Same Day ACH; (And a Little on Faster Payments in General) Fred Laing, II AAP, CCM, NCP President and CEO UMACHA

Agenda Same-Day ACH The Fed’s Faster Payments Task Force What’s eligible What differentiates a same-day entry from a next day-entry How is same-day ACH being rolled out Use cases The challenges The Fed’s Faster Payments Task Force The process used – including it’s opportunities and challenges Outcomes The Governance Framework Formation Team Where do we go from here?

UMACHA Not-for Profit Association that supports Electronic Transactions – ACH, check/image, wire (with the exception of card) Membership based with about 700 financial institutions and 35 processors and providers Education is our focus along with Rules compliance for the financial market Staff of 12 – covering MN, ND, SD, MT and parts of WI & MI

Same-day ACH

What’s Eligible for Same-Day ACH Same Day ACH: What's New? What’s Eligible for Same-Day ACH Individual Entries of $25,000 and under All Standard Entry Class (SEC) codes Exception International ACH Transactions (IATs) Automated Enrollment Entries (ENRs) Non-Monetary Entries Prenotifications NOCs Returns All Returns can be processed same day Will not be charged the Same Day fee RDFI would pay an origination fee for a return but there would not be a same day fee on top of the origination fee for a same day return. © UMACHA 2017; All rights reserved.

Identifying Same-day Entries Same Day ACH: What's New? Identifying Same-day Entries ACH Operator Effective Entry Date field ONLY All other ACH entries will run as before, next day or for certain credits, 2 days before settlement ODFI and Originators Effective Entry Date field Stale dated and invalid values in this field will also qualify for Same Day processing Optional Company Descriptive Date Company Discretionary Data UGLY! © UMACHA 2017; All rights reserved.

Identifying Same-day Entries Same Day ACH: What's New? Identifying Same-day Entries Handling of Effective Entry Dates (EED) Today’s date: Jan. 02, 2018 Batch EED: 180102 Batch submitted by 10:30 AM ET Batch settled 01/02/18, 1:00 PM ET Same-Day Entry Fee charged Batch submitted by 2:45 PM ET Batch settled 01/02/18, 5:00 PM ET Same-Day Entry Fee charged Batch submitted after 2:45 PM ET Batch settled 01/03/18, 8:30 AM ET No Same-Day Entry Fee charged Talk to your Financial Institution about when they submit files to the ACH Operator if you’re interested in Same-day ACH © UMACHA 2017; All rights reserved.

Implementation Overview Same Day ACH: What's New? Implementation Overview 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 New Same Day ACH Processing Deadlines 10:30 AM ET and 2:45 PM ET New Settlement Time(s) 1:00 PM ET and 5:00 PM ET ACH Credit Funds Availability End of RDFI’s processing day 5:00 PM RDFI local time These times are for the ODFI, talk to your FI about their deadlines! © UMACHA 2017; All rights reserved.

Phase 1 VERY smooth implementation Used primarily for emergency payroll Some usage for P-to-P and for B-to-B Just in Time payments Volumes were relatively minimal No one complains when they get their money early, debits are another matter

Phase 1 Same-day ACH Volume By SEC Code

Phase 2 - Debits Same Day ACH: What's New? © UMACHA 2017; All rights reserved.

Originating ACH in a Same-Day Environment 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 Bill Pay eCommerce POS check conversion Merchant debit Collections C2C Person-to-Person Account-to-Account B2B Multiple uses, such as trading partner payments, due-date and late invoice payments B2C Payroll Insurance, refunds C2B = Consumer to Business B2B = Business to Business C2C = Consumer to Consumer B2C = Business to Consumer 10 Primary Use Cases 63 Total Sub-Use Cases © UMACHA 2016; All rights reserved.

The Big Challenge For Phase 2 Same Day ACH: What's New? The Big Challenge For Phase 2 Have clear and readily understandable terms for your authorizations ODFI warrants to each RDFI and ACH Operator that Entry is properly authorized For an amount that will be due and owing to the Originator from the Receiver on the Settlement Date For a sum specified by the Receiver to be paid to the Originator Unauthorized Debit Entry Debit Entry was initiated for settlement earlier than authorized BAD © UMACHA 2017; All rights reserved.

Opportunities and Challenges Same Day ACH: What's New? Opportunities and Challenges Opportunities Ability to reach almost every FI with a same-day entry JIT issues can be managed more effectively Emergency payroll/missed payroll’s can be done Returns will be faster, and in many cases same-day Look for more Rule updates to same-day going forward Challenges It’s same-day, not real-time Use of the Effective Entry date field can be an issue Re-tooling of AP/AR to use same-day is a major job The $25,000 limit The additional cost, the Fed charges a fee to the ODFI to handle same-day entries The cut-off times, especially the further west you go © UMACHA 2017; All rights reserved.

News Flash! NACHA distributed a Request for Comment in Mid-December dealing with updates to Same- day Increase the $25,000 limit to $100,000 Add a later deadline, ODFI’s could submit files up to 5:15 PM E. T., RDFI’s would receive files by 6:00, Settlement would be at 6:30 Fed would need to update the NSS (National Settlement Service to enable this) Require availability by 1:00 PM for ALL credit entries RFI – concerning weekend and holiday processing

Faster Payments Task Force Sponsored by the Federal Reserve

State of the Industry Faster Payment Task Force formed in early 2015 First meeting – June 2015 Over 300 organizations signed up!! Step one – Develop effectiveness Criteria Step two – Ask for potential solutions Step three – rate those solutions against the effectiveness criteria (QIAT) Step four – have the task force react to the ratings Step five – Publish part one of the report from the Task Force Step six – Review the primary hurdles to successful implementation of a faster payments solution Step Seven – Publish a FINAL REPORT

Faster Payments Task Force Final Report Findings Establish a Faster Payments Governance Framework Recommend and establish Faster Payment Rules, standards and baseline requirements Assess the payments regulatory framework and recommend changes Establish an inclusive directory work group to identify and recommend a directory design Enhance Federal Reserve Settlement services Explore and assess the need for the Fed to participate in an operational mode Recommend, develop, and implement fraud detection and reporting systems Develop cross-solution education and advocacy Research gaps in cross-border functionality and interoperability Continue research on emerging technologies

Now What? GFFT – Governance Framework Formation Team Formed to advance the first objective 27 members representing 7 segments Three phases – Design baseline components Establish a governance framework Operate and evolve that framework A Directory Team is in the process of being formed

Where Do We Go From Here? The claim is we’re behind the rest of the world and we should be a leader, not a follower What’s the “demand” for faster or real-time payments? Payment takeaways from AFP in San Diego: 54% think faster is a positive development 39% are indifferent 7% have a negative view The devil’s in the details – it will take significant amounts of time and money to re-tool The US market is different than most with many more FI’s and with no mandate the incentive to move to real-time is not that strong Real-time WILL happen but expect it to evolve, not be a revolution

Stop Payments vs. WSUD for Operations Staff Questions? © UMACHA 2017; All rights reserved.