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Logo Same Day ACH Is Now A Reality Sims Propst, SVP Park Sterling Bank Gary B. Nesbitt, AAP GNesbitt Consulting
Distinctive Franchise with Attractive Footprint A “Regional Community Bank” • • $3. 2 billion in total assets 551 employees 57 branches States – – • North Carolina South Carolina Georgia Virginia Major Growth Markets – – – – Charlotte, NC Wilmington, NC Charleston, SC Greenville, SC Raleigh, NC Rock Hill, SC Richmond, VA
GNesbitt Consulting • Independent consulting firm specializing in banking and payment activities and issues. • Our goal is to help financial institutions and companies understand comply with the myriad payment rules and regulations that govern the payments landscape. • We help organizations understand mitigate the risks associated with participating in the various payment systems. • We help organizations establish payment programs that are efficient, effective and compliant with all appropriate rules and regulations.
Topics • • FRB Payment Study and Trends NACHA Stats Same Day ACH Payments Fraud and Control Study
2013 Federal Reserve Payments Study
2013 Federal Reserve Payments Study This is the fifth triennial edition of the Federal Reserve Payments Study (2000, 2003, 2006, 2009, 2012 ). In partnership with Mc. Kinsey and Company, Federal Reserve Retail Payments Office, and the Federal Reserve Board of Governors Study is comprised of three surveys- ▪ The depository institution study (1, 312 respondents) ▪ The electronic payment study (94 respondents) ▪ The check sample study (3, 500 checks) To a certain extent, the results of this study may have been impacted modestly by the state of the economy in 2009 -2010. The study can be found under the research tab at www. frbservices. org under the News and Communications/Research tab. Next study will be conducted this year using 2015 data. Results are usually released in 4 th Quarter. SOURCE: 2013 Federal Reserve Payments Study
ACH and card types grew while checks declined… Trends in noncash payments by number and type of transaction Billions Credit, debit, and prepaid card trends include general-purpose and private-label payments. SOURCE: 2013 Federal Reserve Payments Study
Check lost market share in volume to cards… 2012 Volume 2009 Volume Checks (paid); 22% ACH; 18% Checks (paid); 15% Prepaid card*; 7% Prepaid card*; 5% Debit card; 35% Figures may not add due to rounding. *Prepaid includes Electronic Benefits Transfer (EBT). SOURCE: 2010 & 2013 Federal Reserve Payments Study Credit card; 20% Debit card; 38% ACH; 18% Credit card; 21%
Number of checks written declined 8. 8% per year from 2009 to 2012… Number of checks written, paid, or converted to ACH Billions CAGR* Figures may not add due to rounding. *CAGR is compound annual growth rate. SOURCE: 2013 Federal Reserve Payments Study
ACH Network Volume Statistics 2015 ACH Volume Grows to Over 24 Billion § The number of Automated Clearing House (ACH) Network payments exceeded 24 billion in 2015 and transferred over $4 trillion. That was 1. 3 billion more items than in 2014. § Increase of 4. 6 percent compared to a year ago, according to NACHA. The number of ACH payments transmitted via the ACH Operators was more than 18. 3 billion transactions. Of these, there were 10. 6 billion debits and 7. 7 billion credits. Volume transmitted via the ACH Operators includes commercial inter-bank and Federal government transactions, but not “on-us” transactions. § The overall figure of nearly 24 billion includes on-us transactions self-reported by financial institutions. SOURCE: www. nacha. org
ACH Rule Changes • Rules Change Effective Sep 23, 2016 – Same Day ACH Phase I • Rules Change Effective Oct 3, 2016 – Improving Network Quality – Unauthorized Entry Fee
Same Day ACH Currently, most ACH payments are settled on the next business day. There are many uses of ACH payments, however, for which businesses and consumers could benefit from same-day processing. This NACHA rule change will enable ACH Originators that desire same-day processing the option to send same-day ACH transactions to accounts at any receiving financial institution (RDFI). The Rule includes a “Same Day Fee” on each Same Day ACH transaction so that RDFIs would recover, on average, their costs for enabling and supporting Same Day ACH. The Rule will enable the option for same-day ACH payments through new ACH Network functionality, without affecting existing ACH schedules and capabilities: Originating financial institutions (ODFIs) will be able to submit files of same-day ACH payments through two new clearing windows provided by the ACH Operators (Note: The actual ACH Operator schedules are not determined by the NACHA Operating Rules. ): • A morning submission deadline at 10: 30 AM ET, with settlement occurring at 1: 00 PM. • An afternoon submission deadline at 2: 45 PM ET, with settlement occurring at 5: 00 PM.
Same Day ACH • Virtually all types of ACH payments, including both credits and debits, will be eligible for same-day processing. Only international transactions (IATs) and high-value transactions above $25, 000 will not be eligible. Eligible transactions account for approximately 99 percent of current ACH Network volume. • All RDFIs will be required to receive same-day ACH payments, thereby giving ODFIs and Originators the certainty of being able to send same-day ACH payments to accounts at all RDFIs. • RDFIs will be mandated to make funds available from same day ACH credits (such as payroll Direct Deposits) to their depositors by 5: 00 PM at the RDFI’s local time.
ACH versus Wire Transfer Feature ACH Wire Normal Use Low value / high volume transactions High value / low volume transactions Processing Batch Individual transaction Network delivery One to several times per day Real time Availability Next day Immediate Cost Pennies Dollars 9: 00 p. m. Eastern Time or later 5: 30 p. m. Eastern Time CTX 9, 999 addenda records (799, 920 characters) Up to 9, 000 characters (may require special processing) Typical deadlines Remittance information
Past: Same Day ACH within a Financial Institution • Some banks have offered Same Day ACH for Years: o Only between accounts at their own financial institution (cash concentration) o As soon as the transaction is sent through the ACH network (Federal Reserve or Electronic Payments Network), the effective date is changed to next day o Typically priced at a premium o Split settlement issues
Present: Fed Same Day ACH Service (August, 2010) • 2: 00 p. m. Eastern Time input deadline for Same Day availability • Only certain consumer debit transactions eligible o ARC o POP o BOC o RCK o WEB o TEL • Service did not address ACH credit transactions or Business to Business (B 2 B) transactions • Service based on voluntary financial institution participation o Both originating depository financial institution and receiving depository financial institution must opt in
Major Use Cases for Same Day ACH 10 Primary Use Cases 63 Total Sub-Us e Cases This chart shows how the 10 major use cases are categorized according to each of the counterparties to the transaction. American Payroll Association very supportive of proposal C 2 B • Bill Pay • e. Commerce • POS check conversion • Merchant debit • Collections B 2 B • Multiple uses, such as trading partner payments, due-date and late invoice payments C 2 C • Person-to-Person • Account-to-Account B 2 C • Payroll • Insurance, refunds
Business and Consumer Uses Payroll B 2 B Emergency payrolls Business to Business payments Hourly workers Tax payments Payments to release goods or provide services Expedited bill payments Consumers can make bill payments on their due dates Faster credit for late payments Account to account transfers Consumers can move money between accounts Faster credit for transfers
Business and Consumer Uses E-Commerce Payments Vendor payments Speed collection and availability of funds Check Conversion ACH collection of checks Faster funds availability Collections Business to Consumer Collection of funds Payments to consumers, requiring faster movement of funds Reduce exposure Increase likelihood of collection Insurance claims Refunds
Business and Consumer Uses Person-to-Person Payments between consumer accounts Financial support Child support Merchant Debit POS payments Speed collection of funds
Implementation Timeframe • The three implementation phases are proposed to become effective as follows: Phase 1 – September 23, 2016; Phase 2 – September 15, 2017; Phase 3 – March 16, 2018. • Why is the implementation date so far in future? All banks & credit unions need time to make necessary changes to systems and processes. • https: //www. nacha. org/rules/same-day-ach-movingpayments-faster
Phased Approach to New ACH Network Functionality This chart shows how the new ACH Network functionality will be implemented across three implementation phases. Functionality Phase 1 Phase 2 Phase 3 Transaction Eligibility Credits only Credits and debits Same-Day ACH Processing Windows 3 10: 00 am ET and 3: 00 pm ET New Settlement Time(s) 5: 00 pm ET 12: 00 noon ET and 5: 00 pm ET ACH Credit Funds Availability End of RDFI’s processing day 5: 00 pm RDFI local time ($25, 000 limit; IAT not eligible) 3 – Times shown represent the approximate times for an ODFI’s deadlines to transmit same-day ACH transactions an ACH Operator would make available/distribute ACH files to RDFIs approximately 30 -60 minutes later.
Same Day ACH Fees • Interbank fee to be paid from the originating depository financial institution (ODFI) to the receiving depository financial institution (RDFI) o $. 052 – Fee to be reviewed after five, eight and ten years of operation • Most banks are likely to assess a fee to their customers for originating Same Day ACH : o To cover the interbank fee o To reflect the premium service of processing ACH transactions on a same day basis
Returns Processing Time frame for returns will not change: o Corporate and most consumer returns deadline is opening of business the second business day after the original settlement date o Electronic returns (RCK) entries return deadline is midnight the second business day after the original settlement date o Unauthorized consumer returns deadline is 60 calendar days after the original settlement date So what changes? o Depository financial institutions will be able to process returns through any clearing and settlement schedule offered by the ACH operators, including Same Day Settlement Schedule
Things you need to know from your Financial Institution • How is your financial institution going to “identify” Same Day ACH? • Do you need to “notify” the financial institution of your intent to process Same Day ACH transactions? • What will the financial institution “charge” for the Same Day ACH service? • What will their deadlines be for Same Day ACH? • Will exception processing deadlines change? • Are you a prefunding customer? Will there be an additional impact to you?
Things you need to know from your Financial Institution • In What order are transactions posted to your account? o NACHA recommends: § Making funds from next day ACH credits available before posting same day debits § Making same day credits available to fund same day debits
Internal Considerations • Review potential use cases • System considerations o How does your system assign effective dates? o Does it have the ability to assign same day to some, but not all? o Can your system differentiate between “eligible” and “non-eligible” items? • Do you need to make changes to your existing ACH file? • Will file delivery times need to change? • Will you need to send additional files each day? • Will this be cost effective? • Do you need to discuss changes with trading partners?
2015 AFP Payments Fraud & Control Study The key findings of the 2015 AFP Payments Fraud and Control Survey include: • 62% of organizations experienced attempted or actual payments fraud in 2014. • Large organizations were more likely to have experienced payments fraud than were smaller ones. 66% of organizations with annual revenues over $1 billion were victims of payments fraud in 2013 compared with 50% of organizations with annual revenues under $1 billion. • 27% of survey respondents report that incidents of fraud increased in 2013 compared to 2012. • Almost eight out of ten organizations (77 percent) that experienced attempted or actual payments fraud in 2014 were victims of check fraud. The percentage of organizations affected by payments fraud via other payment methods were: • ACH debit (22%) DOWN from 27% in previous year • Corporate/commercial cards (43%) UP from 29% in previous year • ACH credits (9%) UP from 8% in previous year • Wire transfers (27%) UP from 14% in previous year Wire transfers (27%) • 70% of organizations that were victims of actual and/or attempted payments fraud in 2013 experienced no financial loss from payments fraud ( down from 74% in 2012). • Among organizations that did suffer a financial loss resulting from payments fraud in 2012, the typical loss was $23, 100 (up from $20, 300). • As a result of recent security breaches, 63% of organizations have adopted or plan to additional security measures. 28
Federal Reserve Faster Payments • Federal Reserve is continually evaluating and looking for ways to improve US payment systems to keep pace with technology and foreign payment activities and improvements. https: //fedpaymentsimprovement. org/ – As evidenced by several of their recent initiatives • Same Day ACH activity, along with supporting NACHA’s efforts • Enhancements to Fedwire service – Expanded remittance capability in 2011 – Receipt notification service in 2011 • Private sector The Clearing House is also working on similar initiatives for faster payments. – https: //www. theclearinghouse. org/publications/2013/1205 13 -payment-system-recommendations
Resources • NACHA same-day ACH rules changes o https: //www. nacha. org/rules/same-day-ach-moving-payments-faster • Same-day ACH processing scenarios o https: //www. nacha. org/system/files/resources/Same-Day-ACH%20 Effective%20 Entry%20 Date%20 and%20 Return%20 Processing%20 Scenarios-June 2015. pdf • Fed ACH Participating banks o https: //www. frbservices. org/files/operations/sameday/fedach_sameday_master_par ticipant_list_july-2015_published_6 -24 -2015. xls