1. Payments 101 Terms and Acronyms
Utility Payment Conference
Payments 101 Terms and Acronyms
October 27, 2009
Presented by
Kim B. Folks

2. Agenda Payment Organizations and Associations Payment Regulations
Payment Tenders, Terms and Acronyms
Miscellaneous Payment Information

3. Organizations & Associations
Payment
Organizations & Associations
Federal Reserve
NACHA

4. Federal Reserve Central Banking system Created in 1913
Private banking system composed of:
Board of Governors appointed by the President
Federal Open Market Committee
12 regional Banks
Member banks
Advisory councils
The Federal Reserve System is the central banking system of the United States
Was created in 1913
Is a private banking system composed of
The Board of Governors (responsible for monetary policy) in of the Federal Reserve System, appointed by the President
The Federal Open Market Committee
12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. Treasury
Each with its own nine-member board of directors;
Including numerous private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks
Various advisory councils.

5. NACHA Not-for-profit association
NACHA-The Electronic Payments Association
(formerly known as the National Automated Clearing House)
Not-for-profit association
Represents more than 11,000 financial institutions through direct memberships
Network of regional payments associations, and 650 organizations through its industry councils
Develops operating rules and business practices for:
Automated Clearing House (ACH) Network
Electronic payments in areas of Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e-checks, financial electronic data interchange (EDI), international payments, and electronic benefits services (EBS)
Not-for-profit association
Represents more than 11,000 financial institutions through direct memberships
Develops operating rules and business practices for:
Automated Clearing House (ACH) Network (not Check 21)
Electronic payments in the areas of Internet commerce, e-bill and invoice presentment, e-checks, EDI an electronic benefits services (EBS)
NACHA estimates that more than 8.5 billion consumer bills were paid via the ACH Network in 2007, including pre-authorized debits, Internet and telephone-initiated payments, and checks converted into ACH payments.

6. Payment Regulations
Red Flag
Regulation E 6

7. Electronic Funds Transfer
Act (aka Reg E)
Issued by the Board of Governors of the Federal Reserve System
Implemented in 1978
Governs electronic fund transfers from a consumer’s account
Protects consumers’ rights and sets limits on consumer liability for unauthorized payments
Imposes specific obligations to billers for recurring payments
Regulation issued by the Board of Governors of the Federal Reserve System
Authorized under the Electronic Fund Transfer Act governing electronic fund transfers from a consumer’s account
It does not apply to check drafts, credit cards, Federal wire transfers, interbank transfers or non consumer accounts
It applies to ACH, ATM and debit card transactions to or from a consumer account
Is a consumer protection statute that assures consumer rights are protected with regard to electronic transfers by making sure that transfers are:
authorized, clearly disclosed to consumers and that consumers are granted specifically defined rights with regards to error resolution and to challenging transactions they claim they did not authorize
Sets limits on consumer liability for unauthorized transactions.
Imposes specific obligations for recurring payments
Transfer must be authorized by a “writing” that is signed or similarly authenticated
Writing is on paper or displayed on a computer terminal
Telephone recording alone does not comply with “writing” requirement.
Similarly authenticated, some methodology is needed to confirm identity of person giving authorization.
Example: “Shared secrets” - Credit card number and client account number
Person obtaining the authorization must supply a copy to the consumer by mailing or in case of Internet, by generating a receipt that can be printed
When the fund transfers vary from month to month, Reg. E requires:
Notice be sent of the date and amount of the transfer at least 10 days before the scheduled date of the transfer
Consumer may authorize payments within a certain range and require notice only when the payment falls outside of the range.

8. “Red Flags” What is a Red Flag?
October 2007 FTC issued final rules
FACTA §114 and §315
Rules effective January 1, 2008
Compliance required November 1, 2008
FACTA §114 rule
requires development and implementation of written Identity Theft Prevention Program
FACTA §315 rule
requires appropriate procedures to resolve Address Discrepancies
Red Flag Categories: •
ALERTS, NOTIFICATIONS OR WARNINGS FROM A CONSUMER REPORTING AGENT
SUSPICIOUS DOCUMENTS
SUSPICIOUS PERSONAL IDENTIFYING INFORMATION
UNUSUAL USE OF OR SUSPICIOUS ACTIVITY RELATED TO A COVERED ACC

9. “Red Flags” Identification
Program must be reasonable
IDENTIFY
Relevant patterns, practices and specific forms of identifying possible red flags
DETECT
Red Flags that have been incorporated into the program
RESPOND
Appropriately to any red flag detected
UPDATE
Program periodically to capture lessons learned and changes in risks.
Organizations are required to conduct a risk assessment of their accounts and procedures
Match programs to nature of business
Program must be periodically updated
Existing fraud procedures can be included in new program
Deadline extended until November 1, 2009
For additional information go to:

10. Network = Automated Clearing House
(ACH)
The ACH network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system
Governed by the NACHA operating rules
Provides for the inter-bank clearing of electronic payments for participating depository financial institutions
The ACH network can be used to send either debits (payments) or credits (refunds)
A credit sends funds to a Receiver’s account
A debit takes funds from a Receiver’s account
We are going to concentrate from here on on the electronic payments through the ACH channel. The “railway” so to speak, is the ACH network. Processing and delivery system. The users ….see next slide
ACH - Automated Clearing House
The ACH network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system
Governed by the NACHA operating rules
Provides for the interbank clearing of electronic payments for participating depository financial institutions
The Federal Reserve and Electronic Payments Network act as:
ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries
The ACH network can be used to send either debits (payments) or credits (refunds)
A credit sends funds to a Receiver’s account
A debit takes funds from a Receiver’s account

11. ACH Participants & Definitions
Originator: The company or individual that initiates an ACH transaction according to an agreement with a Receiver.
Originating Depository Financial Institution (ODFI): The financial institution that transmits ACH files on behalf of the Originator into the ACH Network.
ACH Operator: The central clearing facility operated by a private organization or Federal Reserve Bank, on behalf of participating financial institutions, to or from which financial institutions transmit or receive ACH entries.
Receiver: A natural person (or organization) that has authorized the Originator to initiate an ACH entry (debit or credit) to the Receiver's account with the RDFI.
Receiving Depository Financial Institution (RDFI): The financial institution that receives ACH entries from the ACH Operator and posts the entries to the accounts of the depositors (Receivers).
Third-Party Processors: Processors that participate between any relationship within the ACH processing flow (i.e., correspondents, sending-point processors or payroll processors).

12. An ACH entry starts with a Receiver authorizing an Originator to issue ACH debit or credit to an account.
An Originator can be a person or a company (such as the gas company, a local cable company, or one's employer).
Depending on the ACH transaction, the Originator must receive written (ARC, POP, PPD), verbal (TEL), or electronic (WEB) authorization from the Receiver.
Written authorization constitutes a signed form giving consent on the amount, date, or even frequency of the transaction.
Verbal authorization needs to be either audio recorded or the "Originator" must send a receipt of the transaction details before or on the date of the transaction.
A WEB authorization must include a customer reading the terms of the agreement and typing or selecting some form of an "I agree" statement.
Once authorization is acquired
the Originator creates an ACH entry to be given to an Originating Depository Financial Institution (ODFI), which can be any financial institution that does ACH origination.
The ACH entry is then sent to an ACH Operator (usually the Fed) and is passed on to the Receiving Depository Financial Institution (RDFI), where the Receiver's account is issued either a credit or debit, depending on the ACH transaction.
The RDFI may reject the ACH transaction and return it to the ODFI with an appropriate reason
Insufficient funds in the account
Account holder indicated that the transaction was unauthorized
An RDFI has a prescribed amount of time in which to perform returns, ranging from 2 to 60 days from the receipt of the ACH transaction.
The majority of transactions, if going to be returned, are done so within 24 hours from midnight of the day the RDFI receives the transaction.
An ODFI receiving a return of an ACH entry may re-present the ACH entry two more times, or up to three total times, for settlement.
Again, the RDFI may reject the transaction. After which, the ODFI may no longer represent the transaction via ACH.
How ACH Works

13. Commonly used SEC codes for the Utility Industry…
Each type/method of payment in the ACH “world” has its own rules and guidelines. These are determined by the Standard Entry Code (SEC) used in the payment file.
Commonly used SEC codes for the Utility Industry…

14. PPD
TEL
ACK
ATX
DNE
WEB
RCK
ARC
COR
MTE
TRX
CIE
ENR
CBR
BOC
PBR
POS
MTE
DNE
CCD
SHR
TRC
XCK
CTX
AAAAAHHHHHHH ! ! ! !

15. ACH Transaction Terms ARC – Accounts Receivable Conversion (mail)
BOC – Back Office Conversion
ODFI – Originating Depository Financial Institution
POP – Includes check serial number
PPD – Pre-authorized Payment and Deposit (auto draft)
RCK – Return Check
RDFI – Receiving Depository Financial Institution
TEL – Phone
WEB – Internet

16. Payment Channels ARC – Mail-in payments POP – Walk-up Retail Locations
TEL – IVR (Credit card/Check) Payments
WEB – E-Lock box (Consolidators)
PPD and CCD – EFT – Auto Pay
CTX – EDI 820’s

17. Accounts Receivable Conversion
(ARC)
ARC (Accounts Receivable Conversion) - Through electronic Accounts Receivable Check (ARC) Conversion, eligible consumer checks received at a lockbox or drop box can be converted into electronic debits and processed through the ACH network.
Checks drawn on consumer accounts payable in U.S. dollars are eligible for ARC conversion.
Checks are machine read to capture the Magnetic Ink Character Recognition (MICR) information routing number, account number and check serial number along the bottom of the check
The data elements, along with the check amount, are used to create an ACH record. Typically, the biller's bank account is credited the next business day.
ARC (Accounts Receivable Conversion) - Through electronic Accounts Receivable Check (ARC) Conversion, eligible consumer checks received at a lockbox or drop box can be converted into electronic debits and processed through the ACH network.
Checks drawn on consumer accounts payable in U.S. dollars are eligible for ARC conversion.
Checks are machine read to capture the Magnetic Ink Character
Recognition (MICR) information routing number, account number and check serial number along the bottom of the check
The data elements, along with the check amount, are used to create an ACH record. Typically, the biller's bank account is credited the next business day.

18. Back Office Conversion
(BOC)
Eligible checks converted to ACH debits
Controlled environment in the back-office
Authorized signature for conversion not required
Scanning equipment installation not required 
Customer notification of conversion disclosed at the register and on documents
Checks that contain auxiliary on-us fields or those over $25,000 are ineligible for BOC
In March, 2007 Under the new BOC rules, retailers and other billers can convert eligible checks to Automated Clearing House (ACH) debits in a controlled environment in the back-office rather than at the point-of-sale or at manned bill payment locations. 
Businesses no longer have to obtain a signature authorization for conversion or have scanners installed at each checkout or bill payment location. 
A business needs only to disclose to its customers that their check will be converted into electronic transactions by means of a notice at the register and on a document that customers take with them, such as the back of a receipt.  Checks that contain auxiliary on-us fields or those over $25,000 are ineligible for BOC

19. (POP) Point of Purchase Location where payment takes place
Purchaser and seller are both present
Information from the consumer's check
is used to create the electronic transaction
Is the location where payment takes place and where the purchaser and seller are both present and
Information from the consumer's check is used to create the electronic transaction

20. Internet Payments (WEB)
One-time or recurring
Should include Terms & Conditions
Privacy statement
Appropriate authorization language
Receipts / confirmations delivered electronically upon completion of payment
One-time or recurring
Should include Terms & Conditions
Privacy statement
Appropriate authorization language
Receipts / confirmations delivered electronically upon completion of payment

21. Internal Voice Response Payments
(IVR/TEL)
Can be either PPD or TEL Entry
Requires written authorization if treated as PPD
One-time or recurring for PPD
If no written authorization on file then can complete only per TEL rules.
This requires written receipt or tape recording (actual oral authorization)
TEL = one-time payment
Setting up PPD Payments via IVR is complex, normally IVR should be a TEL entry
Can be either PPD or TEL Entry
Requires written authorization if treated as PPD
One-time or recurring for PPD
If no written authorization on file then can complete only per TEL rules. This requires written receipt or tape recording (actual oral authorization)
TEL = one-time payment
Setting up PPD Payments via IVR is complex, normally IVR should be a TEL entry

22. Payment Terms and Acronyms
EDI
Internet payments
IRD
IVR
M-payments
MICR
NOC
Non-contracted
P2P
Unauthorized
E-Lockbox
EBIDS
ACH
Authorized
Check21
Contracted
CTX
EBPP
Electronic Check Conversion 22

23. Corporate Trade Exchange (CTX)
The CTX payment format combines payment information and a variable length record (called an addendum record)
ACH format which allows for up to 9,999 addenda records with approximately 800,000 characters
Allows multiple payments to creditors or billers in a single transfer of funds
Is a corporate ACH format which allows for up to 9,999 addenda records with approximately 800,000 characters.
The CTX payment format combines payment information and a variable length record (called an addendum record) with related information, such as invoice numbers, allowing multiple payments to creditors or billers in a single transfer of funds.

24. Image Replacement Document
(IRD)
Is the legal equivalent of the original check if it has the following requirements:
Accurately represents all information on the front and back of the original check
Contain the legend “This is a legal copy of your check. You can use it the same way you would use the original check.”
Must conform to industry standards applicable to the MICR line
Must conform to the industry standard for the physical characteristics of checks (size, paper, etc.)
The legal equivalent of the original check

25. Electronic Data Interchange
(EDI)
A set of standards for structuring information electronically
Technical conversation between two entities, either internal or external
Information is the same displayed on paper documents
Transmission method is agreed to by the sender and recipient
Is a set of standards for structuring information that is to be electronically exchanged between and within businesses, organizations, government entities and other groups.
Is considered to be a technical representation of a business conversation between two entities, either internal or external.
Documents generally contain the same information that would normally be found in a paper document used for the same organizational function.
Standards were designed to be independent of communication and software technologies.
Can be transmitted using any methodology agreed to by the sender and recipient.

26. Pre-Authorized Payment
& Deposit
(PPD)
Notice of Change
(NOC)
Used to credit or debit a consumer account. (Payroll direct deposits and preauthorized bill payments)
Information sent by an RDFI to notify the ODFI that previously valid information for a receiver has become outdated or that information contained in a pre-notification is erroneous
Return Check
(RCK)
A physical check that was presented but returned because of insufficient funds may be represented as an ACH entry 26

27. Electronic Bill Presentment & Payment
(EBPP)
Electronic bill presentment and payment (EBPP) is the process that enables bills to be created, delivered and paid over the Internet.
The service has applications for many industries, from financial service providers to telecommunications and utilities.
Fast
Secure
Environmentally responsible
Advantages
Check your current and past payment activities
View and pay your bill on line
Set up your bill to be paid automatically
Schedule payments for future dates
Free and convenient
Good for environment, saves paper and resources
Can discontinue paper for cost savings of bill creation
Notification when ready or payment needed
Provide same communication as paper inserts

28. Mobile Payment (M-payment) Person To Person (P2P)
A point-of-sale (POS) payment made through a mobile device; cell phone, Smart phone or personal digital assistant (PDA)
A wireless or text enabled device can pay a variety of bills at anytime without interacting with anyone.
Ability to transfer monies with a mobile phone from person-to-person (P2P)
Account number and personal identification number (PIN) for authorization purposes required
Is a point-of-sale (POS) payment made through a mobile device; cell phone, Smartphone or personal digital assistant (PDA)
A person with a wireless or text enabled device can pay a variety of bills, including a utility bill, at anytime without interacting with anyone.
A customer would enroll for the service and select the biller(s) they want to pay
A customer is usually provided with an account number and personal identification number (PIN) for authorization purposes.

29. Electronic Check Conversion
A process in which your check is used as a source of information for the check number, your account number, and the number that identifies your financial institution.
Transaction types include:
ARC – Accounts Receivable Conversion
BOC – Back Office Conversion
POP – Point of Purchase
Benefits
Privacy
Secure and Protected
Information of descriptive statement
Environmental
is a process in which your check is used as a source of information for the check number, your account number, and the number that identifies your financial institution.
The information is used to make a one-time electronic payment from your account- an electronic funds transfer.
The check itself is not the method of payment.
Transaction types include
ARC – Accounts Receivable Conversion
BOC – Back Office Conversion
POP – Point of Purchase
Privacy – personal information is seen by fewer people when a check is turned into an electronic payment.
Secure and protected – customers have more protection with electronic payments than with paper checks. ARC transactions are governed by federal laws that apply to electronic banking
(Electronic Funds Transfer Act and Regulation E)
Rules indicate customer has 60 days from the date a bank statement was sent, to notify your bank of a problem. The bank then has up to 45 days to investigate.
Information – the name of the originating company and a descriptive statement appear on your bank statement rather than an entry that just says “check”.
This helps in reconciling and balancing your account and an account statement that includes this information serves as proof of payment.
Environmental - there is an environmental impact to using paper checks. In addition to the natural resources used to manufacture/print paper checks, processing the checks relies heavily on our nation's transportation systems; including trucks and airplanes.

30. Check 21
Passed in Oct 2004
Produces a digital image by scanning both sides of a paper check
If a paper document is needed, a photo-reduced copy of the original checks is created (“substitute check” or IRD (Image Replacement Document)
Check21 is represented by:
IRD – Image Replacement Document
POP – Point of Purchase
The Check Clearing for the 21st Century Act (Check 21) was signed into law
on October 28, 2003 and became effective on October 28, 2004
Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation
The law facilitates check truncation by creating a new negotiable instrument called a substitute check which permits banks to truncate original checks to banks that want to continue receiving paper checks
A substitute check is the legal equivalent of the original check and includes all the information contained on the original check
The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the Act to create substitute checks
Lockbox
A service offered by banks to companies where the company receives payments by mail to a post office box and:
The amounts must be large in order for the value obtained to exceed the cost of the service.
The bank picks up the payments
Deposits them into the company's account multiple times
Notifies the company of the deposit
It enables the company to put the money to work as soon as it's received.

31. Walk-in Bill Payment In person payment Authorized or unauthorized
Utility office location or 3rd party vendor relationship
Receipt issued for payment transaction
Data terminal equipment
Kiosk – customer initiated
Terminal – store or cashier initiated
Potential 'real-time' payment posting
Customers are able to pay in person at locations that accept and process utility payments
The agent may or may not be authorized or unauthorized dependant on the utility and or 3rd party vendor relationship
Customers generally receive a receipt for their payment
A cashier may swipe a bill stub or key in the billing details into a data terminal
A receipt with payment transaction information is provided to the customer
Depending on the utility and their processing capabilities, some authorized pay agents may offer 'real-time' payment posting. Walk-in bill payment can be by:
Kiosk – customer initiated
Terminal – store or cashier initiated

32. Authorized or Contracted Un-Authorized or Non-Contracted
An official contract/agreement with a 3rd party payment vendor
The vendor authorize business or retailer to accept payments for the utility
Cash, Check and Money Order tenders accepted
Advertised by utility
No official contract/agreement with 3rd party payment vendor
A business or retailer accepts biller/utility payments without contractual agreement
Typically only accept cash as tender
Usually (business) day delay of payment to biller
Consumer funded convenience fee of $1 - $5
A utility (or its contractor) have entered into an official contract with a payment vendor
The vendor is authorized to accept payments for the utility
The agent usually is able to accept cash, check and money order tenders
The utility usually advertises or notifies their customers about the (authorized) payment options available to their customers to use
A business or retailer that accepts biller/utility payments and the utility (or its contractor) have NOT entered into an official contract
Typically an un-authorized pay agent will only accept cash as tender
There is usually a (business) day delay from the time a payment is accepted and until it's actually received and posted by the biller
The consumer will pay a convenience fee of $1 - $5 for the ability to generate their payment. 32

33. Customer Payment Convenience
Channels
Methods
Mail In
Frequency
Credit / Debit Card
Customer
In Person
ACH
One-Time
eCheck
Web
Scheduled
This shift is largely the result of consumers’ desire for payment convenience and flexibility – both in terms of the channels and settlement methods customers use to make payments.
Check
Recurring
Assisted Phone
Cash
Touchtone Phone

34. Questions?

35. Payment Vendors
Visit the Utility Payment Conference booths to learn more about the services available to you from our supporting vendors

36. Tampa Electric Company 813-275-3845 kbfolks@tecoenergy.com
Thank You
Contact me:
Kim B. Folks
Tampa Electric Company