Same Day ACH: Preparing for Debits. Presented by Laura Nelson, AAP NCP Education Specialist/Auditor

Transcription

1 Same Day ACH: Preparing for Debits Presented by Laura Nelson, AAP NCP Education Specialist/Auditor

2 Audio Handouts Questions

3 Presented by: PAR/WACHA-The Premier Payments Resource Laura Nelson, AAP, NCP Education Specialist / Auditor or lnelson@wacha.org 2017

4 WACHA, through its Direct Membership in NACHA, is a specially recognized and licensed provider of ACH education, publications and support. Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. NACHA owns the copyright for the NACHA Operating Rules & Guidelines. The Accredited ACH Professional (AAP) is a service mark of NACHA. This material is derived from collaborative work product developed by NACHA The Electronic Payments Association and its member Regional Payments Associations, and is not intended to provide any warranties or legal advice, and is intended for educational purposes only. This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only. This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information contained herein. No part of this material may be used without the prior written permission of WACHA/PAR 2017 PAR/WACHA All rights reserved Disclaimer

5 Agenda Quick Review of Same Day Recent information Lessons Learned from Phase 1 that impact Phase 2 Things to think about for Phase 2 Early Posting TEL and ARC, BOC & POP issues Return and Reversal issues Unauthorized returns Who to market debits to Just in time payment issues Case studies

6 Treasury Participation in Same Day Federal Reserve notification received 4/4/2017 Please note that additional info will be forthcoming from both NACHA and the Fed in the coming days/weeks with more details surrounding the Treasury s implementation of Same Day ACH. Also, as has been true all along, the following plans are contingent upon the publication of a final 31 CFR Part 210 rule. The Treasury is committed to participating in Same Day ACH as of Sept. 15, 2017, beginning with the capability to receive tax and non-tax Same Day ACH credits With respect to origination of Same Day ACH, Treasury will have this capability no later than October for EFTPS debits Other Treasury programs will be adopting the capability later in the year and into 2018 ACH origination software vendors and third-party processors providing financial institution ACH origination services need to know that federal government routing transit numbers are expected to be operational to support Same Day ACH credit receipt as of Sept. 15, 2017

7 A Phased Approach to New ACH Network Functionality To ease the industry s implementation effort, the new ACH Network functionality will be implemented across three implementation phases. Functionality Phase 1 Sept. 23, 2016 DONE!!! 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 Deadlines 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 SeJlement 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 Times shown represent the approximate times for an ODFI s deadlines to transmit same-day ACH transactions to an ACH Operator.

8

9

10

11 2016 AFP Electronic Payments Survey Underwritten by J.P. Morgan Likely uses of Same Day ACH Payments Last-minute bill payments 58% Emergency payroll 38% A/P payments on last day of discount availability 24% Most payments, provide clients with fastest payments possible 19% Trading partner payments 17% Other 10%

12 Identification of Same-Day ACH Transactions Same-Day ACH transactions are identified and processed by the ACH Operator using the date provided in the Effective Entry Date field Same-Day ACH transactions will be identified by the ODFI and the Originator by using the current day s date in the Effective Entry Date field of the batch of ACH transactions Transactions originated on October 25, 2016 that are intended for sameday processing should include an Effective Entry Date of in the Batch Header Record The NACHA Operating Rules provide that the Effective Entry Date is the date specified by the Originator on which it intends a batch of Entries to be settled. (Appendix Three, Subpart Glossary of Data Elements) ACH transactions with a current day Effective Entry Date must meet an ACH Operator s submission deadline for same-day processing Transactions originated on Tuesday, October 25, 2016 with an Effective Entry date of must be submitted to an ACH Operator no later than the 2:45 PM ET deadline for same-day settlement These transactions would be assessed the Same-Day Entry Fee

13 ACH Date Fields Field name Format Location Purpose File Creation Date YYMMDD File Header record (mandatory) Indicates date file created by ODFI to Operator, Operator to Operator, or Operator to RDFI Company Descriptive Date Alphameric Batch Header record (optional) Originator inputs this date that it would like Receiver to see for description, never used to control timing For Same-Day ACH Originator may indicate intent to ODFI by populating with either SD1300 or SD1700 Effective Entry Date YYMMDD Batch Header record (required) Date specified by Originator as date it would like Entries to sejle For Same-Day ACH date must be either current day, stale or invalid SeJlement Date 3 digit Julian numeric Batch Header record Inserted by Receiving Operator as date DFI will be debited/credited by the Federal Reserve Note Stale date: a date that is in the past Invalid date: blank, zero, partially blank, partially non-numeric, incomplete, day number higher than 31, month number higher than 12

14 Handling of Effective Entry Dates (EED) Today s date: Oct. 25, 2016 Batch EED: Batch submitted by 10:30 AM ET Batch submitted by 2:45 PM ET Batch submitted after 2:45 PM ET Batch settled 10/25/16, 1:00 PM ET Same-Day Entry Fee charged Batch settled 10/25/16, 5:00 PM ET Same-Day Entry Fee charged Batch settled 10/26/16, 8:30 AM ET No Same-Day Entry Fee charged Case study: A batch of Entries is submitted on Tuesday, October 25, 2016 after 3:00 PM ET with an Effective Entry Date of Tuesday, October 25 (i.e., with content in the Effective Entry Date field). Because the time of submission is after the ACH Operator s deadline, this Effective Entry Date is stale; the batch is settled at the next available settlement opportunity, which is the next day, Wednesday, October 26, at 8:30 AM ET. Transactions are settled on the next day, and therefore not assessed the Same- Day Entry Fee ODFIs whose Originators use default Effective Entry Dates of the current day could submit their files after 2:45 PM ET and not be settled on the same day or assessed the Same-Day Entry Fee

15 Handling of Stale/Invalid Effective Entry Dates Today s date: Oct. 25, 2016 Batch EED: (stale) Note: stale date means a date that is in the past Batch submitted by 10:30 AM ET Batch submitted by 2:45 PM ET Batch submitted after 2:45 PM ET Batch settled 10/25/16, 1:00 PM ET Same-Day Entry Fee charged Batch settled 10/25/16, 5:00 PM ET Same-Day Entry Fee charged Batch settled 10/26/16, 8:30 AM ET No Same-Day Entry Fee charged ACH transactions that have stale or invalid Effective Entry Dates will be segled by the ACH Operator at the earliest opportunity, which could be the same day Case study: A batch of Entries is submitted on Tuesday, October 25, 2016 before 10:30 AM ET with an Effective Entry Date of Monday, October 24 (i.e., with content in the Effective Entry Date field). Unfortunately, this is a late payroll file that was not submitted timely. The Effective Entry Date is stale, therefore the batch will be settled at the next available settlement opportunity, which is at 1:00 PM ET on Tuesday, October 25. In this scenario, this late payroll file is settled 19.5 hours sooner than if the batch were treated as next-day and settled at 8:30 AM on Wednesday These transactions are assessed the Same-Day Entry Fee, because they are settled as same-day transactions

16 Identifying a Same-Day Entry Example of portion (positions 21-78) of Company/Batch Header Records sent on October 25, 2016 Company Discretionary Data Company Identification SEC Company Entry Description Company Descriptive Date Effective Entry Date SeLlement date (Julian) Direct Deposit PPD Direct Pay Inserted by Operator Effective Entry Date the ACH Operator will use the content of this field to determine if an Entry should be processed as same-day, regardless of the content of other fields

17 Identifying a Same-Day Entry Examples of portion (positions 21-78) of Company/Batch Header Records sent on October 25, 2016 using optional indicators Company Discretionary Data Company Identification SEC Company Entry Description Company Descriptive Date Effective Entry Date SeLlement date (Julian) Direct Deposit PPD Direct Pay SD Inserted by Operator SD Direct Deposit PPD Direct Pay Inserted by Operator 1 - Company Descriptive Date an ODFI may choose to use this field with their Originators to include an optional indicator for Same-Day Entries. If the optional indicator is used, this field should include either SD1300 (for Entries the Originator would like to settle at 1:00 PM ET) or SD1700 (for Entries the Originator would like to settle at 5:00 PM ET). The ACH Operator will not look at content of this field 2 - Company Discretionary Data ODFIs have the option to use specific codes in this field to designate specific processing instructions. An ODFI may decide with its Originator to include a code in this field to indicate intent for same-day processing. In this example an SD is include to indicate same-day processing, but this content would be solely at the discretion of the ODFI and Originator. The content of this field will not be reviewed by the ACH Operator

18 Issues What are they (identified as of today)? Eligibility and how will you manage who you allow to generate same day entries Your ACH processing schedules Handling of Effective Entry Date Balancing to multiple settlement statements Identification of individual batches as same-day Exception entries Not many for credits The fee charged by the operators based on the Rules Other considerations Contract updates Procedural updates

19 What Transactions Are Ineligible for Same Day ACH? The only ACH transactions that are ineligible for same-day processing: Large-dollar transactions (over $25,000) $25,000 transaction limit applies to individual transactions; i.e., a single same-day ACH transaction could not be for more than $25,000 No limit on the aggregate value of a batch of same-day transactions Entries submitted in the same-day window that are over $25,000 will not be rejected by the ACH Operator but will be held for processing in the next eligible window International ACH Transactions (IAT) IATs excluded to allow for OFAC due diligence Automated Enrollment (ENR) ENR do not use Effective Entry Dates, so there would be no way to differentiate same-day from next-day

20 What Did We Learn in Phase 1? The importance of the Effective Entry Date, there were some inadvertent same day batches but not many As an RDFI it s tough to track same day entries it s not based on date but on hitting certain cut-offs There is almost no interest in using the Discretionary data field to carry date information Not all vendors were ready for all facets of same-day all managed the RDFI side but some not the ODFI side Many institutions had trouble balancing, that s often done outside of the ACH ops area All-in-all the implementation went smoothly

21 Phase 1 Success Story Missed Pension File Overview: Existing mid-sized customer that uses FI s Treasury Management Services Company had not previously signed up for Same Day ACH Uncovered pension file was missed the morning of 10/3/16 Engaged FI who then quickly followed their emergency exception process to obtain approvals and set the customer up Outcome: Customer was able to originate Same Day ACH credits in the second window on 10/3/16 getting their 2,500+ employees pensions paid same day opposed to having to wire funds Due to the quick response and emergency procedures that were in place the customer had a positive experience leveraging this new faster payment option

22 Same Day Returns May Benefit FIs Clears exceptions off the books faster Allows ODFI and Originator to receive and fix exceptions faster There are no eligibility restrictions and no Same Day Entry Fee charge

23 FRB Update In response to feedback regarding challenges associated with balancing items and dollars settling same day, operational changes will be implemented which are designed to ensure the 11 a.m. ET outgoing file only contains same day items that settle at 1 p.m. ET. To implement the changes outlined above, acknowledgements for origination files deposited between 10:30 a.m. ET and approximately 11:10 a.m. ET will be delivered after 11:10 a.m. ET. Should you have questions, please contact FedACH Customer Support at (877) The Financial Services logo and FedACH are registered service marks of the Federal Reserve Banks. A complete list of marks owned by the Federal Reserve Banks is available at FRBservices.org.

24 Phase 2 - Introduction On Sept. 15, 2017 BOTH credits and debits can be run in the same-day windows are receive same-day settlement Balancing should be an easier event nothing deferred unless it s over $25,000, an IAT or intended to be a next day entry Balanced files are now possible (but only small files)

25 Balanced Files

26 Uses for Same Day ACH 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

27 The Major Use Cases for Same-Day ACH are Projected to Generate 1.4 Billion Transactions Over 60% of estimated Same-Day ACH volume comes from existing ACH C2B = Consumer to Business B2B = Business to Business C2C = Consumer to Consumer B2C = Business to Consumer C2B Bill Pay ecommerce POS check conversion Merchant debit Collections C2C Person-to-Person Account-to-Account B2B Multiple uses, such as trading partner payments, duedate and late invoice payments B2C Payroll Insurance, refunds 10 Primary Use Cases 63 Total Sub-Use Cases

28 Posting Early - RDFI Using the incorrect date to post can lead to early posting Posting should ALWAYS be based on Sett. Date, and not on Effective Entry Date Sett. Date is a Julian (1-365) type of date IF you post incorrectly the implications are: Unauthorized entries and related fee Overdrawing your customers account causing fees to be charged Loss of customers frustrated with paying fees UDAAP concerns (and having the CFPB checking on you) A violation of the NACHA Rules with the potential for a fine Reputation Risk Phase 2 - Issues For ODFI s be aware of the importance of putting the correct date on a batch, and delivering that batch in the appropriate window

29 Rules currently state the notice used for recurring TEL (and you can use that for single-entry) needs to be made available PRIOR TO the Settlement Date of the entry UPDATE!! - Now it reads prior to Settlement In any case this will be a challenge Options: TEL Issues Record the conversation for single-entry no notice For recurring build your business case OR don t use same day Don t use same day, settle next day

30 Applies to ARC, BOC, and POP entries Disclosure requirements (per Reg. E 2007 Amendment) used to include language that stated that a check converted to an ACH debit could post as soon as the same day Language on same day was no longer required two years later (2009) but it might be a good idea if using same-day ACH ISSUE customer thinks it s still a check and won t clear for a day or two (UDAAP issue??) Be transparent! Electronic Check Issues

31 Same-day WILL create more overdrafts depending on how you post Options: Return Issues After each settlement time will create daylight overdrafts, will you charge for those? At the end of the day it s still same-day which your customers are NOT expecting Disclosures explaining your policies Terms and Conditions be sure they re updated if you re changing your procedures

32 Same-day Returns Option to generate returns the same-day as your receive same-day items Deadline is 5:30 P.M. E.T. (both Dr. s and Cr. s) Can still do returns the next day if you want Same-day returns can limit your liability of an overnight funding issue (an erroneous large debit that hits one of your accounts) DO NOT generate a same day return on a next day item! Reversals Returns (cont.) & Reversals Still have 5 days but day 1 also processing day Couldn t do Dr. s in phase one but now that won t be an issue

33 Unauthorized Entries The 60 day countdown is one day shorter! Don t be late! No other changes still get a WSUD, signed by your customer with the correct information included With the other major Rule change (unauthorized return fee) it s expected that more WSUD s will be requested

34 Just in Time Payment Issues Authenticating your originating customer Strong security measures to help mitigate fraud and account takeover KYC if your customer generates a file and then goes out of business, and you originated the debits, you may be on the hook Debits inadvertently put into the network, these items would post earlier than expected Violation of the Rules creates enforcement issues As noted NSF returns because consumers EXPECT to get that day to get a deposit in to cover a debit

35 Co. with a POS card Generates ACH entries based on sales Currently those post next day Why go same day? Case Study Point of Sale Get the funds one day sooner Know if an entry will be returned 1-2 days sooner, can work exceptions faster Know of fraudulent attempts faster Other issues Does it make economic sense? With the $.052 cost plus any markup by the ODFI

36 Be Ahead of the Game Understand use cases for Same Day Debits Ensure systems are capable for Same Day Debit Origination Evaluate your originator s need or desire, based on use cases Educate your originators Proper use of Effective Entry Date File delivery deadlines Reporting Operator Testing to be available dates to be announced soon Including file pick up, scripts, communication, posting, downstream applications, and reconcilement both with the operator and with customers

37 Questions

38 AAP - Continuing Education Credits Same Day ACH: Preparing Debits This session is worth 1.2 credits

39 Resources PAR/WACHA- The Premier Payments Resource HELP DESK Phone: Toll Free: Fax:

40 Laura Nelson, AAP, NCP Upcoming WACHA events with CBANC Education: Reg E for Debit Cards Effective Origination Agreements Corporate Account Takeover ACH and Deceased Account Holders Tues 6/20 at 1pm CT/2pm ET Tues 7/11 at 1pm CT/2pm ET Wed 7/19 at 11am CT/12pm ET Tues 7/25 at 1pm CT/2pm ET