ACH : November 2006
ISTS Confidential ACH AUTOMATED CLEARING HOUSE Balwan Singh
What is ACH Network? : Create | Enable | Optimize : Retail and Payment Technology What is ACH Network? ACH = Automated Clearing House
ACH is an electronic network for financial transactions among financial institutions & processes large volumes of both credit and debit transactions.
The ACH Network is a batch-oriented electronic processing system (not online, not real time).
Transactions are stored during the day and sent to the network in batches, usually in the afternoon and/or evening.
Transmits transactions on a schedule.
Has been operational since the early 1972.
History of ACH : Create | Enable | Optimize : Retail and Payment Technology History of ACH The Automated Clearing House was first established in California in1972,by a joint effort between banks and the regional Federal Reserve to facilitate paperless check transactions.
A the success of first network, more ACH associations were established .
In 2007, this network processed an estimated 18 billion ACH transactions with a total value of $30 trillion.
Slide 4 : Create | Enable | Optimize : Retail and Payment Technology Why ACH ? To Save Money and Time
Offering a New Payment
To Accelerate the Cash Flow
ACH/EFT Payment is reliable, accurate, on time and confidential.
ACH Growth : Create | Enable | Optimize : Retail and Payment Technology ACH Growth Transact-ion in
millions ACH Transactions value in 2007
$30.3 trillion
Slide 6 : Create | Enable | Optimize : Retail and Payment Technology ACH Operators Electronic Payment Network (EPN)
-About 40% of total is transferred using this.
-Is a privately owned operator.
Federal Reserve Bank
-60% of total is transferred using this.
-Is a govt. owned operator.
Slide 7 : Create | Enable | Optimize : Retail and Payment Technology NACHA The Electronic Payments Association National Automated Clearing House Association, is an organization that develops electronic solutions to improve the ACH payment system.
The National Automated Clearing House Association was established in1974 to coordinate efforts to develop a nationwide ACH network,ultimately succeed in 1978, when all ACH networks nationwide were electronically linked.
NACHA governs more than 12,000 financialinstitutions, 650 industry councils, and a network of 19 regional ACH associations.
NACHA primary functions: : Create | Enable | Optimize : Retail and Payment Technology NACHA primary functions: Develops the rules for the ACH Network.
Enforces the rules.
Serves as national ACH trade association.
Develops new ACH services.
Provides education, marketing, research services.
Governs councils open to financial institutions, retailers, vendors, processors, associations, regulators, networks, others.
Slide 9 : Create | Enable | Optimize : Retail and Payment Technology Who Participates in the ACH Network? Originator: The organization or individual who initiates a transaction (credit or debit).
Originating Depository Financial Institution (ODFI): The financial institution - bank, savings & loan, credit union - that transmits transactions into the network.
ACH Operator: Central clearing facility.
Receiving Depository Financial Institution (RDFI): The financial institution - bank, savings and loan, credit union - that receives the transactions from the network.
Receiver: The organization or individual who receives the transaction (credit or debit).
Slide 10 : Create | Enable | Optimize : Retail and Payment Technology ACH PROCESS
Slide 11 : Create | Enable | Optimize : Retail and Payment Technology What are Common Uses of ACH Network? Credits Direct deposit of pay
Direct deposit of government benefits, such as Social Security
Direct deposit of investment proceeds or dividends
Corporate-to-corporate payments
Pensions
Tax payments
Slide 12 : Create | Enable | Optimize : Retail and Payment Technology What are Common Uses of ACH Network?Debits Student loan payments
Utility payments
Corporate-to-corporate payments
Insurance payments
Purchases at the point of sale
Purchases over the telephone or the Internet
Bill payments
ACH Usages : Create | Enable | Optimize : Retail and Payment Technology ACH Usages
Slide 14 : Create | Enable | Optimize : Retail and Payment Technology Process Transaction Methods PC or Networked Software
Internet Virtual Terminal
Batch Uploading
Slide 15 : Create | Enable | Optimize : Retail and Payment Technology Standard Entry Codes Three letter code, identifies the nature of ACH entry
Examples
POP
Point-of-Purchase. A check presented in-person to a merchant for purchase is presented as an ACH entry instead of a physical check.
WEB
Web Initiated-Entry. Electronic authorization through the Internet to create an ACH entry
TEL
Telephone Initiated-Entry. Verbal authorization by telephone to issue an ACH entry such as checks by phone.
Slide 16 : Create | Enable | Optimize : Retail and Payment Technology POP Transaction Flow Check presented at POS MICR Information Captured Authorization Signed by Consumer Check, receipt handed back to consumer Electronic
Paper
Slide 17 : Create | Enable | Optimize : Retail and Payment Technology TEL Transaction Flow Consumer Account Debited
Or
Return Items to ODFI Merchant Deposit
Debit Merchant Account/
Update Merchant
Authorization System Merchant Collection Process ODFI RDFI Customer initiates call (unless there is an established relationship) and agrees to pay for goods and services Merchant sends debit through ACH Network (possibly through a processor)
Slide 18 : Create | Enable | Optimize : Retail and Payment Technology WEB Transaction Flow Consumer Account Debited
Or
Return Items to ODFI Merchant Deposit
Debit Merchant Account/
Update Merchant
Authorization System Merchant Collection Process ODFI RDFI Merchant sends debit through ACH Network (possibly through a processor) Consumer purchases goods or services on a website
Problems with ACH : Create | Enable | Optimize : Retail and Payment Technology Problems with ACH RDFI has only 60 days from the date of settlement to return an unauthorized debit.
The consumer has 60 days upon notification to dispute a transaction in his
statement under Regulation E.
It is possible that the 60-day period allowed for ACH return would expire even before the consumer's 60-day protection (under Regulation E) would expire.
Problems with ACH : Create | Enable | Optimize : Retail and Payment Technology Problems with ACH Another problem deals with compliance where the merchant causes an ODFI to issue an ARC or POP entry (for check presentment).
Then fails to comply with the handling of the physical check and presents the physical check for payment as well.
This causes a double-debit against a consumer account.
Slide 21 : Create | Enable | Optimize : Retail and Payment Technology Thank You