Full text of News from FedACH : Vol. 7, No. 2, July 2010

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News from

FedACH
JULY 2010 I VOLUME 7 NO. 2

3

NEWS KIOSK

5

Fe d A C H S A M E DAY S E R V I C E

Response to NACHA’s latest
RFC due August 6, 2010

RULES

CHANGE

Accelerated Settlement for
Certain ACH Transactions

2 FedEDI PLUS ENHANCEMENT FOR ODFIs
3 DID YOU KNOW?
4 WHAT’S COMING UP

CUSTOMER IN THE SPOTLIGHT

EDITOR’S NOTE: At its May 2010 meeting, the FedACH Customer Advisory

Group heard from Richard Todd of the Minneapolis Fed about the findings of
a recent study of ACH risk. Since then, the following article was posted on
FRB Atlanta’s Portals and Rails blog, and we wanted to be sure all FedACH
customers had an opportunity to read this report of the study findings.

Managing risk in
the ACH network
MINNEAPOLIS FED STUDY USES FedACH DATA
TO IDENTIFY BETTER BENCHMARKS

ACH volumes have grown rapidly over the past

photo of the Federal Reserve Bank of Minneapolis

Not necessarily, according to a new Federal Reserve study. The

decade, as the network has expanded beyond prearranged, recur-

researchers—Olivier Armantier, Michele Braun, and Dennis Kuo

ring payments between known and trusted parties to include

of the New York Fed and Ron Feldman, Mark Lueck, and Richard

converted checks and one-time transactions originated over the

Todd of the Minneapolis Fed—recently conducted a study using

Internet or by telephone. New ACH services have heightened

FedACH data to look at ways to improve the benchmarks used to

concerns about risk because of the potential associated growth in

monitor ACH returns to shed some light on today’s ACH risk envi-

ACH returns for reasons such as insufficient funds, presentment

ronment. The study held some interesting and noteworthy findings

.

to closed accounts, and unauthorized transactions, to name just
a few. To gauge the level of risk in a financial institution’s ACH
origination business, it may seem reasonable to use the rate of

Average return rates are not necessarily a good benchmark
The Federal Reserve study shows that about 75 percent of all

these returned items as a possible benchmark. If an ACH origina-

consumer debit originators were below the FedACH average

tor’s return rate is consistently below the industry average, we

for consumer debit return rates during spring 2006. This large

should be confident that its ACH risk management practices are

percentage stems from the fact that the average is elevated by

generally sound, shouldn’t we?

a small number of very large originators who also have higher
NEWS FROM FEDACH
VOL. 7. NO 2

1

return rates. Consequently, some originators who fall below the

TEL return rates were still high compared to typical con-

average may still have rates significant enough to deserve atten-

sumer debit return rates. By contrast, most WEB origina-

tion. In short, while average return rates are almost the only

tors experienced lower returns on WEB than on consumer

benchmark currently available, they do not provide the most effec-

debits generally. However, a minority of WEB originators

.

tive proxy for assessing ACH return risk management

with significant volumes and very high return rates pulled
the average return rate for WEB somewhat above the aver-

Better benchmarks could be constructed
The Fed study illustrates how more informative benchmarks

age return rate of all consumer debits.
•

Returns come fast and are mostly the result of insuffi-

could be computed by exploiting the ACH transactions data.

cient funds. In mid-2006, more than 98 percent of all returns

The authors used FedACH data on all consumer debit forward and

occurred within five days of origination, with more than

return items originated for a period in mid-2006. By developing

70 percent returned due to insufficient funds. For the small

a methodology that matched about 90 percent of return items to

minority of returns that take more than five days, authorization

their original forward item, they could tabulate rich sets of statis-

issues predominate

.

tics, covering the whole distribution of ACH return rates, not just
the average. Their analysis tabulates return rate distributions for
several individual standard entry class (SEC) codes, as well as the

Better benchmarks can help banks manage ACH risk
Using and customizing the type of analysis done in the Fed study

overall distribution of ACH transaction types, leading to the follow-

has the potential to help originating banks better understand risks

ing additional results:

and therefore more efficiently deter fraud. For example, both origi-

•

•

Size doesn’t matter much. ACH return rates for small and

nating banks and bank regulators could analyze the distribution of

large originators are not very different for most SEC codes.

return rates and reason codes by bank peer group to gain a better

In fact, overall and for most types of consumer debits, the

sense of an individual institution’s risk management practices. At

median small originator has a slightly lower return rate

the broadest level, linking returns to forward items can efficiently

than the median large originator, when size is measured by

provide a rich array of benchmarks to help originators better moni-

deposits. Return rates were also not strongly related to

tor their ACH returns and enhance the quality of information they

the originating depository fi nancial institution’s volume of

provide to their boards of directors. Similarly, by going beyond the

originations. Thus, it would be a mistake to read deposit size

average return rate concept, regulators could use the approaches

or institution size as a proxy for sophistication in managing

adopted in the Fed study to better supervise ACH originators, or

the quality of ACH originations.

industry associations could use them to improve industry stan-

TEL and WEB are both risky, but in different ways.

dards. In short, the sun could be setting on the days of taking false

The average return rates for both telephone-initiated

comfort from the Lake Woebegonish achievement of a below-aver-

transactions (SEC code TEL) and web-initiated transac-

age return rate. ■

tions (SEC code WEB) were high relative to most other
types of consumer debits, but in different ways. TEL risks

Richard M. Todd, vice president, Community Affairs and Banking and Policy Studies
at Federal Reserve Bank of Minneapolis

were higher across the board, so that well-below-median

FedEDI Plus Enhancement for ODFIs
On July 17, 2010, the latest enhancements to the FedEDI Plus Service were

• Days of history minimum of one day to maximum of 60 days;

implemented, giving subscribers access to a new Return Ratio Report.

• Unique company names; and

Designed with the ODFI in mind, the Return Ratio Report provides detailed

• Print report whether or not return items are identified.

information on return rates over a defined period of time. ODFIs using this

Regardless of reporting options selected by a subscribing ODFI, the Return

newest report can more effectively monitor originators with higher-than-

Ratio Report will provide valuable information by SEC code. This information

average return ratios. Whether an ODFI chooses to run the report on a daily

includes the number of items returned as well as a relative percentage of

or monthly basis, the following reporting options are available:

total items originated, the returned dollar amount, the number of originated

• Return types all returns, invalid account returns (R03 and R04), and unau-

items, and the originated dollar amount. ■

thorized returns (R05, R07, R10, R29, and R51);

NEWS FROM FEDACH
VOL. 7. NO 2

2

NEWS KIOSK

ACH
NETWORK

FedACH Sales Specialists

RULES
CH
ANGE

Each of these 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.

Atlanta
Boston
New York
■

Nedelka Bell, AAP

816.881.2735

Lance Wagner, AAP

816.881.2498

Chicago
Minneapolis
San Francisco

Robb Woldman, AAP

213.683.2468

Lance Wagner, AAP

816.881.2498

St. Louis

Susan Bivens, AAP

901.496.0626

Dallas

Matt Davies, AAP

214.922.5259

Cleveland
Kansas City

Lance Wagner, AAP

816.881.2498

nacha.org/news/newsDetail.cfm/RecentBusinessNewsID/163.

Philadelphia

Carol Chartrand, AAP

215.574.3414

With the August 2, 2010, availability of the FedACH SameDay

Richmond

Della Tate, CTP

443.725.4675

Responses to NACHA’s request for comment on “Enhancements
to ACH Applications ARC, BOC, POP, TEL and XCK; Collection of
Service Fees” are RU
due
LESby Friday, August 6, 2010. The proposed rule
change would ultimately encourage originators to use the ACH
network for a variety of payments by reducing barriers to the use of
several ACH applications. In addition, the rule change would help
to better align ACH rules with existing regulations (e.g., Regulation E) and provide ACH network alternatives to the legitimate use
of remotely created checks. If approved, the rules change would
be effective March 18, 2011. Details can be found at http://www.

■

Service (see page 5 of this publication for more information), a
number of related changes to Operating Circular 4 are available
on FRBservices.org. If you have not already done so, take a minute
to sign up for the Fed’s e-mail alert notification service so you will

Did You Know?

never miss an important update to your choice of topics on FRBservices.org. Just click on the following link and set your preferences:
http://www.frbservices.org/communications/e_alerts.html.
■

It has been said that good news bears repeating. With that in
mind, we would like to remind you that delivery of FedACH
output fi les occurs four times each day. Files are distributed
daily by 1 p.m., 4 p.m., 10 p.m., and 6 a.m., Eastern time. FedACH
customers determine how often they pick up and process their
files with the understanding that taking full advantage of four
file deliveries will support timely posting of ACH payments to
receivers’ accounts and may help even out payment processing
throughout the day.

■

If you would like to join the ranks of thousands of accredited ACH
professionals (AAP) this year, you can register for the 2010 AAP
exam today. The 2010 AAP exam will be offered electronically
at computer-based testing facilities nationwide for a three-week
period beginning October 11 and ending October 29. Those who
pass this year’s exam will be accredited through December 31,
2015. To find out more about how to register and how to take prac-

NACHA Launches State Tax Change Portal
In response to industry need, NACHA announced in June that it had
launched the State Tax Change Portal at www.nachataxportal.org.
Recognizing that financial institutions and payment processors needed
a better way to get information about changes to state taxes and the
effect on ACH payments, NACHA, along with the Federation of Tax
Administrators, developed this service as a way for states to communicate changes to subscribers.
Through the State Tax Change Portal, subscribers receive
alerts of changes in ACH taxing authority routing and transit
requirements for state business tax payments. Banks, payment
providers, and businesses can enroll online to receive e-mail notifications of state tax changes, and there are no fees for distributing or receiving notices via the State Tax Change Portal. NACHA
anticipates that the portal will provide more lead time for service
providers to implement changes, reduce the risk of misdirected
payments and associated fees or penalties, and better facilitate
the use of the ACH Network for payments between businesses and
governmental entities. ■

tice exams, visit http://www.nacha.org/c/edu-aap.cfm.

NEWS FROM FEDACH
VOL. 7. NO 2

3

SEPTEMBER 2010

WHATN’S
G
COMI

Payments Symposium 2010
September 20–21, 2010

Navigating Payments 2010
Long Beach, CA

www.wespay.org

October 14–15, 2010

Bloomington, MN

www.umacha.org

Solutions 2010

Mid-America Payments Conference 2010

September 22–24, 2010

Atlanta, GA

October 26–28, 2010

www.gacha.org

www.epcor.org

OCTOBER 2010

NOVEMBER 2010

Concepts 2010

Kansas City, MO

Payment Insights 2010

October 6–8, 2010

Boyne Falls, MI

www.thepaymentsauthority.org

November 1-2, 2010

Burlington, MA

www.neach.org

New International Payments Service Available
As we approach the one-year anniversary

The account-to-receiver service is similar to an

of the implementation of the International ACH Transac-

account-to-account payment service except that the

tion (IAT) SEC code, the FedGlobal ACH Payments suite

receiving account does not belong to an individual

of services has expanded to include an account-to-receiver

but instead to a fi nancial institution or trusted third

service. This newest international payments service allows

party that acts as a disbursing agent. As an additional

funds from accounts at a U.S. depository financial institu-

security measure, the receiver must provide a password

tion to be sent to unbanked receivers for retrieval at either

tied to the payment along with valid identification. The

a bank location or at a trusted third-party provider

account-to-receiver service provides for international

in 11 Latin American countries. The Federal Reserve

payments to the following countries: Argentina, Brazil,

Banks worked with Banco de México, Banco Rendi-

Colombia, Costa Rica, El Salvador, Guatemala, Hondu-

mento, and Microfinance International Corporation to

ras, Mexico, Nicaragua, Peru, and Uruguay. ■

launch the account-to-receiver service, and all involved
are confident that the new service will effectively
respond to demand for a lower-cost alternative to send

For more information, visit http://www.frbservices.org/
serviceofferings/fedach/fedach_international_ach_
payments.html or contact your FedACH sales specialist.

funds internationally.

Customer Support Information
For FedACH Customers
in these Districts

Central Operations
Support Site

For FedACH Customers
in these Districts

Central Operations
Support Site

Boston (1)
New York (2)
Philadelphia (3)
Cleveland (4)
Richmond (5)
Atlanta (6)
Chicago (7)

Federal Reserve Bank
of Atlanta
1000 Peachtree Street, N.E.
Atlanta, GA 30309-4470
Toll Free: 866.234.5681
Local: 404.498.8902
E-mail: achoperations.atl@atl.frb.org

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: 866.234.5681
E-mail: mpls.achcustserv@mpls.frb.org

NEWS FROM FEDACH
VOL. 7. NO 2

4

QUESTION
& ANSWER

FedACH SameDay Service
CAN YOU DEFINE FOR US THE FEDACH SAMEDAY SERVICE

received by FedACH between 2 p.m. and 2:45 p.m.

AND HOW IT WILL DIFFER FROM TODAY’S FEDACH

will be delivered by 4 p.m. Items received between

SERVICE? FedACH SameDay is a proprietary service

2:45 p.m. and 4:30 p.m. will be delivered by 5 p.m.

that accomplishes depositing, processing/editing,

In both cases, returns will settle at 5:30 p.m. (All

distributing, and settling of certain ACH forward

times provided are Eastern time.)

payments during the current processing day. Cur-

On August 2, 2010, the Federal
Reserve Banks’ FedACH
SameDay Service will be available to FedACH customers on
an opt-in basis. Representing
the first significant change to
ACH schedules in 35 years, the
FedACH SameDay Service is
intended to address industry
demand for faster clearing and
settlement of ACH payments.
We talked earlier this summer
with STEVEN CORDRAY of the
Federal Reserve Banks’ Retail
Payments Office about this new
service. As project manager for
FedACH SameDay, Cordray has
had responsibility for the service
since its earliest days.

Same-day and next-day payments can be com-

rently, the earliest settlement, referred to as “next-day”

mingled in a single batch, and those items ineli-

service, is the morning of the processing day following

gible for same-day settlement will simply settle

the depositing of the ACH forward payments.

the next processing day. The service requires no
nonstandard use of the NACHA fi le, record, or field

WHAT FACTORS LED THE FED TO CREATE THE FEDACH

formats. Same-day payments are identified using

SAMEDAY SERVICE? We saw industry demand for

the existing Effective Entry Date field in the Com-

faster clearing and settlement as private ACH

pany/Batch Header record.

exchanges were created to clear converted checks,
telephone, and Internet-initiated payments same-

PLEASE EXPLAIN THE “OPT-IN” REQUIREMENT AND

day. Commercial banks were clearing on-us ACH

WHAT IT WILL MEAN TO ODFIs AND RDFIs. WHY IS THE

payments same-day, and other countries have suc-

SERVICE NOT UNIVERSAL? Participation by ODFIs

cessfully implemented same-day clearing for low-

and RDFIs is on an “opt-in” basis, and participation

value payments. Subsequent research conducted

status can change on a monthly cycle. RDFIs wishing

with a variety of ACH network participants showed

to participate are given the choice to allow receipt of

support for accelerated ACH schedules.

same-day payments from all opt-in ODFI participants
or from a select set of one or more ODFI participants.

WILL ALL TYPES OF ACH PAYMENTS BE ELIGIBLE FOR

ODFIs can originate payments to all RDFIs that have

PROCESSING UNDER THE FEDACH SAMEDAY SERVICE?

opted in to receive same-day payments. Making

No, at least not right away. We view the August 2010

the service available on an opt-in basis allows ACH

rollout as phase one, and as such, its scope is limited

network participants not interested in the service to

to converted check payment transactions (ARC,

avoid any sort of investment in the service.

BOC, POP, and RCK) along with WEB and TEL
transactions. These SEC codes represent roughly

TELL US ABOUT THE MASTER PARTICIPANT LIST? The

38 percent of all ACH payments volume. For now,

master participant list will identify every routing

credit payments and government payments will

transit number participating in the FedACH Same-

be ineligible for same day processing, and as the

Day Service and will be available to participating

FedACH SameDay Service is a proprietary service,

DFIs via e-mail and through the use of a private

only payments flowing through FedACH are eligible.

URL, enabling them to identify other participating
institutions. Should a DFI choose to upload the list

HOW WILL AN ACH PROCESSING DAY CHANGE FOR

to its processing application, that DFI can determine

A FEDACH CUSTOMER THAT OPTS IN TO THE SAME-

which payments qualify for same-day settlement

DAY SERVICE? Same-day forward items may be sent

before sending the payments to FedACH.

between 2:15 a.m. and 2 p.m. Items received by
FedACH by 2 p.m. will be delivered by 4 p.m. and

HOW CAN ODFIs AND RDFIs BENEFIT?

settled at 5 p.m. Returns of same-day forward items

First and foremost, funds availability is moved up

may be sent between 2 p.m. and 4:30 p.m., and items

by one day, and receipt of funds will be aligned more

NEWS FROM FEDACH
VOL. 7. NO 2

5

QUESTION
& ANSWER
closely with posting timelines. ACH returns are expedited by at

Results of 1Q10 Reader Survey
Thanks to those who participated in our brief online survey on social

least one day, and possibly as early as the same day the forward

networking last quarter. We had fewer than 100 responses, and therefore, we

item is originated. We expect that participating DFIs will see

acknowledge the lack of any statistical significance; however, we thought you

reductions in fraud, collections, and charge-offs as well. The

might find the results interesting anyway.

SameDay service will also make it possible expedite online bill
payments and those “just-in-time” telephone and Web payments. It
is also important to mention the benefits that the FedACH Same-

Social Networking for
Professional Purposes

Value of Social
Networking to My Job

Day Service can bring to the ACH network overall. The ACH will
be better positioned to support mobile payments, emerging P2P
payments, and other spontaneous purchases. The FedACH SameDay Service will offer an alternative to the private exchange of
consumer ACH debit payments and has the potential to bring these
payments back into the ACH network. In doing so, these payments
will again be subject to NACHA rules, operator edits, and risk
monitoring tools.
CRITICS OF THE FEDACH SAMEDAY SERVICE HAVE CLAIMED THAT
THERE IS NO NEED FOR THIS SERVICE AND THAT PARTICIPA-

Non-users
LinkedIn
Facebook

Valuable
Minimally Valuable
Very Valuable

TION WILL BE LOW. HOW DO YOU RESPOND TO THOSE CRITICS?
Contrary to those opinions, we do see a need for this service as

Ways I Use Social Networking

evidenced by the creation of various private ACH exchanges and
the availability of same-day clearing within other payment types. In
contrast to private ACH exchanges, FedACH SameDay Service participants will not incur high upfront and ongoing costs for negotiat-

Viewing input only
Sales reach tool

ing and managing exchange relationships. We have also heard that
corporate originators are quite interested in being able to expedite

A business
communications tool

returns by at least one day. We will have to wait and see what happens in terms of participation; however, we anticipate that, over

0

10

20

30

40

50

time, both ODFIs and RDFIs eligible to participate will decide that
the benefits of the FedACH SameDay Service are sufficient reason
to participate.
FOLLOWING THE AUGUST 2 IMPLEMENTATION DATE, WHAT ARE

FedACH Services Performance Measures

THE NEXT STEPS SURROUNDING THE FEDACH SAMEDAY SERVICE?

YEAR-TO-DATE THROUGH 1ST QUARTER 2010

We have already determined that it will be important to have
industry discussions surrounding the best ways to address the

PERFORMANCE

QUALITY MEASURE

100%

Transaction files processed and available timely
Online transaction files processed and delivered
electronically by the scheduled delivery times

100%
100%

ACH service availability (uptime)
Percentage of time FedACH service was available

need for same-day ACH credit and, potentially, other debit payments. Crucial to these discussions will be a healthy debate of
the roles and characteristics of ACH as compared to the wire
transfer system. Fortunately, we’ve already received preliminary feedback from ACH network participants about what they
would like to see included in future phases of the FedACH
SameDay Service. Among these are payroll, tax payment, and
cash concentration entries along with account-to-account transfers, contingency and disaster recovery arrangements, and even
international payments. The emergence of mobile P2P payments
is also in the mix. With that said, we expect to be busy with

Research and trace requests resolved timely
Accounting and billing research requests and trace
requests concerning ACH items or files responded to
within 24 hours

FedACH SameDay for some time.
NEWS FROM FEDACH
VOL. 7. NO 2

6

2010 FedACH Services Fee Schedule1
FEDEDI PLUS SERVICE

ORIGINATION

Item in small file (<2,500 items)
Item in large file (>2,500 items)
Minimum fee–origination

$0.0030
$0.0025
$0.01-$25.00 /Month

RECEIPT

$0.0025

Volume Discounts (excluding SameDay items)
Per Items 1,000,001 – 25,000,000 per Month
Per Items When Volume Exceeds
25,000,000 per Month
Minimum fee–receipt
Addenda Record
Web-originated Return / NOC
Facsimile Exception Return / NOC
Voice Response Return / NOC
Automated NOC
Account Servicing
FedACH Settlement
Information Extract File
IAT Output File Sort

$0.0007
$0.0009
$0.01 - $15.00 /Month
$0.0013
$0.30
$30.00
$3.00
$0.15
$37.00 /RTN /Month
$45.00 /RTN /Month
$50.00 /RTN /Month
$35.00 /RTN /Month

FEDACH SAMEDAY SERVICE - AVAILABLE AUGUST 2, 2010

Origination
Forward item in a small file / large file
Addenda record
Return item in a small file / large file
Receipt
Forward or return item
Addenda

$0.0030/$0.0035 (surcharge)
$0.0019 (surcharge)
$0.0030 / $0.0025 (discount)
$0.0025 (discount)
$0.0013 (discount)

Standard Scheduled Report
Standard On Demand Report
Premier Report
Encrypted e-mail
Report delivery via FedLine File Channel

$0.20/report
$0.75/report
$10.00/monthly report
$0.50/daily report
$0.20/e-mail
$0.30/report

FEDGLOBAL ACH PAYMENTS

Canada Service
Item Originated to Canada
Return Received from Canada
Trace of Item at/not at Receiving Gateway

$0.62 (surcharge)
$0.99 (surcharge)
$5.50/$7.00

Latin America Service (MFIC)
Item Originated to MFIC
Return Received from MFIC
Item Trace

$4.40 (surcharge)
$0.72 (surcharge)
$5.00

Mexico Service
Item Originated to Mexico (including F3X)
Item Originated to Mexico (including A2R)
Return Received from Mexico
Item Trace

$0.67 (surcharge)
$3.45 (surcharge)
$0.91 (surcharge)
$13.50

Panama Service
Item Originated to Panama
Return Received from Panama
Item Trace
NOC

$0.62 (surcharge)
$0.99 (surcharge)
$7.00
$0.72

FEDACH RISK ORIGINATION MONITORING SERVICE

Monitoring Criteria (per set of criteria)
For sets 2-20 per Month
For sets 21-150 per Month
For sets 151 and above per Month
Batch Monitoring

1

Refer to www.frbservices.org for additional details

$8.00
$4.00
$1.00
$.0025 /Batch

FedACH Services Performance Measures

Tell Us What You Think

YEAR-TO-DATE THROUGH 1ST QUARTER 2010

FedACH VOLUME STATISTICS

VOLUME

DOLLAR VALUE

(000)

(000,000)

Commercial Forward
Value Items Originated

2,518,038

$3,976,853

Government Forward
Value Items Originated

334,659

$1,170,399

Commercial Return
Items Originated

25,674

$13,568

Government Return
Items Originated

1,331

$3,796

27,749

N/A

2,907,451

$5,164,616

Total Commercial and Government
Non-Value Items Originated
(includes NOCs, DNEs, ENRs,
prenotes and zero-dollar entries)

TOTAL ITEMS ORIGINATED

Is mobile banking for you? Are you using mobile
banking, or are you hesitant to do so? Tell us how you use mobile banking
or why you aren’t using it yet. Click on the following link to take a short
survey, and check out the next issue for survey results.

http://www.frbservices.org/app/
capture/survey.do?id=2121

NEWS FROM FEDACH
VOL. 7. NO 2

7