Full text of News from FedACH : Vol. 1, No. 1, 2003

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fedachnews@atl.frb.org

VOL. 1, NO. 1, 2003

customer in the

SPOTLIGHT

Things that go “POP! POP! POP!”
in the Southwest…

FEDERAL RESERVE
A C H O P E R AT O R
SERVICES
“News from FedACHSM” is the
Federal Reserve’s nationwide
quarterly ACH newsletter reaching
over 19,000 ACH participants
including banks, savings banks
and credit unions. This newsletter
is intended for FedACH customers
who are interested in seeing ACH
fulfill its role as the nation’s
premier electronic payment
service. Share the newsletter.
Spread FedACH news.

And we are not talking about your New Year’s Eve
celebrations. At First State Bank N.M.,
headquartered in Albuquerque, New Mexico, they
are experiencing an ever-growing number of POP
transactions. We talked with Jeanne Vigil of First
State Bank N.M. to find out how this FedACH
customer successfully grew its ACH volume for
point-of-purchase check conversion.
As a result of a well-coordinated partnership with
a third-party processor, First State has seen its
POP transaction volume grow by more than 175
percent in the last two years. This remarkable
success story is the result of a two-step process.

CONTENTS
Customer in the Spotlight

1

Facts and Figures
Customer in the Spotlight
FedACH DOS to FedLine
Web
FactsConversion
and FiguresContinues

2
1

News
Kiosk is Power
Information

3
2

News Kioskand Answers
Questions

3

Questions
& Answers
What’s
Coming
Up

3
4

What’s Coming Up

4

2
2

The Financial Services logo, "FedACH,"
"FedACH International," and "FedLine" are
either registered or unregistered trademarks
or service marks of the Federal Reserve.

The first step was easy — recognizing the benefits
of POP:
• Increased Efficiency - Handling electronic
“checks” as opposed to the paper kind is
proving a money saver for merchants and banks.
For starters, processing paper checks through
the paper processing system costs about $3.50
per check, much higher than the cost of an
electronic check conversion. Part of the savings
results when checks are electronically
deposited. Merchants no longer have to fill out
deposit slips or travel to the bank to deposit
checks.

• Expedited Collections - Electronic payments
that cannot be paid for reasons such as
insufficient funds are discovered and returned
far faster than with paper-based systems. That
in turn allows the merchants to start the
collection process sooner.
• Reduced Fraud - Fraud can be detected much
more quickly, which will stop bad check
writers days before the conventional paperbased methods.
• No Lost or Stolen Checks - Electronic checks
cannot be lost or stolen before the merchant
deposits them.
The second step of the process was simple too… it
just took longer to execute. First, Ms. Vigil had to
sell the idea of POP to First State’s executives.
This led to a year of negotiations with XpressChex,
the third party merchant processor used to
provide ACH origination services. At the time,
XpressChex was a pioneer in electronic check
conversion, the process of converting a paper
check into an electronic transaction at the cash
register. First State Bank N.M. was likewise a
leader in ACH.
While the volume was light during the first year of
the partnership, it has grown steadily since, and
First State Bank N.M. sees no limit to the
potential for continued growth of POP volume. “I
have been in ACH processing for almost 16 years
now, and I feel it is the wave of the future,” says
Jeanne Vigil, commercial services officer at First
State. “I have always pushed the envelope for ACH,
but now it is moving so fast it’s challenging to keep
up with.”
First State’s role in the process, Vigil says, is
(Continued on page 2)

“POP! POP! POP!”
(Continued from page 1)

First State provides ACH origination services for some 400 customers.
But XpressChex is the only one facilitating point-of-purchase retail
transactions, Vigil says. The others distribute payroll or carry out other
non-retail transactions. While other processors like XpressChex have
approached First State, Vigil says that most do not meet the bank’s
stringent credit criteria.
In XpressConversion, a check reader reads the magnetic ink character
recognition (MICR) line at the bottom of the check. After the check is fed
through the reader and the MICR is captured, the cashier enters the dollar
amount using a terminal keypad. From there other things happen very
quickly:
• The check is verified against a database. If negative information
turns up, the check is rejected.

Facts and Figures
In the past year, FedACH’s
ARC volume increased by
more than 750 percent,
exceeding the overall ACH
network growth rate for ARC.
Since January 2003, the
number of Fed-ACH FedLine
Web customers has
increased by more than 265
percent.
Through 3Q03, FedACH
uptime was 99.93 percent,
and 99.99 percent of online
transaction files were
processed and delivered
electronically by the
scheduled delivery time.

1001101101001001101010010110101
1101010110101010100101001101101
1001101010010110101011101010110

First State’s primary duty is to strip out the returns — consumer
transactions that for various reasons could not be completed — and
send those to XpressChex. Because of the sheer volume of POP
transactions, XpressChex tends to generate more returns than First
State’s other origination clients, Vigil says. Among the well-known
retailers using XpressChex for POP processing through FedACH are a
clothing store, an electronics store and a cellular phone company, not
to mention countless other retailers.

• If the check is accepted, an authorization slip is printed for the
shopper to sign, allowing the paper check to be converted into an
electronic transaction. The check is then returned to the consumer
stamped “void.”

FedACH customers used FedACH Services via FedLine Web to
derive almost 175,000 returns and NOCs in October 2003.

• The transaction data is electronically transferred through the ACH
network that debits the funds directly from the shopper’s checking
account.

Year-to-date FedACH forward origination volume through
October 2003 was nearly 4.8 billion (4.0 billion
commercial originations; 0.8 billion government
originations).

• Settlement is made with the merchant and an ACH
credit transaction deposits the purchase amount into
the merchant’s account.

Information is Power
FedACH Services via FedLine Web
Did you know that you can use your FedLine Web
certificate to track, research and account for your
institution’s FedACH activity? FedACH Information
Services provide you with the information-gathering
capabilities that have always been available to you, but now offer
greater functionality and flexibility. Whether you originate and/or
receive FedACH transactions or use a third party processor, you can
use FedACH Information Services to see your FedACH activity. Five
broad categories of FedACH information are available via FedLine
Web: settlement information; file, batch and item information; and
customer profile information. Information on input to, and output
from, FedACH is available for the current day as well as for 10 previous
business days.
In addition to information services, FedACH Services via FedLine Web
include the ability to derive returns, dishonored returns, contested
dishonored returns and notifications of change (NOCs). Returns and

2

N e w s

f r o m

F e d A C H

NOCs can be derived from transactions within 10
previous business days by entering specific search
criteria. Subscribers can quickly and easily view a
list of Web-derived returns, NOCs, dishonored
returns and contested dishonored returns to confirm
status information and to drill down to detailed
information about selected items.
FedLine Web subscribers have the ability to produce a report that lists
returns by originating company for a selected processing date within
the 10 previous business days. For each ODFI/originator combination
having 50 or more unauthorized returns in a given day, the report lists
the number of returns by originator by reason for the following Return
Reason Codes: Authorization Revoked by Customer (R07), Customer
Advises Not Authorized (R10), and Corporate Customer Advises Not
Authorized (R29).
If you are not among the more than 3,000 ACH participants already
taking advantage of FedACH Services via FedLine Web, you can learn
more about these services at www.frbservices.org or by calling your
Federal Reserve account executive.

Q&A

Understanding ACH Risk

A few minutes with Richard Oliver, Senior Vice President,
Retail Payments Office on the subject of ACH risk.
Q. What is ACH risk? How does it occur?
A. ACH risk can begin with a financial institution’s
originating ACH credits that would be delivered the
next day to many accounts. If that financial institution fails during the day, the ACH credits are no
longer funded. Receiving financial institutions that
have paid out funds to account holders may be at risk. Another way that
ACH risk can occur has to do with the relatively new types of one-time ACH
payments. These payments can be authorized by a consumer over the
Internet or the telephone. Some originators (i.e., criminal types) have
discovered there are ways to take advantage of these payment types. They,
the fraudsters, put through the ACH system unauthorized transactions.
When items are refused and returned, the originating financial institution
may be at risk for settlement.
Q. You seem to be implying that risk has only recently come to the fore.
Is this true?
A. No. I think that there are probably more opportunities for ACH risk
problems as a result of the industry moving forward to allow these new
single-entry transactions. Both types of transactions have contributed to
the growth of the ACH business; however, it appears there are a fair
number of fraudsters in those arenas.
Q. As an ACH operator, what is the Federal Reserve doing to mitigate
these risks?
A. Many financial institutions today outsource some or all of their ACH origination capability to third parties. We’re working with some of those institutions to explore services that would help them monitor debit and credit
origination capabilities of third parties. We are also producing daily reports
that will show any originating depository financial institution (ODFI) when
one of its ACH originators has more than 50 unauthorized returns in a
particular day. These reports will give the ODFI the opportunity to detect
a company that may have some questionable business practices.
Q. What is the Federal Reserve doing in terms of education
surrounding ACH risk?
A. We found that there were people at various levels in organizations making
decisions for financial institutions to do business with certain companies or
third parties, but not monitoring that business after the fact, or not qualifying
the business partner before transactions are initiated.
Q. In conclusion, do you feel like you’re keeping pace with ACH risk?
A. Clearly, ACH risk became more significant in the latter part of 2002 and
early 2003. Since that time, though, it has been moderating as we’ve gone
about the processes of educating, monitoring, reporting and going after those
contributing to abuse of the ACH network.

News Kiosk
Accredited ACH Professionals (AAPs)
Following the October 21, 2003 administration of the
AAP examination, the number of Federal Reserve staff
members holding AAP certificates reached 66. Of these
66 AAPs, 11 received their accreditations after taking
the test in October; another seven received reaccreditation through NACHA’s continuing education program.
We extend our congratulations to everyone who passed
this year’s AAP exam or was re-accredited this year. The
total number of AAPs nationwide increased to an alltime high of 2,334.

Direct Deposit/Direct Payment
Promotion
The annual promotional campaign managed by NACHA’s
ACH marketing management group has concluded for
2003. This year’s $1 million campaign, funded by the ACH
operators, included placement of radio and print advertising in numerous markets across the country. Some
of the places you
may have seen or
heard the Direct
Deposit/Direct
Payment advertisements include
radio (NFL Football,
NBC News Radio);
Sunday newspaper
magazines (New York Times, Boston Globe, Los Angeles
Times); national magazines (People Magazine, Reader’s
Digest, ESPN Magazine); and metropolitan magazines
such as the Washingtonian, Atlanta Magazine, and
Seattle Magazine.

Check Conversion Education
Coalition (c2ec)
In October 2003, the Check Conversion Education Coalition (c2ec) was formed to address industry concerns of
inaccurate and inappropriate perceptions of Accounts
Receivable (ARC). The Coalition, composed of representatives from the Federal Reserve, EPN banks, regional
payments associations, and businesses, is charged with
developing and carrying out a communications plan and
tools to be used by organizations speaking to the media.
Educational materials targeting all types of payments
industry organizations and general information and
resources for public, regulatory, political and consumer
organizations are included in the plan. The Coalition
expects to have materials produced within the first
half of 2004.

3

WHAT’S COMING

UP

Happenings
and Events
from FedACH

Input File Fee Lowered
Effective January 1, 2004, the only change in the FedACH
fee structure will be a $1.25 reduction in the input file
processing fee. This 25 percent reduction lowers the fee
from $5.00 to $3.75 and applies to both large and small
files. Other fees remain unchanged.

NACHA rules changes effective March 12, 2004 (visit www.nacha.org for
additional details)

Origination
Items in small files
Items in large files

$0.0030
$0.0025

➪ Clarification that the ‘excused delay’ provision within the ACH Rules

Receipt Items

$0.0025

Addenda Records

$0.0010

FedLine Web-derived Returns / NOCs

$0.50

FedPhone-derived Returns / NOCs

$2.00

is to be used for catastrophic events, and not for normal processing
problems

➪ Modify Return Reason Code R12 description to ‘Account Sold to
Another DFI’ to clarify that this Return Reason Code is used to
address the sale of a specific account at a branch. Also, the audit
requirements in Appendix Eight will include the Check Serial
Number Field for Destroyed Check Entries (XCK).

Information Extract File Subscription $10.00 / RTN /
Month
Monthly Account Servicing

$25.00 / RTN

Conferences

Monthly FedACH Settlement

$20.00 / RTN

Global Electronic Payments — January 20-21, 2004 in London, UK

FedACH International
Canada Service Item Originated

$0.039 surcharge

Payments 2004 — March 21-24, 2004 in Seattle, Washington

FedACH Customer Service Via 24-Hour Telephone Access
For FedACH Customers
in these Districts
Boston (1)
New York (2)
Philadelphia (3)
Cleveland (4)
Richmond (5)
Atlanta (6)
Chicago (7)

Customer Service Site
Federal Reserve Bank
of Atlanta
1000 Peachtree Street, N.E.
Atlanta, GA 30309-4470
Toll Free: 866.234.5681
Local: 404.498.8902

FEDERAL RESERVE
RETAIL PAYMENTS OFFICE
1000 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309-4470
RETURN SERVICE REQUESTED

For FedACH Customers
in these Districts
St. Louis (8)
Minneapolis (9)
Kansas City (10)
Dallas (11)
San Francisco (12)

Customer Service Site
Federal Reserve Bank
of Minneapolis
90 Hennepin Avenue
P.O. Box 291
Minneapolis, MN 55480-0291
Toll Free: 888.883.2180
Local: 612.204.5555

PRESORTED
FIRST CLASS
U.S. POSTAGE
PAID
ATLANTA, GA
PERMIT NO. 292