ACH 101 Perspectives from a Processor and a Merchant

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Presentation transcript:

ACH 101 Perspectives from a Processor and a Merchant Charles Williams, VP Product - First Data Nonie Meyer, Director Development Operations - WETA

ACH 101 Overview Processor perspective Merchant perspective What is ACH Why ACH Selecting a processor Industry buzz Merchant perspective Starting an ACH program Database considerations Program maintenance

Processor View Point What is ACH Why ACH Overview The Participants Why ACH Cost Advantages Ubiquity of the Bank Account Payment type ‘On File’ Selecting a Third Party Processor Are Your Use Cases Supported? NACHA Certification Industry buzz Same Day ACH Real Time Payments

What is ACH The Automated Clearing House Network moves money and information from one bank account to another through ACH transactions Batch-oriented network Credits and debits Alternative to paper checks One-time and recurring payments Supports government, consumer, business, and international payments plus payment-related information Used by more then 11,000 financial institutions Overseen by NACHA (National Automated Clearing House Association) Source: NACHA

Third-Party Processor The Participants ACH Operator ACH Participants Definition / Role Originator Has the agreement or authorization from the Receiver and initiates the ACH transaction ODFI Originating Depository Financial Institution receives the instructions from the Originator and sends to the ACH Operator ACH Operator Federal Reserve and/or The Clearing House receive and distribute ACH entries RDFI Receiving Depository Financial Institution receives ACH entries and posts to Receivers account Receiver Authorized the Originator to initiate an ACH transaction (debit or credit) Third-Party Processor Performs functions on behalf of an Originator, ODFI or RDFI (optional) ODFI RDFI Third-Party Processor Optional Originator Authorization Receiver

ACH and Participant Examples Federal Reserve The Clearing House ACH Operators ODFIs and RDFIs Third-Party Processor Bank Biller’s Bank Merchant’s Bank Merchant’s Bank Company’s Bank Customer’s Credit Union Third-Party Processors Payment Processor B2B Processor Payroll Processor Originators & Receivers Merchants P2P Provider Employees Consumers Tax Payers Employers Banks and Credit Unions Insurance Company Billers

Huge growth in ‘Card On File’ payment growth Why ACH? Online card acceptance cost can range from 2% to 3%+ Cost Advantage No interchange Cost of accepting or sending checks Ubiquity Support most consumers, including the card-less Float still attracts consumers Bank accounts are more sticky On File If your supporting Card on File, why not add ACH on File? Eliminate CNP interchange and can be guaranteed by processor Of 245M adults in the US, 230M of them are in a household with a bank account (US Census and FDIC-2015) A study of a major retailers payment volume showed a decrease in Debit and increase in Check/ACH transactions on Wednesday (TeleCheck) Huge growth in ‘Card On File’ payment growth

Selecting a Third-Party Processor Industry Use Case NACHA SEC Code Payroll Marketplace Seller Fantasy Sports Sending funds to a Receiver PPD credit Bill Payment Non-Profit Over the phone Authorized online Authorized in person TEL WEB PPD debit Retail Online Retail In Store Paper check conversion Mobile wallet POP POS P2P Digital wallet Web debit Web credit Know your use case Common Payments Recurring Online Over the phone In person Payroll and Disbursements NACHA Certification New in 2017 Third-Party Sender certification

Industry Buzz – Same Day ACH Virtually all transactions, including credits and debits, will be eligible for same-day processing Phased rollout Credits – Sept 23, 2016 Debits – Sept 15, 2017 5:00 PM Credit Funds Availability – March 16, 2018 Key points Max amount $25,000 RDFIs can charge ODFIs 5.2 cents per item No aggregation of transactions New ACH processing window 10:30 AM ET and 2:45 PM ET Payroll Bill Payments Invoice Payments Account Transfers Ideal Use Cases

Industry Buzz – Faster Payments Faster Payments Task Force Federal Reserve created Task Force in January of 2015. Included 300+ participants including NACHA, Processors, Businesses, Card Networks, and Start Ups Objective – near real-time, irrevocable, ubiquitous payments Will publish opinion in Mid 2017 with target solutions live 2018 and ubiquitous by 2020 The Clearing House Bank owned payment association. (20+ banks) Launched their own faster payments effort in October 2014, piloting 1Q17 Zelle Bank-owned consortium that formed when Early Warning merged with clearXchange in 2016 Initial focus on P2P and C2B Source: 1) The Global Adoption of Real-Time Retail Payments Systems “, Swift, 2015.”

Merchant View Point Starting an ACH Program NACHA Requirements Channels to accept ACH Authorizations Benefits of ACH Customer Database Considerations Storing live data or tokens Data entry Billing Integrations Reconciliation Program Maintenance Tracking failed and returned payments Ongoing communications with customers Changes and cancelations

Starting an ACH Program NACHA Requirements Each channel has specific guidelines for data collection, authorizations and storage Phone calls recorded and retained Paperwork through mail retained Online Evidence of Authorization must be retained for 24 months after the end of the last payment Channels to accept ACH Review your entire program, mail, web, inbound phone, telemarketing etc. Decide which channels are feasible to accept ACH

Starting an ACH Program Authorizations A written authorization is required for all recurring ACH payment plans. Must include specific language and information

Starting an ACH Program Benefits of ACH No interchange fees Lower administrative cost Most stable form of payment No need to update each time a card is replaced Most Secure Drastically reduce stop/loss Processing ACH is 1/5 to 1/20 the cost of processing credit cards

Customer Database Considerations Storing ACH Data ACH information must be stored electronically in order to process payments Stored as a token in your database Stored as live data in your database Stored directly inside a payment processor or bank

Customer Database Considerations Data Entry Routing and Account numbers must be correct Deposit slips have different routing numbers Applications list routing and checking account information Voided checks are best Educating customers and staff on how to read a check

Customer Database Considerations Billing/Settlement Look at your business needs and make sure the capabilities match Frequency options – daily, monthly, weekly Is it automated or is manual intervention needed? How to cancel/change? Lead time required Customer ability to make changes Are partial payments an option if needed? Reconciliation Most businesses reconcile daily, ensuring each database and processor balance to the penny If you bill more frequently than your processor deposits, balancing is more challenging

Customer Database Considerations Integrations Multiple databases or processors Many businesses require two or more databases due to the needs of various streams of business Do all of these databases use the same processor Does all the information feed into one main database of record Is there an API to connect the databases Is all the information you need accessible in the API Do employees have to spend time duplicating work in more than one place Information should automatically move from the processor to the database Settlement date Failures, returns and the reason codes

Program Maintenance Tracking failed and returned payments It is crucial to know when and why payments are unsuccessful Insufficient funds - try the payment again Many Processors and Databases do this automatically Bad data – reference a voided check for an update Closed account or stop payment - reach out to the customer Ongoing communication with customers Informing of payment interruption Asking customers for a change Moving from CC to ACH Increasing monthly amount or changing to a new level of service

Program Maintenance Changes and cancelations Currently on CC and want to change to ACH Already on ACH, changing amount Stopping at future date Stopping immediately Every change requires a new authorization New to ACH New Dollar amount

Today’s Speakers Charles Williams, VP Product – First Data Nonie Meyer, Director Development Operations - WETA If you have any questions about the presentation, go to our LinkedIn Group (the Payments Education Forum) and request an invitation (this is a closed group specifically for the payments industry)