Faster Payments:
The Good, The Bad and The Ugly
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Sims Propst, SVPSouth State Bank
Gary B. Nesbitt, AAPGNesbitt Consulting
• South State Corporation is the largest bank holding company headquartered in South Carolina
• Recognized by Forbes as #14 in List of Top 100 Largest Banks in America
• Serving the financial needs of customers and communities since 1934
• $14.5 Billion in asset
• 2800 employees
• 165 Locations, 200 ATMs
• States– North Carolina
– South Carolina
– Georgia
– Virginia
SOUTH STATE BANK OVERVIEW
Our Footprint
In 2017, South State acquired Park Sterling Bank, adding 53 locations to the South State footprint and provided entrance into Virginia.
South State’s footprint extends from Richmond, Virginia to Richmond Hill, Georgia (south of Savannah).
Columbia
GreenvilleCharlotte
Charleston
Richmond
Wilmington
Savannah
Myrtle
Beach
Hilton Head
Raleigh
AtlantaAugusta
SSB Footprint Market Share
Rank Institution Deposits Market Share
1 Wells Fargo & Co. $ 36.3 20.2%
2 Bank of America Corp. 24.5 13.6
3 BB&T Corp. 22.0 12.2
4 South State Corp. 11.6 6.5
5 First Citizens BancShares Inc. 11.4 6.3
6 SunTrust Banks Inc. 11.1 6.2
8 United Community Banks Inc. 4.5 2.5
7 Synovus Financial Corp. 4.5 2.5
9 Toronto-Dominion Bank 4.1 2.3
10 Regions Financial Corp. 3.3 1.8
GNesbitt Consulting
• Independent consulting firm specializing in banking and payment activities and issues.
• Our goal is to help financial institutions and companies understand and comply with the myriad payment rules and regulations that govern the payments landscape.
• We help organizations understand and 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.
• Same-Day ACH
– What’s eligible
– What differentiates a same-day entry from a next day-entry
– How is same-day ACH being rolled out
– Use cases
– The challenges
• The Fed’s Faster Payments Task Force
– Why this group was formed
– The process used – including it’s opportunities and challenges
– Outcomes
– The Governance Framework Formation Team
• What’s out there now
• Where do we go from here?
Agenda
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Same-day ACH
• Individual Entries of $25,000 and under• All Standard Entry Class (SEC) codes
– Exception• International ACH Transactions (IATs)• Automated Enrollment Entries (ENRs)
• Non-Monetary Entries– Prenotifications – NOCs
• Returns– All Returns can be processed same day– Will not be charged the Same Day fee
What’s Eligible for Same-Day ACH
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• ACH Operator
– Effective Entry Date field ONLY
– All other ACH entries will run as before, next day or for certain credits, 2 days before settlement
• ODFI and Originators
– Effective Entry Date field• Stale dated and invalid values in
this field will also qualify for Same Day processing
– Optional• Company Descriptive Date
• Company Discretionary Data
Identifying Same-day Entries
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Identifying Same-day Entries
Handling of Effective Entry Dates (EED)
Today’s date: Jan. 02, 2018
Batch EED: 180102
Batch submitted
by 10:30 AM ET
Batch settled 01/02/18, 1:00 PM ET
Same-Day Entry Fee charged
Batch submitted
by 2:45 PM ET
Batch settled 01/02/18, 5:00 PM ET
Same-Day Entry Fee charged
Batch submitted
after 2:45 PM ET
Batch settled 01/03/18, 8:30 AM ET
No Same-Day Entry Fee charged
Talk to your Financial Institution about when they submit files to the ACH Operator if you’re interested in Same-day ACH
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Implementation Overview
Functionality Phase 1
Sept. 23, 2016
Phase 2
Sept. 15, 2017
Phase 3
March 16, 2018
Transaction Eligibility ($25,000 limit; IAT not
eligible)
Credits only Credits and debits Credits and debits
New Same Day ACH
Processing
Deadlines
10:30 AM ET and
2:45 PM ET
10:30 AM ET and
2:45 PM ET
10:30 AM ET and
2:45 PM ET
New Settlement
Time(s)
1:00 PM ET and
5:00 PM ET
1:00 PM ET and
5:00 PM ET
1:00 PM ET and
5:00 PM ET
ACH Credit Funds
Availability
End of RDFI’s
processing day
End of RDFI’s
processing day
5:00 PM RDFI local
time
These times are for the ODFI, talk to your FI about their deadlines!
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• VERY smooth implementation
• Used primarily for emergency payroll
• Some usage for P-to-P and for B-to-B Just in Time payments
• Volumes were relatively minimal
• No one complains when they get their money early, debits are another matter
Phase 1
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Volume (Thousands)
PPD CCD CIE WEB CTX
699
344
232
197
47
Value ($ millions)
PPD CCD CIE WEB CTX
665
467
106
147
152
Phase 1Same-day ACH Volume
By SEC Code
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Phase 2 - Debits
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C2B
• Bill Pay
• eCommerce
• POS check conversion
• Merchant debit
• Collections
C2C
• Person-to-Person
• Account-to-Account
B2B
•Multiple uses, such as trading partner payments, due-date and late invoice payments
B2C
• Payroll
• Insurance, refunds
The Major Use Cases for Same-Day ACH are Projected to Generate 1.4 Billion Transactions
Over 60% of estimated Same-Day ACH volume comes from existing ACH
C2B = Consumer to BusinessB2B = Business to BusinessC2C = Consumer to ConsumerB2C = Business to Consumer
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The Big Challenge For Phase 2
• ODFI warrants to each RDFI and ACH Operator that
– Entry is properly authorized
• For an amount that will be due and owing to the Originator from the Receiver on the Settlement Date
• For a sum specified by the Receiver to be paid to the Originator
• Unauthorized Debit Entry
– Debit Entry was initiated for settlement earlier than authorized
Have clear and readily understandable terms for your authorizations
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• Opportunities
– Ability to reach almost every FI with a same-day entry
– JIT issues can be managed more effectively
– Emergency payroll/missed payroll’s can be done
– Returns will be faster, and in many cases same-day
– Look for more Rule updates to same-day going forward
• Challenges– It’s same-day, not real-
time
– Use of the Effective Entry date field can be an issue
– Re-tooling of AP/AR to use same-day is a major job
– The $25,000 limit
– The additional cost, the Fed charges a fee to the ODFI to handle same-day entries
– The cut-off times, especially the further west you go
Opportunities and Challenges
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• NACHA distributed a Request for Comment in Mid-December dealing with updates to Same-day– Increase the $25,000 limit to $100,000
– Add a later deadline, ODFI’s could submit files up to 5:15 PM E. T., RDFI’s would receive files by 6:00, Settlement would be at 6:30
• Fed would need to update the NSS (National Settlement Service to enable this)
– Require availability by 1:00 PM for ALL credit entries
– RFI – concerning weekend and holiday processing
News Flash!
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Faster Payments Task Force
Sponsored by the Federal Reserve
State of the Industry
• How did we get to a Faster Payments Focus?– Fed Payments System Improvement Public Consultation Paper,
Sept. 10, 2013
• Set the Fed’s “desired outcomes” for payments in the future and asked for industry feedback
– Strategies for Improving the US Payment System published on Jan. 26, 2015
• Key components of the Fed’s expectations:
– Speed
– Security
– Efficiency
– International
– Collaboration
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• Faster Payment Task Force formed in early 2015– First meeting – June 2015
– Over 300 organizations signed up!!
– Step one – Develop effectiveness Criteria
– Step two – Ask for potential solutions
– Step three – rate those solutions against the effectiveness criteria (QIAT)
– Step four – have the task force react to the ratings
– Step five – Publish part one of the report from the Task Force
– Step six – Review the primary hurdles to successful implementation of a faster payments solution
– Step Seven – Publish a FINAL REPORT
State of the Industry
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1. Establish a Faster Payments Governance Framework
2. Recommend and establish Faster Payment Rules, standards and baseline requirements
3. Assess the payments regulatory framework and recommend changes
4. Establish an inclusive directory work group to identify and recommend a directory design
5. Enhance Federal Reserve Settlement services
6. Explore and assess the need for the Fed to participate in an operational mode
7. Recommend, develop, and implement fraud detection and reporting systems
8. Develop cross-solution education and advocacy
9. Research gaps in cross-border functionality and interoperability
10. Continue research on emerging technologies
Faster Payments Task ForceFinal Report Findings
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• GFFT – Governance Framework Formation Team– Formed to advance the first objective
– 27 members representing 7 segments
– Three phases –• Design baseline components
• Establish a governance framework
• Operate and evolve that framework
• A Directory Team is being formed
Now What?
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• Primary focus is on P2P Solutions
– Paypal
– FI owned (Chase QuickPay)
– Popmoney
– Venmo
• Social media affiliated platforms
(mostly P-to-P)
Approaches to Faster Payments
Existing solutions and platforms:
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• Zelle
• Real-Time Payments from the Clearing House (RTP)
• VISA and MasterCard Solutions
• Dwolla and others
Current Industry Players
Emerging systems of note:
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• Owned by Early Warning Systems
• EWS owned by 7 large Banks
• Rolled out earlier this year by a number (about 50) of large banks and Credit Unions
• Primary focus – Person to person (P-to-P)
• Key features:– Near real-time if the two F.I.’s signed up with
Zelle
– Will use the debit card rails for outside of network entries
– Credit push network
Zelle
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• The Clearing House product for real-time payments
• Development began in 2013, supported by Vocalink(used by the U.K. Faster Payments program)
• First LIVE transaction happened in Nov. 2017, focusing on B-to-B
• RTP is a new payment rail, not a product
• Two large banking vendors have signed agreements with TCH to offer the service to it’s customers (FIS and Jack Henry)
• TCH hopes to have their network used by 95% of F.I.’s by the end of 2019
RTP
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• Key Features– Credit push network – payments are
irrevocable– Request for Credit– Built on ISO 20022 framework – global
compatibility– Robust messaging capabilities– Immediate acknowledgement of a
transaction– Real-time status on payments– 24/7 365 processing and settlement– Integrated tokenization and directory services
(use of alias’s supported)
RTP (cont.)
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• The networks are working together, somewhat
• VISA Direct & Mastercard Send are the products
• Deposit based products – so credit push like RTP
• Sold as a P-to-P solution or a funds disbursement solution (corporate – for reimbursements, refunds, rebates, payouts, etc.)
• Near real-time – instant payments to all eligible US debit cards or prepaid cards
• Leverages Visa/Mastercard payment security systems
VISA & Mastercard
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• The claim is we’re behind the rest of the world and we should be a leader, not a follower
• What’s the “demand” for faster or real-time payments?– Payment takeaways from AFP in San Diego:
• 54% think faster is a positive development
• 39% are indifferent
• 7% have a negative view
• The devil’s in the details – it will take significant amounts of time and money to re-tool
• The US market is different than most with many more FI’s and with no mandate the incentive to move to real-time is not that strong
• Real-time WILL happen but expect it to evolve, not be a revolution
Where Do We Go From Here?
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NACHA’s API Standardization Efforts
• Efforts began in 2017• Group includes banks, credit unions,
processors and software developers • Identified first 5 APIs
• Account Validation*• Account Balance/History • Get Bank Contact Information* • Interoperability • Transaction Status
• Work continues to build out APIs
Questions?
Contact [email protected]
(864) [email protected]
(704) 609-4309LinkedIn: http://www.linkedin.com/in/garynesbitt/