Full text of News from FedACH : Vol. 5, No, 2, 2nd Quarter 2008

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f e d a c h n e w s @ a t l . f r b. o r g

News from

2ND QUARTER 2008
VOL. 5, NO. 2

FedACH

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

FedACH SERVICES

Q&A: ROSSANA SALARIS

2

5

Educational Opportunities

STP 820 Specification

NEWS KIOSK
DID YOU KNOW?
WHAT’S COMING UP

3
3
4

CUSTOMER IN THE SPOTLIGHT

National Bank
of California
Managing Third-Party
Credit Risk
ational Bank of California could easily
rest on its laurels as it looks back on
a quarter of a century of service, but
for this independent community bank, the
focus is on moving forward. After opening its
first location in Los Angeles in October 1982,
National Bank of California has expanded to
include five locations serving customers in
Los Angeles, Orange, and Ventura counties.
With $350 million in assets and a consistent
record of earnings growth, the bank maintains its dedication to excellence in customer
service as well as security and reliability.
Headquartered in the Fairfax district of Los
Angeles, National Bank of California attracted
our attention with its controls and procedures
surrounding ACH origination, particularly by
third-party service providers and third party
senders. With commercial ACH origination
volume exceeding 10 million items in 2007

N

for a mix of banking customers and thirdparty service providers, National Bank of
California has established a proven set of best
practices to address ACH origination risk.

Setting Expectations High
According to Houri Wartanian, vice president and director of electronic payments,
National Bank of California maintains high
expectations for its ACH staff as well as for
the bank’s originators and third-party service
providers. Wartanian has worked in the banking arena since 1996, and she joined National
Bank of California in 2006 with a background
in various operations and support areas as
well as in rules compliance. Now responsible
for ACH rules compliance and relationship
management for National Bank of California’s originators and third-party service
providers, Wartanian relies heavily on her
News from FedACH | 1

experience and her accreditation as an ACH
professional (AAP). National Bank of California has found—as has the entire ACH
industry—that growth in the numbers and
types of transactions requires a greater
emphasis on identifying and managing risk.
To meet that challenge, any ACH network
participant must have knowledgeable, welltrained personnel and clearly defined procedures surrounding all aspects of its ACH
business. National Bank of California has
addressed the first part of that equation by
encouraging staff to acquire AAP certification and to take advantage of ongoing
training opportunities, whether internally
available or offered by NACHA or WesPay,
the bank’s regional payments association.
The second part of the equation—clearly
defined procedures—has proven to be equally
important as the first while relying heavily

CUSTOMER IN THE SPOTLIGHT
on staff expertise and knowledge. Bank
management requires that established policies demonstrate a solid understanding of
ACH and the credit risk associated with origination. Additionally, the bank’s procedures
must provide for definition of maximum risk
tolerance and outline the need for underwriting and audits. Perhaps most challenging
of all has been National Bank of California’s
commitment to ensuring that its originators
and third-party service providers also adhere
to stringent controls and procedures.

The Need to Accept Responsibility
While National Bank of California exercises a certain degree of oversight and control
with its ACH originators, Wartanian stressed
that “the bar is raised when working with our
third-party service providers. We [National
Bank of California] fully appreciate that we
are warranting the transactions flowing into
the ACH network, and we take that responsibility seriously.” The bank’s board of directors
is fully apprised of each new third-party service provider along with its line of business,
the associated risk tolerance, and its policies.
National Bank of California also conducts a
review of authorization methods for each
originator and third-party service provider.
Additionally, third-party service providers
are required by National Bank of California

to fulfill extensive reporting requirements.
At a minimum, they must produce reports of
credit and debit exposure, unauthorized
returns, and processed files. In turn, the ACH

“Know your customers.
Know their business plans.
Know what they do, how
they do it, and with whom
they do it. Review and
monitor, then review and
monitor again.”

area of the bank provides its board of directors with reports of everything from origination volume by standard entry class code to
origination and return dollars compared to
Tier 1 capital.

Tools for Maintaining Quality
Notwithstanding its own internal controls
and the standards it sets for third-party
service providers, National Bank of California has determined that the FedACH Risk
Origination Monitoring Service is an effective

tool when it comes to managing ACH risk.
Wartanian and her staff regularly use the
service to set origination caps and, ultimately,
to monitor and log exceptions to those caps.
Of course, there is one risk mitigation practice that rises to the top of the list when
discussing ways to mitigate risk. Wartanian
identified this practice as the one without
which National Bank of California could not
effectively manage payments risk. “Know
your customers. Know their business plans.
Know what they do, how they do it, and with
whom they do it. Review and monitor, then
review and monitor again.”
When asked for a glimpse into the future
for National Bank of California and its ACH
business, Wartanian reminded us that much
of the bank’s ACH volume, whether originated through National Bank of California or
via a third-party service provider, is for small
businesses. She stressed the fact that the
ACH network offers a solid, efficient, and
valuable tool for businesses of any size. Confirming that the bank’s focus is well-directed,
Wartanian said, “We hope to see ACH volume
grow as it has done for years, with the understanding that growth should come only from
quality ACH transactions.”

FedACH Services Educational Opportunities
To assist you in effectively using FedACH
Services, we would like to remind each

FedACH customer of our educational materials and online learning opportunities.
Whether for new ACH staff or for current
staff, we hope you will find the information
at FRBservices.org/eventseducation/ to
be useful.
The FedACH Services eLearning Tool
offers step-by-step instructions for navigating
FedACH Services via the FedLine Web or
FedLine Advantage access solutions. See
exactly how to send or receive files, find
information, and derive returns and NOCs.
Learn about FedEDI Plus and risk management services for ODFIs and RDFIs.
News from FedACH | 2

The FedACH Origination Power Kit is
designed to help you optimize your origination services by showing you ways to grow
ACH volume as well as providing industry
best practices and additional resources. You
can also take advantage of the Back Office
Conversion Resource Center and the International ACH Transaction Resource
Center. (Note: March 20, 2009, is less than
nine months away.)
If you have thoughts on additional educational and training materials, please contact
your local FedACH sales specialist.

NEWS KIOSK

FedACH SALES SPECIALISTS
Each of these regional account executives is an ACH resource expert
and is dedicated to helping customers find just the right FedACH solution.
We encourage you to contact the sales specialist for your district.

In 2007, a total of $231 million in cross-border pay·ments
flowed to Canada through the Fed’s Canada
Connection Service. Based on 2007 trade volumes of
$525 billion between the United States and Canada, the
opportunity for growth in the number of cross-border
payments is tremendous. To help our customers tap into
that growth opportunity, we have recently completed
market research on a state-by-state level to identify
high-potential markets (i.e., target industries) for promotion of the Canada Connection Service. If you are
looking for ways to increase your institution’s crossborder payments volume, please contact your local
FedACH sales specialist to discuss the findings of
this research.

·

As of mid-June, a total of 343 FedACH customers had
signed up for the FedACH Risk Origination Monitoring
Service. Collectively, participants in this service are
monitoring more than 2,400 company IDs and 65 routing
transit numbers. Visit FRBservices.org or call your local
FedACH sales specialist today to find out how you can
benefit from monitoring ACH origination activity at the
batch level.

Thinking of taking the AAP exam in the fall? Pre·paring
for and taking the exam just got easier. The
AAP exam will be offered electronically at more than
500 secure, computer-based testing centers nationwide starting this October. In addition, AAP candidates
will have the opportunity to select a convenient test
date any time in the three weeks beginning October 13
and ending October 31, 2008. There is even a practice
exam in the same format as the new computer-based
AAP exam. Visit www.nacha.org for more information.
Remember, it’s only the exam process that’s getting
easier—not the exam itself!

Atlanta

Nedelka Bell, AAP

954.436.2402

Boston

Jean Fisher, AAP

617.973.3218

Chicago

Mark Taylor

312.322.8449

Cleveland/St. Louis

Susan Bivens, AAP

901.496.0626

Dallas

Matt Davies, AAP

214.922.5259

Kansas City

Joni Hopkins, AAP

620.221.2712

Minneapolis

Steve Peterson

612.204.6949

New York

Thomas Goodman

201.531.3637

Philadelphia

Carol Chartrand, AAP

215.574.3414

Richmond

Della Tate, CTP

410.576.3384

San Francisco

Dorothy Williams, AAP

801.322.7948

DID YOU KNOW?
New Effective Date for NACHA Rules Interpretation
The effective date of NACHA’s rules interpretation on the proper use of SEC
codes and the aggregation of transactions has been extended to Aug. 4, 2008.
This interpretation addresses the identification of the appropriate SEC code
for certain ACH transactions initiated at the point-of-sale with an access
device such as a debit card as well as the practice of aggregating multiple
transactions into a single ACH debit entry. The provisions of the interpretation are provided below (refer to NACHA’s Web site for additional details).
the POS or MTE SEC code may apply to a transaction because of
·theIfwayeitherin which
it was initiated, and the WEB or PPD SEC code may apply
because of the way in which the consumer originally enrolled for a product
or service, the POS or MTE code, respectively, must be used.
ACH transactions cannot be aggregated under the POS or MTE SEC
·codes,
but they may be aggregated under the WEB or PPD codes if the transactions are accumulated in an account for more than 14 days.
The payee of the underlying transaction being settled through the ACH
·Network
should be identified in the Company Name field of the ACH entry.

News from FedACH | 3

WHAT’S COMING UP

SEPTEMBER 2008
Solutions 2008
September 3–5, 2008
www.gacha.org

OCTOBER 2008
Navigating Payments 23rd Annual Conference
October 9–10, 2008
St. Louis Park, MN
www.umacha.org

Atlanta, GA

2008 Payments Symposium
September 7–9, 2008
Las Vegas, Nevada
www.wespay.org

Mid-America Payments Conference 2008
October 27–29, 2008
St. Louis, MO
www.mpx.org

Concepts 2008
September 17–19, 2008 Grand Rapids, MI
www.thepaymentsauthority.org

Payments Summit
October 30–31, 2008
Columbus, OH
www.paymentscentral.org

FedEDI PLUS AT A GLANCE
By now, you should have heard about FedEDI Plus, but perhaps you still have a question or two about this new FedACH service. Read on to
find the answers you need, and you can always call your FedACH sales specialist for additional information.
What is it? FedEDI Plus enables depository financial institutions to automatically search their FedACH transactions for financial electronic
data interchange (EDI) messages. The service then translates the EDI payment and remittance information into reports that are easy to read.
Your corporate customers can use these reports to match ACH payments to documentation (e.g., invoices in a B2B environment).
Why use it? FedEDI Plus can generate reports automatically on a fixed schedule, or you can request reports on an ad hoc basis. Reports are
available in TXT, PDF or HTML file formats, and they can be retrieved via either an encrypted e-mail portal or FedLine. You might even find
that you can reduce or eliminate backroom processing currently used for EDI reporting.
What will it cost? There are no startup fees or monthly minimum fees. Pay only for the reports you need.
• Each “scheduled report” file generated: $0.20
• Each “on demand report” file generated: $0.75
• Each “secure delivery” e-mail queued: $0.20.
Where can I find more information? Visit learn.frbservices.org/ to experience the service firsthand and then visit www.FRBservices.org/ servicesetup/fedach/fededi.html for a complete list of steps to take to sign up for FedEDI Plus. You are just five steps away from a new and
improved EDI service, so don’t delay.

CUSTOMER SUPPORT INFORMATION
For FedACH Customers
in these Districts
Boston (1)
New York (2)
Philadelphia (3)
Cleveland (4)
Richmond (5)
Atlanta (6)
Chicago (7)

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

For FedACH Customers
in these Districts

Central Operations
Support Site

St. Louis (8)
Minneapolis (9)
Kansas City (10)
Dallas (11)
San Francisco (12)

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

News from FedACH | 4

Question and Answer
STP 820 Specification

Rossana Salaris is a
senior vice president of The
Clearing House Payments
Company. Salaris is responsible for the Electronic Payments Network, the nation’s
largest private-sector ACH
operator and regional ACH
association, serving more
than 1400 financial institutions nationwide.
Since joining The Clearing
House in 1991, Salaris has
led the development of
strategic plans for various
payments systems, training programs, marketing
strategies, and direct
deposit/direct payment
consumer education and
awareness efforts.
Salaris has served on the
NACHA Board of Directors,
as chairman of NACHA’s
Marketing Management
Group, and is a spokesperson for the PayItGreen
Alliance.
We talked with Salaris
recently about the STP 820,
a minimum remittance information standard, to find out
how it can make electronic
payments easier for businesses to send and receive.

In a session at Payments 2008, you referred to
STP 820 as “the standard of standards.” In this
context, would you define STP 820? The current
standard for delivery of remittance information by
large corporates is the EDI 820. We recognized that,
if we wanted the industry to buy into something, we
didn’t need to create something brand new. Instead,
we started with the existing EDI 820 specification
and simply focused on data elements that are already
used. After determining that EDI 820 is often tailored
to suit individual companies and industries and
typically provides more information than a smaller
company might need, we decided to create a simplified format to serve as a “standard of standards” for
a broader spectrum of businesses.

straightforward and not at all technical on the front
end. The user is prompted to enter any of the 10 data
fields (e.g., name, account number, invoice number)
and doesn’t have to worry about formatting the field.
On the receiver’s side of the transaction, STP 820
can eliminate a lot of the manual work previously
required for posting of entries because the remittance information is electronically transmitted rather
than sent separately or, in some cases, not at all.
STP 820 is not intended to replace EDI but can be
used to complement it. Those who have invested
resources in customized EDI packages can continue
to use EDI, but there may be trading partners who
are not equipped to accept EDI, and STP 820 fills
that gap.

What prompted EPN to develop STP 820? We
reviewed the AFP’s 2001 research that identified
reasons that businesses were not more actively using
electronic payments. Wanting to know more about
what was meant by “a lack of standards” or “a lack
of integration,” we conducted our own research
through surveys and focus groups of various companies. When we asked them what they needed in
order to send and receive electronic payments to
and from their trading partners, they told us that
they didn’t have the tools to initiate electronic payments with remittance information. Either their
cash management package didn’t have the functionality they needed to include remittance information,
or their accounting package could print checks but
could not generate electronic payments.
The solution seemed obvious—get the cash management packages to accommodate remittance information—but there was one problem. Different
businesses and industries have different standards
for remittance information. STP 820 provides just
the basic 10 data elements that any company needs
to post an electronic payment. This doesn’t guarantee
that the receiver will never have a question about a
payment, but the payment can be posted to the
account in a timely and accurate manner.

Are there barriers to widespread adoption of STP
820? Adoption will take time, primarily because
software providers are at various stages of building
STP 820 into their packages. Additional time will be
needed to test the software and roll it out to customers. Once customers have access to STP 820,
education becomes critical to businesses needing to
build a business case for electronic payments. For
example, businesses are expert on the topic of check
float, and they have expressed concerns about losing
that float if they move to electronic payments. We
must explain that, as the originator, a business retains
control of the payment and determines the time at
which it sends payment to its trading partners. The
receiver, on the other hand, can anticipate payment
on the date established, with confidence that the
funds are good. The end result for both parties to
the transaction is better cash management. Financial
institutions have an opportunity to educate their
corporate customers on how electronic payments
can improve their cash management efforts, particularly when those payments are accompanied by
remittance information.

How does STP 820 work? STP 820 is easy to use
and is designed to be user-friendly. The user does
not need to know codes or formatting. STP 820 is
News from FedACH | 5

How would adoption of STP 820 increase the
volume of electronic B2B payments? Adoption of
STP 820 will create more opportunities for businesses
to make electronic payments, naturally leading
to growth in the ACH network. The consistent
continued on page 6

2008 FedACH SERVICES FEE SCHEDULE 1
continued from page 5

message from corporates is “we know electronic payments are
inevitable, and we will not be using checks forever.” Businesses
are looking for the best solution when making payments to their
trading partners, and the answer is to give them the tools they
need in order to choose electronic payments.
What benefits might a company of any size expect to realize as
a result of adopting STP 820? STP 820 was designed to benefit
businesses of any size. Although large corporates may have invested
significant resources in EDI, they do business with midsize and
small businesses that may not have EDI capability. As a result, the
large business may receive electronic payments, but the accompanying invoices and remittance information are transmitted via
facsimile or e-mail. Small businesses have also expressed interest
in moving toward electronic payments in order to gain efficiencies.
They have consistently told us, “make electronic payments as easy
as writing a check.” After all, if electronic payments are more efficient and more affordable, they should also be easier.
In any size business, the inability to transmit remittance information along with the electronic payment leads to manual reconcilement of payments. STP 820 will allow staff to spend time on more
productive efforts, as the manual reconcilement would be limited
to exceptions rather than every incoming payment.
What is the outlook for adoption of STP 820? In the last year and
a half, we have seen that financial institutions and businesses are
“getting it.” Payments tools that use STP 820 provide a way to help
them make electronic payments with their trading partners. It is
important to realize that STP 820 is not a solution only for EPN
customers; it is not an EPN standard. Instead, STP 820 is an ANSI
X12 standard designed to meet an industry need by making it easier
for any corporate customer of any financial institution to initiate
electronic payments with remittance information. We have seen
growth in adoption of STP 820, and increasing numbers of software
packages now include STP 820. It may not represent “corporate
payments nirvana,” and it may not be the standard in 50 years, but
it can help move the industry forward in terms of electronic payments between businesses of all sizes.

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

Origination
Items in small files (< 2,500 items)
Items in large files (> 2,500 items)
Receipt Items
Addenda Records
Web-derived Returns / NOCs
FedPhone-derived Returns / NOCs
Facsimile Exception Returns/NOCs
Information Extract File Subscription
Account Servicing
FedACH Settlement

$0.0030
$0.0025
$0.0025
$0.0010
$.30
$2.00
$15.00
$20.00 / RTN / Month
$25.00 / RTN / Month
$20.00 / RTN / Month

FedACH Risk Origination Monitoring Service
Monitoring Criteria (per set of criteria)
For sets 2-20
$8.00 / Month
For sets 21-150
$4.00 / Month
For sets 151 and above
$1.00 / Month
Batch Monitoring
$.0025
FedEDI Plus
Scheduled Report Generated
On Demand Report Generated
Secure Delivery (e-mail)
FedACH International Services
Item Originated to:
Canada
Mexico
Austria, Germany,
Switzerland, United Kingdom
Return Received from:

Canada
Mexico
Austria, Switzerland
Germany, United Kingdom
Same day Recall of Item
– Canada Service

Item Trace - Canada Service
Item Trace - Mexico Service
1

$0.20/report
$0.75/report
$0.20/e-mail

$0.0390
$0.67
$2.00
$0.77 (surcharge)
$0.69 (surcharge)
$5.00 (surcharge)
$8.00 (surcharge)
$4.00 /$7.00
$3.50 / $5.00
$11.50

Refer to www.frbservices.org for additional details

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