ACH: Now and Next

Andrée E. Ortega, AAP, CTP

VP, ACH Product Manager, Wells Fargo

April 19 & 20, 2018

© 2018 Wells Fargo Bank, N.A. All rights reserved. For public use.

1

Recent changes to the NACHA Rules

Session overview

Faster Payments:

Same Day ACH / Real Time Payments1

2

What’s next?3

Faster Payments

3

Faster payments definition

Payments in which the transmission of the payment message and the availability of the final funds to the payee occur in real time or near-real time and on or as near to a 24-hour and 7-day (24/7) basis as possible.

Source: “Faster Payments—Enhancing the peed and availability of retail payments”, Committee on Payments and Market Infrastructure, Bank for International Settlement, November 2016

Countries with 24/7 retail RTP systems that are live or in development

• Mexico – SPEI (2004)• Chile – TEF (2008)• Brazil – SITRAF (2002)• Sweden – BiR (2012)• Denmark – Nets (2014)• U.K. – Faster Payments (2008) • Poland – Express ELIXIR (2012) • Nigeria – NIP (2011)• South Africa – RTC (2006)• India – IMPS (2010)• South Korea – HOFINET(2001)• Singapore – FAST (2014)• Australia – NPP (2017)• United States – RTP (2017 )• EU – SEPA Instant (2017)• Colombia – TBD • Thailand – TBD

Systems in Development / Public Consultation

Current 24/7 Retail RTP Systems

MEXICOSPEI

UKFaster Payments

AUSTRALIANew Payments Platform

POLANDExpress ELIXIR

SWEDEN

BiR

SINGAPOREFast and Secure Transfers

SOUTH KOREA HOFINET

INDIA

IMPS

SOUTH AFRICA

RTC

NIGERIANIP

BRAZILSITRAF

CHILETEF

UNITED STATES

RTP

EUSEPA Instant

DENMARKNETS

COLOMBIATBD

THAILANDTBD

Faster payments – a global trend payments – A global trend

Source: The Clearing House, 2016

5

Drivers for faster payments

Advances in information technology including the spread of advanced mobile communication devices

Altered end user expectations for speedier and more convenient payments

Action by authorities including some central banks to improve payment system capabilities

Same Day ACH

77

NACHA Same Day ACH service

Approved May 19, 2015

Mandatory for all receiving depository financial institutions

Not all transactions will be eligible for Same Day ACH

Will be implemented over 3 years

– September 2016 (Phase 1): Credits

– September 2017 (Phase 2): Debits

– March 2018 (Phase 3): 5:00 p.m. funds availability

Source: 2018 NACHA Operating Rules & Guidelines

88

What transactions are eligible for

Same Day ACH?

Credits and debits

Non-monetary transactions

Returns

On-Us transactions more than $25,000

Transactions greater than $25,000

International transactions (IAT and domestic IAT)

Eligible Not eligible

99

A phased approach

September 23, 2016

Phase 1

Same Day credits

Wells Fargo same dayprocessing deadlines at 8:00 a.m. and noon Central Time

Funds available by the end of the processing day

September 15, 2017

Phase 2

Same Day debits

Wells Fargo same dayprocessing deadlines at 8:00 a.m. and noon Central Time

Funds available by the end of the processing day

March 16, 2018

Phase 3

New credit fundsavailability time

Wells Fargo same dayprocessing deadlines at 8:00 a.m. and noon Central Time

Funds available by 5 p.m. RDFI local time

The Clearing House (TCH)

Real Time Payments Service

11

RTP distinctive features

Payment Status

Immediate notification of successful transfer to end users, providing certainty for both senders and receivers

Payment Certainty

Receivers have certainty that payments will not be reversed or revoked

Credit Push Only

Request for Payment

To support funds request, e-invoicing or e-billing

Global Ready

Immediate Availability of Funds

Fulfillment Messaging

Ability to provide confirmation by the receiver that they have received funds, combined with fulfillment information

Receivers have funds available in real-time 24/7/365

Customers send payments directly from their existing accounts – complete transparency, no pending payments

ISO 20022 is a global standard that supports the needs of multi-national customers and will enable cross-border payments in the near future

Complete AR/AP Messaging

Ability to link multiple messages associated with the same transaction through a common reference. Allows development of Value added services based on extensible data

1212

RTP use case: just-in-time invoicing and payment

Large Supplier

Small Business Buyer

Payment

Request for Payment (with link to invoice)

E-invoice Product

Cash Management Workstation

Online Banking Payments

Real-time Receivables

Logistics Integration Mobile Banking

Alert

Receiver Confirm (link to shipping info)

Small Business Banking

Treasury Management

1313

RTP use case: bill payment reminder and

payment

BillerConsumer Bill Payer

Payment

Electronic Bill (Request for Payment)E-billing

Real-time Receivables

Confirmation

Consumer Mobile

Banking

Treasury Management

Mobile Presentment –

“You have a new bill”

“Pay Now” or “Schedule Payment”

“Payment received for

account # xxxx”

Recent changes to the

NACHA Rules

15

Third-Party Sender defined

Article Eight, Section 8.106, “Third-Party Sender”

– a type of Third-Party Service Provider that acts as an intermediary in Transmitting Entries between an Originator and an ODFI, including through Direct Access, and acts on behalf of an Originator or another Third-Party Sender. A Third-Party Sender must have an Origination Agreement with the ODFI of the Entry. A Third-Party Sender is never the Originator for Entries it Transmits on behalf of another Organization. However, a Third-Party Sender of Entries may also be an Originator of other Entries in its own right.

Source: 2018 NACHA Operating Rules & Guidelines

16

Third-Party Sender rule

Approved August 18, 2016

Requires every Originating Depository Financial Institution (ODFI) to either register its Third-Party Sender (TPS) customer(s) with NACHA, or provide to NACHA a statement that it has no such customers

Effective September 29, 2017

Implementation period ran through March 1, 2018

17

What information is required for Third-Party

Sender registration?

ODFI’s name and contact information

Name and principal business location of the TPS

ODFI’s routing numbers used in ACH transactions originated for the TPS

Company Identification(s) of the TPS

DBA names, taxpayer ID(s), street address(es) and website address(es) of the TPS

Name and contact information for TPS’s contact person

Names and titles of the TPS’s principals

Approximate number of Originators for which the TPS transmits entries

Statement as to whether the TPS transmits debit entries, credit entries or both

Initial Registration Supplemental Registration

What's next?

19

Same Day ACH expansion

Add a third Same Day ACH processing window that expands access to later in the day

Provide faster funds availability to receivers of both Same Day and non-Same Day ACH credits

Raise the per-transaction dollar limit on Same Day ACH transactions to $100,000

Source: 2018 NACHA Operating Rules & Guidelines

20

Weekend and holiday processing

Explore the industry’s interest in ACH processing on weekends and holidays

Potential benefits and impacts from the availability of ACH processing on weekends and holidays

Feasibility of exchanging ACH transactions on weekend and holidays

21

ACH message entries

Exchange non-monetary messages between financial institutions

– 2017 request for information - “DFI to DFI Messaging”

– Request for comment due April 27, 2018

Financial Institutions would use new non-monetary ACH Message Entries with a new SEC Code of “MSG”

– Record of Authorization

– Source Document (converted check) copy

– Written Statement of Unauthorized Debit copy

– ODFI-requested returns

– Additional information related to an Originator

– Trace Request

222222

Questions?

23

Additional resources and information

NACHA linkhttps://www.nacha.org/news/nacha-announces-approval-rule-establishes-third-party-sender-registration-requirements

The information and opinions expressed in this document or for informational use only and are not intended to be comprehensive, nor do they constitute legal advice. Please seek legal or other professional advice before acting or relying on any of the content in this presentation.

242424

Appendix

2525

Same Day ACH business and consumer

use cases

Emergency payrolls

Hourly workers

Insurance claims

Refunds

B2C

Vendor payments

Tax payments

Payments to release goods or provide services

B2B

Consumers can make bill payments on their due dates

Faster credit for late payments

C2B

Consumers can move money between accounts

Person to Person payments

C2C

2626

Same Day ACH versus Wire Transfer

Feature ACH Wire

Normal useLow value/high volume transactions

High value/low volume transactions

Processing Batch Individual transactions

Transaction limit $25,000 $9,999,999,999.99

Network delivery Twice a day Real time

Funds availability 5:00 pm RDFI local time Immediate

Transaction costLow dollars (plus transmission fee)

Higher dollars

Typical deadlines 10:00 a.m. Pacific Time 2:30 p.m. Pacific Time

Remittance information

CTX 9,999 addenda records (799,920 characters)

Up to 9,000 characters (may require special processing)

2727

Getting started with Same Day ACH as an

originator with Wells Fargo

Opt-in with your ODFI for the premium service

Use same day effective date in Batch Header records

Meet origination deadlines

– 8:00 am Central Time

– Noon Central Time

Change your ACH files

Re-test your ACH files

Update agreements

What has to happen? What you don’t need to do

2828

Preparing for Same Day ACH as a receiver

Review when incoming ACH information is currently received to determine if timing needs to change to capture Same Day ACH

Provide vendors/trading partners with account restrictions related to Same Day ACH

− Receiving account is a Controlled Disbursement account so ACH debits should not be sent on a same day basis and underfund the account

− If funds are needed immediately (i.e. to close a deal, release goods, etc.) a wire transfer should be sent instead of a same day ACH credit

Review receivables updating procedures to ensure funds are shown as having been received on the actual effective date (especially if discounts are given/late fees assessed)

Determine if you want to offer consumers the option to pay their bills on a same day basis, most likely a TEL or WEB initiated entry

Key Considerations

2929

Same Day ACH Final considerations

Must update records to reflect customer’s payment as having been received as of date no later than Settlement date

Rules allow a reasonable amount of time to update records

Do you want to offer options for same day to your consumer customers

Must inform/remind receiver of same day transaction

RDFIs will not be required to return transactions on the same day they are received - current Return Rules apply

Returns will be permitted to be processed through the two new same day windows

Are there IT concerns, such as assigning of effective date, using same day for some but not all batches, timing, etc.

As a receiver… As an originator…

3030

Third-Party Sender initial registration

ODFIs required to provide initial, basic registration information within 30 days of originating the first ACH entry for their customer

When an ODFI becomes aware of an unregistered TPS, the Rule provides a 10 day grace period to register that customer

ODFIs required to update registration information within 45 days following any change to the information previously provided, including whether the TPS relationship has ended

In order for TPS’s to be aware of these requirements, ODFI’s will need to notify their TPS customers of the rule and how it applies to them

3131

Third-Party Sender initial registration

Registration requirement applies to:

– TPS that are ODFI’s direct customers

– TPS that are direct customers of the first TPS, otherwise known as “nested” TPS

Obligates TPS to provide their ODFIs, upon request, with any registration information needed

Requires TPS’s to disclose to their ODFIs any other TPS’s for which they transmit ACH entries

3232

Third-Party Sender supplemental registration

Upon receiving written request from NACHA, an ODFI will be required to provide the supplemental registration information within 10 banking days

NACHA will be authorized to request this information regarding risk events, which the Rule defines as:

“cases in which it (NACHA) believes that a Third-Party Sender in the ACH Network poses an escalated risk of (i) financial loss to one or more Participating DFIs, Receivers or Originators, (ii) violation of the Rules or applicable Legal Requirements, or (iii) excessive Returns.”

3333

Third-Party Sender registration participants

May incur direct costs to assemble and report required information and update registration information on a periodic basis

Should already have record of existing TPS customers

May require enhancements to their customer onboarding and monitoring processes

ODFIs with no TPS customers must provide NACHA with:

– ODFI’s name

– name, title, telephone number, email address, and street address for a contact person at the ODFI

– statement acknowledging that the ODFI has no TPS’s

Audit requirements

Originating Depository Financial Institutions

3434

Third-Party Sender registration participants

May incur direct costs to assemble and provide required information to their ODFIs

Upon ODFI’s request, TPS’s must provide any information the ODFI reasonably deems necessary to identify each Originator for which the TPS transmits entries

– Must be provided to the ODFI within two banking days of receipt of the ODFI’s request

– May differ from ODFI to ODFI

Must disclose to the ODFI any other TPS for which it transmits entries to the ODFI, prior to transmitting entries for the other TPS

Audit requirements

Third-Party Senders

3535

Third-Party Sender registration participants

Not expected to incur any direct costs associated with Third-Party Sender Registration

Originators, ACH Operators, and RDFI’s

3636

Third-Party Sender rule enforcement

NACHA could initiate a Rules enforcement proceeding if it believes that an ODFI has failed to register a Third-Party Sender customer

NACHA recognizes that there might be situations in which a NACHA risk investigation identifies an entity as a Third-Party Sender, but its ODFI is not aware that the entity is a Third-Party Sender that should be registered

– NACHA’s risk investigation staff will advise the ODFI, in writing, that it must register the Third-Party Sender within the 10 banking day grace period

– Failure of the ODFI to register the Third-Party Sender could then result in the initiation of a Rules enforcement proceeding