Full text of News from FedACH : Vol. 7, No. 2, July 2010
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www.frbservices.org 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: firstname.lastname@example.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: email@example.com 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