment transactions


DecisionIn-House with Wausau Financial Systems – System was justified on payments alone

– Non-payment transaction processing was icing on the cake!

– Ability to capture and store non-payment images at the Customer Account level

– Timeliness and control of postings

– Automation of Non-Payment processing leverages the technology and improves accuracy and performance


Banking Options

Automated Clearing House (ACH)Vs.

Image Cash Letter (Check 21)


RFP for ACH/ICL Services• Submitted to 3 banks

– JP Morgan Chase– Bank of America– Wells Fargo

• Assumptions– Compare using Bank vs. APS decisioning– Percentage of ARC Eligible Items 80.0%– Percentage of ICL Eligible Items 8.0%– Percentage of IRD Eligible Items 12.0%


Bank Results

Total Costs Per Item

ICL & ARC - Bank Decision

ICL and ARC – APS Decision

Bank1. $0.034 $0.034

Bank2. $0.040 $0.030

Bank3. $0.029 $0.029

* Banks in no particular order


Bank Decision

• APS will perform decisioning to control costs

• We chose all 3 banks to:

– Maintain our relationship with each Bank– Keep competitive pricing in play– Overall projected annual savings $57,000


Major Project Initiatives

• Configuration & changes of WFS System to our needs

• Testing with each Bank for ICL and ACH files

• Enhancements to APS Customer System for multiple payment files and non-payment transactions

• Leverage new B2B processes


Payment Transactions• Single Check, Single Stub• Multiple Checks, Single Stub• Single Check, Multiple Stubs• Multiple Checks, Multiple Stubs• Checks Without Payment Stubs• Accounts Receivable Lists• Money Orders• Process bank NSF Files and systematically

reverse payments


Payment Transactions

• All payments are compared to Hot Files for:– Cash Only Id and Rejection– Pending Shut Off Orders– ARC Opt-Out (Process as Image)


Non-Payment Transactions• SurePay, SHARE Pledges & E3 Low Income Enrollment – from Bill Stub (marksense detection)– from Application form (full page scans)

• Undeliverable Refund Checks and Bill Statements

• Change of Address (marksense detection)

• On-Demand Images for CIS at Customer Account level

• Systematic Customer Account Note Updates


Bill Stub Samples

SurePay on Page 2 Address/Phone change

Based on mark sense detection


SurePay Application


Share on Stub

NameAddressCity, State, Zip


Share Card


E3 Application


E3 Recertification


Lessons Learned

• Bank Validation Process takes time– ACH and ICL are different groups within each bank

• “To thine own system be true”

• Test, Test, and Test some more – Include all interfaces– Include all jobs, even if you think they do not

apply


Results Since InstallationDeposit Distribution

Percentage of ARC Eligible Items 78.9% –2,157,904 checks

Percentage of ICL Eligible Items 21.0%– 573,249 checks

Percentage of Paper Checks 0.1%– 3,026


Results Since InstallationNon Payment Transactions

SurePay 28,044• Back of Bill 8,000• Applications 20,044

E3 Low Income 103,504

CIS Refund Checks 11,369Returned Mail 103,731

We met our Financial Goals


Q & A


William DowSr. Project Manager

Arizona Public Service602-250-2110

[email protected]

electronic banking ach or icl? in-house vs. out-source payment processing utility payment conference

Documents

performance electronic

bank decision aps

bank results total costs

arc aps decision bank

regulus group bank

total payment volume

control of customer

exception payments research