Same-Day ACH: What’s Next? Commonwealth AFP

May 16, 2012

Presented by:Steven CordrayFederal Reserve Bank of Atlantasteven.cordray@atl.frb.org(404) 498-7072

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Discussion Topics

• ACH Overview

• Federal Reserve’s SameDay ACH Service

• Looking Ahead

• NACHA’s Expedited Processing and Settlement (EPS) Proposal

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ACH Overview

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ACH Overview

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SameDay ACH Service from FedACH

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FedACH SameDay Service - Overview

• Phase 1:

Allows converted check payments (ARC, BOC, POP, and RCK) as well as TEL and WEB payments. Includes support for mobile debit payments.

Supports 37 percent of all payments by volume. Majority of remaining non-supported payments are typically scheduled on a recurring basis and consequently do not require expedited processing.

FedACH intra-operator (no EPN) only service.

Origination is limited to non-government payments.

Service commenced on August 2, 2010.

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Comparison of Forward/Return Payment Deadlines in ET

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Next-Day Service(all forward/return payments)

SameDay Service(SameDay-eligible forward payments)

Input file from ODFI 2:15 a.m. 2 p.m.

Output file to RDFI 6 a.m. 4 p.m.

Settlement 8:30 a.m. (credits), 11 a.m. (debits) 5 p.m.

Immediate Service(all return payments)

SameDay Return Service(SameDay-eligible return payments)

Input file from ODFI 2 p.m. 4:30 p.m.

Output file to RDFI 4 p.m. 5 p.m.

Settlement 5 p.m. 5:30 p.m.

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Forward/Return Payment Flows in ET

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FedACHSameDay

FedACHNext-Day

Return payment no later than opening of business on second

banking day after settlement

Forward Payment Originated by 2:15 am

Forward Payment Received by 6 am Four options for returning payment by day 3. If SameDay eligible return, two additional options are available.

Day 1 Day 2 Day 3Day 0

Return payment no later than opening

of business on second banking day

after settlement

Five options for returning payment by day 2.

Day 1 Day 2

Forward PaymentOriginated by 2 pm

Forward Payment Received by 4 pm

Return Received

Day 0 Day 3

Forward/return: Input file by 2:15 am, output file by 6 am, settlement of credit payments at 8:30 am and debit payments at 11 am ET

SameDay-eligible forward/return: Input file by 2 pm, output file by 4 pm, settlement of debit payments at 5 pm ET

End of Processing Day

End of Processing Day End of Processing Day

End of Processing DayEnd of Processing DayEnd of Processing Day

3 am

3 am 3 am

3 am3 am3 am

Return Received

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Technical and Participation Requirements

• For return of SameDay forward items, the current return deadline rules apply.

• Same-day and next-day payments can be included in the ACH input file and can be comingled in the same payment batch. Non-eligible payments will settle next day.

• Payments must be originated and received through FedACH.

• Service is opt-in for both the ODFI and RDFI, by agreement, and is available to any FedACH customer.

• For each RTN, participants may choose to be an ODFI-only, an RDFI-only, or both for forward payments.

• RDFI may elect to be either a multilateral or unilateral participant.o Multilateral Participants: Allows receipt of payments from all ODFI participants.o Unilateral Participants: Allows receipt of payments from one or more ODFI

participants; RDFI specifies ODFI(s) in the unilateral participant agreement.

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Phase 1 Key Points and Benefits

• Avoids unnecessary industry investment by being an opt-in service. Banks not interested in the service do not have to make any investments in it. The flip-side is that this reduces the advantages of a universal service.

• Banks can control the pace and level of participation in SameDay.

• Participants may be an ODFI-only, an RDFI-only, or both an ODFI and RDFI.

• The RDFI may open up or restrict usage for on-us and on-we payments.

• Service uses existing “immediate” 2 p.m. ET exchange window that is used primarily for returns today.

• Offers alternative to private exchange of consumer ACH debit payments.

• Avoids high upfront and ongoing cost for negotiating and managing private exchange relationships.

• Brings consumer debit payments back into the ACH network so that they are subject to NACHA rules, operator edits, and risk monitoring tools.

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Phase 1 Key Points and Benefits (continued)

• Positions ACH to support mobile payments, emerging P2P, and other spontaneous purchases.

• Competes with other same-day clearing channels like check/image, debit, credit.

• Funds availability is moved up a day between ODFI and RDFI.

• Aligns receipt of funds more closely with posting timelines.

• Expedites returns by at least one day and as early as the same day the forward item is originated. No return fees encourages use of SameDay return service. Many corporate originators have stated that earlier returns is the biggest draw in using SameDay. No NACHA rule change required.

• Reduces fraud, collections, and charge-offs.

• Reduces receiver float.

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Key Observations

• Participation from banks in the opt-in service has been very limited

• Limiting the service to consumer debits has diminished its appeal to originating banks due to the low interest rate environment

• Major vendors, such as Fiserv, have released bank software that supports same day capabilities

• Corporate views on service is mixed:

o value of service is limited without broad, network-wide participation

o to possibly increase adoption, service should be expanded to include credits and other debits

o Dollar caps, if any, should be high enough to meet cash concentration needs and same-day payroll applications

• Federal Reserve is participating in NACHA’s Expedited Processing and Settlement (EPS) initiative

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Looking Ahead

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Looking Ahead: Same-Day Consumer Payment Applications

Consumer-to-Consumer (C2C) Mobile P2P payments using debit pull, credit push, or “split payment” model Emergency payments to cover rent or food Transfer urgently required funds to a close relative or friend in another part of the country Account-to-account transfers between personal accounts (push and pull)

Consumer-to-Business (C2B) Clear ad hoc (non-scheduled) debit payments (e.g., converted checks, telephone, and

Internet payments) same-day to accelerate funds availability by one day Clear ad hoc (non-scheduled) debit payments (e.g., converted checks, telephone, and

Internet payments) same-day to accelerate returns by one day “Just-in-time” payment of a credit card or other bill, in order to avoid penalty fees Telephone or Internet purchase, where delivery is required for a specific date, e.g., birthday,

theatre tickets for tonight Mobile point-of-sale payments using debit pull, credit push, or “split payment” model Transfer of a relatively large amount of funds to ensure that a purchasing opportunity is not

lost, e.g., used car purchase or rental deposit

SupportedPartially SupportedNot supported

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Looking Ahead: Same-Day Business Payment Applications

Business-to-Consumer (B2C) Salary payments to hourly and temporary employees Same-day payment for terminated employees Contingency payroll Reversal of payroll and other benefit payments Payment of expenses to staff, where these are claimed after the payroll closing date

Business-to-Business (B2B) Cash concentration (push and pull) Tax payments Payments requiring immediate funds before goods are released Payment for time-critical goods where trade credit is unavailable from the supplier

SupportedPartially SupportedNot Supported

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NACHA’s Expedited Processing and Settlement (EPS) Proposal

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Comparison Between FedACH SameDay Service and NACHA Expedited Processing and Settlement (EPS) Service

FedACH SameDay Service EPS Service

Participation Opt-In for ODFI and RDFI Mandatory

ACH Operator FedACH Only All

Payment Types Consumer Consumer, Commercial, Government

SEC Codes ARC, BOC, POP, RCK, TEL, WEB All

Dollar Cap $25,000: ARC, BOC, POP$2,500: RCKUnlimited: TEL, WEB

$25,000: ARC, BOC, POP$2,500: RCK, XCK$25,000 or $100,000: All Other SEC Codes

Forward Schedule Input Output Settlement

2 pm ET4 pm5 pm

Same

Return Schedule Input Output Settlement

4:30 pm ET5 pm5:30 pm

Offered at ACH Operator Discretion

Return Deadline Two business days after settlement day Same

Standard ACH File Format Yes Yes

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EPS Milestones

• Request for Comment (RFC) issued – September 23, 2011

• RFC response due date – December 12, 2011

• NACHA analysis and review of RFC responses – 1st Half 2012

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Additional Resources

• More detailed information is available at

o http://frbservices.org/serviceofferings/fedach/sameday_service.html

• Fee information is available at

o http://FRBservices.org/servicefees/

• Visit My FedDirectory® for contact information

o http://FRBservices.org/contacts/

• FedACH SameDay Service Participant Lists

o http://frbservices.org/serviceofferings/fedach/sameday_service.html

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