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Advanced ACH Advanced ACH ConceptsConceptsHoward N. Forman, AAPSenior Vice PresidentElectronic Payments Consultant

Wells Fargo Global Payments Conference

Richmond VA

© 2010 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Richmond, VA

September 16, 2010

Discussion agenda

Core concepts review

ACH volume trends

Recent developments Recent developments

Business to business (B2B) payments

International payments

© 2010 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. 1


ACH transactions can be either credits or debits ACH credits send funds from the Originator to the Receiverg ACH debits pull funds from the Receiver to the Originator

Financial settlement occurs simultaneously for all parties to the transaction

Can initiate transactions to consumer or business accounts

Some transactions allow the inclusion of remittance f (“ dd d ”)information (“Addenda”)



Regulatory framework: Regulation E (consumer transactions)g ( ) Uniform Commercial Code Article 4A (B2B credits) NACHA Operating Rules – contract law

The ACH file: Standard Entry Class (SEC) Codes – define the type of

transactions within a Batchtransactions within a Batch Effective Entry Date – the date on which you want

transactions to settleT ti C d d fi d bit / dit d t t Transaction Codes – define debits/credits and account type receiving the payment Some data elements are required to be displayed on the


Receiver’s statement (Originating Company Name, Entry Description, Check Number (check conversion transactions))

3

Major SEC Codes

Check Conversion - Check is used as a source documentto create a one-time Electronic Fund Transfer (EFT)

ARC – Accounts Receivable Conversion Conversion of eligible checks received via mail or at an

unattended drop box

POP – Point of Purchase Conversion Conversion of eligible checks at the point of sale or a manned

bill t l tibill payment location Voided check returned to checkwriter

BOC – Back Office ConversionBOC Back Office Conversion Conversion of eligible checks at the point of sale or a manned

bill payment location Check retained by payee


Check retained by payee

4

Major SEC Codes

“Native” electronic payments - check is never submitted as payment to the payee

PPD – Prearranged Payment and Deposit One-time or recurring consumer credit or debit authorized in

writing

WEB – Internet Authorized Entry One-time or recurring consumer debit authorized via the

Internet

TEL Telephone Authorized Entry TEL – Telephone Authorized Entry One-time consumer debit authorized orally via telephone


ACH volume trendsACH volume trends


Distribution of non-cash payments (U.S.)

ACH11%

Checks33%

ACH16%

20062003

Checks46%

D bit

Credit24%

33%

D bit

Credit24%

Debit19%

Debit27%

2006Volume

2009(E)Volume CAGR 2009(E)

Checks24%

ACH18%

Volume Volume CAGR

Checks Paid 30.6 25.0 -6.5%

Credit Card 21.7 24.0 3.4%

2009(E)

Debit35%

Credit23%

Debit Card 25.3 35.0 11.4%

ACH 14.6 18.7 8.6%


35%(Billions of Transactions)

7

Source: Federal Reserve System and Wells Fargo. 2009 Volumes are estimated.Excludes Wire Transfers

After years of strong growth, ACH volume slows in 2008 and 2009slows in 2008 and 2009

ACH Volume 2004 – 2009 2009 Highlights

12 313.9

15.0 15.3

12 014.0

15.117.1

18.3 18.8

15

20• 2.1% growth rate v. 2008 (7.1%

growth rate 2008 v. 2007)

• ARC volume declined 10.3%

9.110.7

12.312.0

5

10 • WEB transactions showed the strongest growth at 10.5%

• “Native” electronic 0

2004 2005 2006 2007 2008 2009

Network Total

transactions (non-check conversion entries) increased by 4.15%

CTX t ti k

Billions of Transactions. Includes commercial and government PaymentsTotal Volume includes interbank, direct send, and on-us transactions

• CTX transactions – a key indicator of B2B activity – grew at 9.4%


us transactionsNetwork Volume excludes on-us transactionsSource: Wells Fargo and NACHA

Selected SEC Code detail

2007Volume

2008Volume

2009 Volume

2009Growth

Accounts Receivable Conversion (ARC) 2,666MM 2,679MM 2,410MM (10.0%)

Point of Purchase Conversion (POP) 463MM 479MM 481MM 0.4%

B k Offi C i (BOC) 8 6 105 0%Back Office Conversion (BOC) 4MM 78MM 161MM 105.0%

Internet Payments (WEB) 1,737MM 2,078MM 2,280MM 9.7%

Telephone Payments (TEL) 334MM 347MM 344MM (1.0%)

Direct Deposit (PPD Credits) 4,021MM 4,333MM 4,545MM 4.9%

Direct Payment (PPD Debits) 2,612MM 2,742MM 2,770MM 1.0%

Corporate Credit or Debit (CCD) 1 844MM 1 937MM 1 996MM 3 0%Corporate Credit or Debit (CCD) 1,844MM 1,937MM 1,996MM 3.0%

Corporate Trade Exchange (CTX) 48MM 55MM 60MM 9.2%


Millions of Transactions. Network volume only – does not include on-us transactionsSource: Wells Fargo and NACHA

Wells Fargo ACH trends

Wells Fargo ACH Origination Volume2004 – 2009

2009 Wells Fargo Highlights

2 22

2.63

2.95

2.50

3.00

2004 2009

• Origination volume up 12% v. 2008• Over 3.5 billion transactions

originated (2 95 billion Network

1.181.33

1.63

2.22

1 00

1.50

2.00originated (2.95 billion Network transactions)

• >19% origination market share

0.00

0.50

1.00

2004 2005 2006 2007 2008 2009

Top Processors of ACH Transactions

Wells Fargo 4,433MM2004 2005 2006 2007 2008 2009

Billions of TransactionsNetwork volume only – does not include on-us transactions

Wells Fargo 4,433MMJP Morgan 4,231MMBank of America 3,459MMCitigroup 1,010MMPNC 938MM

© 2010 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.10

PNC 938MM

Volume includes interbank originated and received paymentsSource: Wells Fargo and NACHA

NACHA – ACH rankings

Volume (MM) YOY Change

Largest inter-bank originators for 2009

1 J.P. Morgan Chase 3,264 -7.0%2 Wells Fargo 2,948 12.0%3 Bank of America 1,959 26.1%4 Citigroup 809 -4 0%4 Citigroup 809 4.0%5 U.S. Bancorp 519 19.0%

Largest inter-bank receivers for 2009

Volume (MM) YOY Change1 Bank of America 1,500 1.0%2 Wells Fa go 1 485 3 9%

g

2 Wells Fargo 1,485 3.9%

3 J. P. Morgan Chase 968 -6.9%4 PNC Financial Services Group 449 1.7%5 U S Bancorp 372 5 0%


5 U.S. Bancorp 372 5.0%

Source: NACHA

Recent developmentsRecent developments


Same-day ACH initiative

Federal Reserve service – target launch Aug, 2010

Obj ti Objectives: Enhance ACH clearing schedules Reduce ACH “direct exchanges” between FIsReduce ACH direct exchanges between FIs Reduce risk through accelerated return item receipt

Only certain consumer debit transactions eligibleOnly certain consumer debit transactions eligible ARC/POP/BOC/WEB/TEL

2:00 p m ET input deadline for same-day 2:00 p.m., ET input deadline for same day availability


Same-day ACH initiative

Service based on voluntary FI participation Both ODFI and RDFI must “opt in”Both ODFI and RDFI must opt in Premium priced service for ODFIs Financial incentive for RDFIs

Service does NOT create a real-time service with immediate settlement

Service currently does NOT address ACH credittransactions or B2B transactions


Electronic Billing Information Delivery Service

Leverages the ACH Network for Electronic Bill Presentment and Payment (EBPP) Allows Billers to:

U ili ACH f d l d di EBPP Utilize ACH formats and rules to standardize EBPP transactions Enroll their customers in e-Bill deliveryy Deliver summary e-Bills to their customers’ on-line

banking serviceR i h i d ACH di f bill Receive authorized ACH credits for bill payments

Centralized “biller directory” contains required data


elements and payment routing information

15

Consumer enrollment Consumer Financial Institution (CFI) initiates enrollment for each biller and transmits entries to the ACH Network

BFI receives enrollment from ACH Network

the ACH Network

ConsumerFinancial Institution (CFI)

BillerFinancial Institution (BFI)

Consumer enrolls through CFI online bill pay service, providing the biller’s required enrollment information

BFI delivers enrollment to biller. Biller enrolls consumer (or rejects enrollment)

BFI delivers enrollment confirmation (or rejection) to BFI for delivery back to CFI

Consumer views enrollment status through CFI online bill pay service


Consumer Biller

16

Bill presentment and payment

CFI presents summary data and URL to full bill detail to the consumer via CFI online bill pay service

BFI forwards information to ACH Network

ConsumerFinancial Institution (CFI)

BillerFinancial Institution (BFI)

CFI originates ACH CIE credit and required biller posting information to ACH Network

Consumer views bill summary/detail via CFI online bill pay service

Biller delivers summary bill information to BFI. Routing information obtained from the enrollment transaction

BFI delivers ACH credit payment and posting information to biller

Consumer authorizes payment to biller via CFI online bill pay service


Consumer Biller

17

Proposed NACHA Rules changes

Sunset “opt out” requirement

Recurring TEL payments Would allow recurring consumer debits to be

authorized orally via telephoneauthorized orally via telephone

Electronic collection of service fees for items returned unpaidp One-time debit authorized at the same time and in the

same manner as the underlying debit


Business to business paymentsBusiness to business payments


B2B SEC Codes

CCD/CCD+ - Corporate Credit or Debit Cash concentration/account funding Electronic tax payments Vendor payments/Customer debits Limited remittance data 80 bytes using ANSI X12 standard or NACHA-endorsed

conventions (tax payments, child support payments)( p y , pp p y )

CTX – Corporate Trade Exchange Vendor paymentse do pay e ts Extensive remittance data – 9,999 80-byte lines ANSI X12 or UN/EDIFACT standards


“Zero dollar with remittance” transactions

20

Business case drivers

Leverage existing discount terms Renegotiate terms (extend DPO)

Supplier enablement Lack of supplier automation

Positive Factors Cost Considerations

en

ts

g ( ) Cash flow predictability Reduce printing, postage, and

recon expensed

Lack of supplier automation (remittance information delivery)

Compliance (especially for consumer payments)

ng

Paym

e

Fraud mitigation Supplier self-service

Sen

din

DSO improvement Cash flow predictability Automated cash application

Renegotiation of terms Customer inability to send

electronic remittance

aym

en

ts

uto ated cas app cat o Remittance processing cost

savings Customer demand for electronic

invoices

eiv

ing

Pa


Rec

21

B2B payments

Payables Automation Continuum

Sophistication/Integration

Online manual data entry

ERP integration

Comprehensive

‘Stand Alone’ payment file creation

Full A/P and invoice integration

l t i i i CEO® PaymentsComprehensive

payables process

Payment Manager®

Direct ACH Origination electronic invoices; workflow

management

Invoice Manager


B2B payments

Receivables Automation Continuum

Sophistication/Integration

Online manual data entry

CEO® Information

Excel/Flat File downloads

CEO Information Reporting

ERP integration

Consolidated Reporting

p greceivables file

Receivables Manager®

El t i bill/i i Electronic bill/invoice presentment and payment

E-Bill Express


Perfect Receivables® service

Provides you with a unique Wells Fargo payment identification number/range to use in lieu of your de t cat o u be / a ge to use eu o youWells Fargo bank account number

Automate/improve the accuracy of receivables posting:

Assign a unique identifier to each payment Originator/sender (for example, a vendor number)

Senders can embed invoice and/or customer numbers within the identifier

Identifier provided on data file and/or on-line reports Identifier provided on data file and/or on-line reports

Use for incoming ACH credits, debits, and wire transfers

Maintains the privacy of your account number


Maintains the privacy of your account number

24

Perfect Receivables® service – how it works

Acme Products, Inc.

“Real” Wells Fargo account number: 2345678901Real Wells Fargo account number: 2345678901Wells Fargo Payment Identification Code Prefix: 2468

(assigned by Wells Fargo)

W ll F “ ” t b il bl Wells Fargo “proxy” account number range available for Acme’s use: 24680000000000000 – 24689999999999999

Acme Products provides a proxy account number to its Acme Products provides a proxy account number to its trading partners. For example: Customer/Vendor #566455 – 24680000000566455

Customer/Vendor #874522 24680000000874522 Customer/Vendor #874522 – 24680000000874522 Example with embedded customer/vendor number AND

invoice number: 24685664550068733

I i t dit d t A ’ t (2345678901)


Incoming payments credited to Acme’s acct. (2345678901)with detail reported on CEO or via data file

25

International paymentsInternational payments


International payments

Cost-effective alternative to wire transfers for payments that can be scheduled in advancepayments that can be scheduled in advance

Regions supported: Canada/MexicoCanada/Mexico

SEPA Euro/Non-Euro zones

Asia/Pacific

US Dollar or local currency accounts

Origination options:Origination options: Integrated with your domestic ACH file

Integrated with your Payment Manager file


g y y g

On-line via Commercial Electronic Office® (CEO®) portal

27

International payments - IAT

What is “IAT?” New SEC Code (as of 9/2009) used to identify inter-New SEC Code (as of 9/2009) used to identify inter

national transactions flowing through the US ACH NetworkB d d fi iti f “I t ti l ACH T ti ” Broadens definition of “International ACH Transaction” An ACH entry that is part of a payment transaction involving a

financial agency’s office that is not located in the territorial j i di ti f th U it d St tjurisdiction of the United States

Why IAT? Additional information is needed to permit scrutiny of

ACH transactions for OFAC compliance

Add the BSA “Travel Rule” information to allow


Add the BSA Travel Rule information to allow identification of all parties to the transaction

28

International payments - IAT

Who might be impacted by IAT? Non-U.S. headquartered companies with U.S. operationsNon U.S. headquartered companies with U.S. operations U.S. companies with employees, pensioners, customers,

and/or vendors located outside the U.S. U.S. companies receiving ACH credits from offshore

entities Third-party processors or payment aggregatorsThird party processors or payment aggregators

Where can I get more information about IAT?

n http://www.nacha.org/IAT_Industry_Information/(look for “IAT Corporate Toolkit”)


Is my transaction IAT?

Instruction + Settlement

Location of originator & receiver not

relevantAt any point

Financial

relevant

Payment

Transaction?

U.S. ACH

Network?

Financial Agency outside U.S.?

IATYes Yes Yes

F i /

No No No

Message Domestic ACH

Foreign/

ProprietaryStill subject

to OFAC rules!


Not an IAT

30

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