The ACH Network: Progress and Pathways to Faster Payments

Transcription

1 The ACH Network: Progress and Pathways to Faster Payments 2017 Merchant Acquirer s Committee Annual Conference March 21, 2015 Las Vegas, NV

2 2 Agenda NACHA ACH Network Recent and Upcoming Rules Changes Same Day ACH ODFI Return Rate Reporting Third-Party Registration

3 3 NACHA THE ELECTRONIC PAYMENTS ASSOCIATION

4 4 NACHA The Electronic Payments Association NACHA, a not-for-profit industry association, manages the development, administration, and governance of the ACH Network. The ACH Network provides the functionality for Direct Deposit and Direct Payment. With the industry, develops the NACHA Operating Rules, which guide risk management and create payment certainty for all players. The NACHA Operating Rules: Establish the legal foundation for the ACH Network Provide a common set of rules and formats Create certainty and interoperability Prescribe roles and responsibilities

5 5 NACHA as an Industry Association NACHA also represents more than 10,000 financial institutions via 11 Regional Payments Associations and Direct Membership. NACHA unites payments systems stakeholders, fostering dialogue and strengthening the ACH Network together.

6 6 NACHA as the Logical Network Administrator ACH Logical Network ACH rules set, and associated payment types and formats owned by NACHA Allows counterparties to logically and confidently pass transactions to each other, knowing how they will be recognized and dealt with NACHA holds the role of Network: Administrator Rules creator Rules enforcer Educator Supporter ACH Physical Network The physical environment required to move transactions The technology and communications environment, and associated product set, needed to initiate, clear and settle ACH transactions between counterparties ACH Operators take the role of: Processing and routing transactions Maintaining access to all sending and receiving endpoints Inter-operator exchanges Services to help financial institutions manage ACH volume and risk management Interbank settlement Network reporting to NACHA

7 7 THE ACH NETWORK

8 8 The ACH Network NACHA and the ACH Network are at the center of American commerce, moving more than $41 trillion each year via 24 billion transactions. Direct Deposit via ACH Social Security and government benefits electronic bill payments (such as utility and mortgage payments) person-to-person (P2P) business-to-business (B2B) 2016 NACHA -The Electronic Payments Association

9 9 ACH Network Participants Originator Originating Depository Financial Institution (ODFI) ACH Operator (Federal Reserve/The Clearing House) Receiving Depository Financial Institution (RDFI) Receiver Third Parties

10 10 Contractual Hierarchy Network Administrator ACH Operators Financial Institutions (ODFIs & RDFIs) Third-Party Service Providers and/or Third-Party Senders Receivers (Consumer or Business) Third-Party Service Providers and/or Third-Party Senders Receivers (Consumer or Business) Originators Originators

11 11 ACH Payments Risk The ACH Network is safe, efficient and high-quality. Participants in the Network have a responsibility to ensure highquality and do their part to reduce risks. ODFIs play a pivotal role - the gatekeepers Bears full responsibility for entries it originates Must fully understand its responsibilities and liabilities under the NACHA Operating Rules

12 12 RECENT AND UPCOMING RULES UPDATES

13 13 Same Day ACH Strategically: Same Day ACH is an immediate step to enhance the payment system, demonstrating that financial institutions can work together to advance payments. Same Day ACH creates a foundation on which to build other services. Responding to Market Needs:

14 14 Same Day ACH What Transactions Are Eligible for Same Day ACH? Virtually all ACH transactions, including credits and debits, are eligible for same-day processing. Non-monetary transactions prenotifications, notifications of changes, zero-dollar remittance information transactions, etc. are also eligible for same-day processing. International transactions (IATs) and large-dollar transactions over $25,000 are not eligible for same-day processing. Dollar limit is per-transaction, not per-batch.

15 15 Same Day ACH Implementation Same Day ACH is being implemented in phased approach to allow the industry to acclimate to a faster processing environment, as well as to ease the industry s implementation effort Functionality Phase 1 Sept. 23, 2016 Phase 2 Sept. 15, 2017 Phase 3 March 16, 2018 Transaction Eligibility ($25,000 limit; IAT not eligible) Credits only Credits and debits Credits and debits New Same Day ACH Processing Windows 10:30 am ET and 2:45 pm ET 10:30 am ET and 2:45 pm ET 10:30 am ET and 2:45 pm ET New Settlement Time(s) 1:00 pm ET and 5:00 pm ET 1:00 pm ET and 5:00 pm ET 1:00 pm ET and 5:00 pm ET ACH Credit Funds Availability End of RDFI s processing day End of RDFI s processing day 5:00 pm RDFI local time

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18 18 Phase 2 Same Day ACH Debits Live 9/15/17 Use cases for same-day debits Consumer billing Due date / late payments Payments to prevent loss of service Any bill payment in which credit is given immediately Any bill payment in which non-payment risk is elevated Check conversion Merchants and lockboxes Collections Business-to-business Just-in-time payments for release/shipment of goods Invoice due date / late payments Individual account transfers Preparation considerations Testing Both ACH Operators will offer testing for Phase 2 readiness; testing schedules will be released in Testing is recommended for all parties. Don t assume because your business partner has tested that you are covered. Testing should include more than just file pick up, also posting, downstream application, and reconcilement both with the Operator and with the customer. Timing of consumer debits Just as with same-day ACH credits, it is critical that the Effective Entry Date of debits be accurate. Early debiting is not permitted under the Rules, and more significantly would have customer impacts. Managerial attention to Phase 2 implementation A few organizations have expressed concern that Phase 2 won t receive the same level of attention or resources as Phase 1 i.e., We already did it.

19 19 What Does Same Day ACH Mean to Risk? Reduces Transaction Risk for Debits Originators and ODFIs receive returned debits at least one day earlier Helps billers of all types better manage credit risk RDFIs return debits faster faster recredits Increases Fraud Risk Funds will move out of accounts more rapidly, determine which customers are offered SDA Strong authentication and security around file delivery RDFI review of exception processing for returns

20 20 What Does Same Day ACH Mean to Risk? Reduces Counterparty risk Less exposure to settlement risk of others by more frequent interbank settlement Reduces Operational Risk For ODFIs by adding more windows that can be utilized to mitigate missed windows, operational delays or system outages Same-day reversals to repair duplicate files Reduces Credit Risk ODFIs have less time on the hook for same-day credits Can lower Originator exposure or credit limits with multiple deposits/day

21 21 Same Day ACH Resource Center

22 22 Same Day ACH Resource Center

23 23 ODFI Return Rate Reporting Unauthorized Return Rate NACHA REQUESTS UNAUTHORIZED RETURN RATE REPORTING - ORIGINATOR/TPS OVER 0.50% ODFI PROVIDES RESPONSE DOCUMENTATION TO NACHA - IF RETURN RATE EXCEEDS 0.5% - PROVIDES A PLAN TO REDUCE IN 30 DAYS NACHA MONITORS 30 DAY REDUCTION: - IF SUCCESSFUL REDUCTION - MONITOR FOR AN ADDITIONAL 180 DAYS - IF UNSUCCESSFUL IN REDUCING - CASE IS FORWARDED TO NACHA'S SYSTEM OF FINES

24 ODFI Return Rate Reporting Administrative / Overall Return Level Inquiry 24 NACHA REQUESTS ADMINISTRATIVE RETURN LEVEL - ORIGINATOR/TPS OVER 3.0% REQUESTS OVERALL RETURN LEVEL - ORIGINATOR/TPS OVER 15.0% ODFI PROVIDES RESPONSE DOCUMENTATION To NACHA NACHA NACHA REVIEWS DOCUMENTATION PROVIDED BY ODFI - DETERMINES IF CASE NEEDS TO BE REVIEWED BY ACH RULES ENFORCEMENT PANEL FOR FURTHER EVALUATION AND POSSIBLE DIRECTIVE TO REDUCE

25 25 Third-Party Sender Registration The NACHA Operating Rules require ODFIs to register their Third-Party Sender status with NACHA, effective September 29, The registration process will promote consistent customer due diligence among all ODFIs, and serve as a tool to support NACHA s continuing efforts to maintain ACH Network quality. NACHA is providing an implementation period for ODFIs to submit their registration to allow for implementation to be spread out across a reasonable time period. September 29, March 1, 2018

26 Third-Party Service Provider or Third-Party Sender? 26 So.what s the difference? The difference is where the agreements exist (or don t exist)! ABC Access Inc. Third-Party Service Provider ABC Access Inc. Third-Party Sender LMN Gadget Co. ODFI

27 27 Third-Party Sender Registration For ODFIs with no Third-Party Sender customers, the ODFI must acknowledge this in a statement to NACHA. NACHA will provide a simple means through the registry to make such a statement. For ODFIs with Third-Party Sender customers, the ODFI must provide basic registration information for each Third-Party Sender customer: Information for the ODFI and the ODFI contact Name of the Third-Party Sender and principal location information RTN(s) and Company ID(s) used in ACH transactions transmitted for the Third-Party Sender

28 28 Third-Party Sender Registration Beyond the initial basic registration information, it may become necessary for NACHA to receive additional information, such as DBA(s), Tax ID(s), street and website addresses of the Third-Party Sender contact information for the Third-Party Sender s contact person Third-Party Sender s principals names and titles approximate number of Originators for which the Third-Party Sender transmits entries statement as to whether the Third-Party Sender transmits debit entries, credit entries or both NACHA is authorized to request this information regarding risk events such as escalated risk of financial loss to one or more Participating DFIs, Receivers or Originators violation of the Rules or Applicable Law excessive Returns For more on registration, attend the session Multi-Acceptance on External Registration and Oversight Strategy, March 23, 11:00 AM

29 29 Jeanette A. Fox, AAP Senior Director Risk Investigations NACHA