Same Day ACH Corporate Considerations and Opportunities Cristina Hellems, AAP VP/Senior Product Manager MUFG Union bank Transaction Banking OCTOBER 20, 2016

Current US Faster Payments Initiatives Payment Organizations Working on Moving Electronic Payments Faster in the US: Most significant NACHA rule change in over 40 years Evolution of electronic payments Improves liquidity Reduces reliance on checks Provides flexibility for handling unforeseen business circumstances Strategies for Improving the U.S. Payment System Real Time Payments New payment rails Available 24/7 Credit push Final/No Returns

NACHA SDA Phase I Credits Only 9/23/16 $25,000 or Less Same Day ACH-Phase I Same Day Receipt-Mandatory for FIs All Receiving Financial Institutions (RDFIs) must receive SDA Credits and make funds available by close of financial institution’s processing day. RDFIs will be compensated $0.052 for each received SDA Credit transaction. Same Day Origination-Optional for FIs Originating Financial Institutions (ODFIs) will need to pay RDFIs $0.052 for each SDA Credit transaction. Premium vs. Basic ACH service. Two new SDA Processing/Settlement windows: Processing: 10:30 am and 2:45 pm ET Settlement:1:00 pm and 5:00 pm ET. NACHA SDA Phase I Credits Only 9/23/16 $25,000 or Less All SECs except IATs

Debits & Credits $25,000 or Less Same Day ACH–Phase II NACHA SDA Phase II Debits Allowed 9/15/2017 Debits & Credits $25,000 or Less All SECs Except IATS Origination-Optional ODFIs will need to pay RDFIs $0.052 for each SDA Credit and Debit transaction. Premium vs. Basic ACH service. Two new SDA Processing windows: 10:30 am and 2:45 pm ET 7:30 am and 11:45 am PT Two new SDA Settlement windows: 1:00 pm and 5:00 pm ET 10:00 am and 2:00 pm PT

Same Day ACH-Phase III NACHA SDA Phase III 3/16/2018 Must make funds available by 5:00 pm local time.

Common Use Cases of Same Day ACH Same Day ACH Use Cases Common Use Cases of Same Day ACH

Same Day ACH Receipt-Considerations and Opportunities Accelerated funds availability in deposit accounts at your financial institution. Improved liquidity. Ability to retire debt faster. Excess cash can be invested. CONSIDERATIONS How will you update your customers’ account? Will you provide “as of date” posting? Will this require internal accounting system changes? Do you have adequate staff to support any procedural changes? Review customer agreements. How will you communicate changes to your customers? Staff Training?

Same Day ACH Origination-Considerations and Opportunities STEP ONE: Talk to your financial institution first about Same Day ACH (SDA). Is your financial institution offering Same Day ACH Origination? If not, when? If you are on Pre-fund, will your financial institution allow SDA for Pre-fund ACH Origination customers? What are the deadlines for submitting Same Day ACH? Are they same for transactions submitted via the WEB or Transmission channel? Find out if your financial institution will require the optional Descriptive Date field in the NACHA file? Or rely solely on the Effective Entry date in the ACH Batch Header Record? What are the fees your financial institution will charge for SDA origination? Do you need to enroll? Opt In or Opt Out for Same Day Origination? Do you need to establish a new Originating Company ID? Is your current ACH risk exposure limit adequate?

Same Day ACH Origination-Considerations and Opportunities-continued What changes will you need to make to your ERP system? What is the timeline, cost ,and resources needed to make changes to your systems to support SDA? If your system uses the File Creation date as the Effective Entry date, financial institutions’ back end ACH systems will no longer edit the Effective Entry date of the file. If a file is received with the current date and is within the SDA processing window , the financial institution will process as an SDA file resulting in SDA settlement and SDA fees. Did you really intend for the file to be sent SDA? Will SDA require internal accounting system changes? ACH processing and funding units need to be aware of SDA transactions as settlement will impact liquidity. Engage your IT, Accounting, Accounts Payable, Account Receivable, and HR departments How will you update your customers’ accounts? Will you provide “as of date” posting? Do you have adequate staff to support any procedural changes? Review your agreements or customer communication? Will you pass SDA costs to your customers? Do you need to update internal procedures? What kinds of control do you currently have in place? Will you need additional controls? Staff Training?

SDA Originators Quick Guide This is the SDA indicator. Direct transmission customers may also use an additional optional indicator in the Company Descriptive Date field in the Batch Header record in field 8 and use “SDHMM”-SD1300 or SD1700. Effective Entry Date Field This is a premium ACH service. Financial Institutions will need to pay $0.052 to RDFIs for each SDA transaction originated. Check with your financial institution. Additional Fees All Standard Entry Codes (payment types) except International ACH (IATs) ACH transaction $25,000 or less. ACH Returns are not required to be returned on a same day basis. Reversals may be processed as a Same-Day ACH transaction following NACHA Reversal and Same-Day ACH rules. Eligibility for SDA Origination

Use of Fraud Deterrent Products Talk your financial institution about Fraud Deterrent Products ACH industry expects online ACH fraud to see an increase with Same Day ACH, particularly in Credit Origination. Best Practices/Guiding Principles Implement Dual Payments and Dual User Administration. For ACH Receipt debit protection, use ACH Blocks or ACH Positive Pay. Look out for Business Email Compromise schemes. Conduct ongoing training staff on online security.

Additional Same Day ACH Resources NACHA https://resourcecenter.nacha.org/?q=taxonomy/term/8 WesPay http://www.wespay.org/wpa/wespaypublic Federal Reserve https://www.frbservices.org/resourcecenter/sameday_ach/ The Clearing House (EPN) https://www.theclearinghouse.org/payments/real-time-payments

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