Payments 101

Billie HigginsKay Limbaugh

• Central Banking system• Created in 1913• Private banking system composed of

Board of Governors appointed by the PresidentFederal Open Market Committee12 regional BanksMember banksAdvisory councils

Federal Reserve

Federal Reserve

Electronic Funds Transfer Act (aka Reg E)

• Issued by the Board of Governors of the Federal Reserve System• Implemented in 1978• Governs electronic fund transfers from a consumer’s account• Protects consumers’ rights and sets limits on consumer liability for unauthorized payments• Imposes specific obligations to billers for recurring payments

Federal Reserve

Check 21

• Passed in Oct 2004 • Produces a digital image by scanning both sides of a paper check • If a paper document is needed, a photo-reduced copy of the original checks is created (“substitute check” or IRD (Image Replacement Document)

IRD – Image Replacement Document

Network = Automated Clearing House(ACH)

ACH

ACH - Automated Clearing House

• The ACH network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system

• Governed by the NACHA operating rules • Provides for the interbank clearing of electronic payments

for participating depository financial institutions • The ACH network can be used to send either debits

(payments) or credits (refunds) A credit sends funds to a Receiver’s accountA debit takes funds from a Receiver’s account

ACH Participants & Definitions

• Originator: The company or individual that initiates an ACH transaction according to an agreement with a Receiver.

• Originating Depository Financial Institution (ODFI): The financial institution that transmits ACH files on behalf of the Originator into the ACH Network.

• ACH Operator: The central clearing facility operated by a private organization or Federal Reserve Bank, on behalf of participating financial institutions, to or from which financial institutions transmit or receive ACH entries.

• Receiver: A natural person (or organization) that has authorized the Originator to initiate an ACH entry (debit or credit) to the Receiver's account with the RDFI.

• Receiving Depository Financial Institution (RDFI): The financial institution that receives ACH entries from the ACH Operator and posts the entries to the accounts of the depositors (Receivers).

• Third-Party Processors: Processors that participate between any relationship within the ACH processing flow (i.e., correspondents, sending-point processors or payroll processors).

Network = Automated Clearing House

(ACH)

NACHA

NACHA – The ElectronicPayments Association

• Not-for-profit association • Represents more than 11,000 financial institutions through direct

memberships • Develops operating rules and business practices for:

– Automated Clearing House (ACH) Network (not Check 21)– Electronic payments in the areas of Internet commerce, e-bill and

invoice presentment, e-checks, EDI an electronic benefits services (EBS)

• NACHA estimates that more than 8.5 billion consumer bills were paid via the ACH Network in 2007, including pre-authorized debits, Internet and telephone-initiated payments, and checks converted into ACH payments.

(formerly known as the National Automated Clearing House Association)

Network = Automated Clearing House

(ACH)

NACHA

ACH Rules

Each type/method of payment in the ACH “world” has its own rules and guidelines. These are determined by the Standard Entry Code (SEC) used in the payment file.

POS

SHR

CIE

CTX TRC

TRX

ENR

CBR

PBRDNE MTE

MTE

DNE

XCK

COR

ATX

ACKPOS TEL

WEBRCK

BOC

AAAAAHHHHHHH ! ! ! !

ARC

PPD

CCD

Commonly used SEC codes for the Utility Industry

(High level definitions!)

• ARC – Accounts Receivable Conversion

– Mailed in payments to a biller’s lockbox– Dollar limit $25,000– Must be a consumer check– Check is scanned, destroyed – Must have notification on bill statement each month (see

ACH rules for requirements)– Must give customer option to Opt-out– Must retain legible copy of front for 2 years– Original document must be stored securely and/or

destroyed– Volume in 2007 for ARC grew by more than 600 million

payments to 3.5 billion, an increase of 23 percent.

• POP – Point of Purchase

– Customer writes check and it’s converted at time of purchase

– Check is returned to the customer

– Authorization = supplied by merchant and signed by customer at time of payment

– $25,000 limit

– No AUX On-Us on MICR line

• WEB - Internet Initiated Payments

– Authorization received via the internet– Authorization must be in writing or similarly authenticated. – Consumer transactions only– Customer must be “reasonably” authenticated – Applies to both one-time or recurring payments; but rules

are different for each (stop payment, revocation of authorization, etc.)

– NACHA reports WEB payments grew by an estimated 26 percent to 2.3 billion in 2007

• TEL – Telephone Initiated Entries

– Single entry payments

– Consumer accounts

– Must use commercially reasonable procedures to verify consumer’s identity

– Authorization must be oral and recorded (cannot use key entry for authorization)

– Must provide in authorization:• Date

• Amount

• Name

• Telephone number to be reached during business hours

– Cannot exceed 2.5% “unauthorized payments”

• RCK – Re-Presented Check Entries

– Returned paper checks can be converted by your financial institution to an ACH item

– This allows 2 re-presentments instead of 1 with paper check

– PGE (before ARC) enjoyed a 25+% success rate on the 2nd re-presentment

– Notification must be clear and conspicuous on your billing statement

– Must retain copy of the front and back of the check for 7 years

• PPD or CCD

– Used for Automatic Debit Programs (Direct Payment) – Recurring payments initiated by biller– Must have written authorization– Retention of authorization - kept for 2 years after customer

requests cancel– PPD used for “Consumer” bank accounts– CCD used for “Corporate” bank accounts (have an

auxiliary on-us in MICR line)– NACHA reports pre-authorized payments increased by 3.6

percent to 3.4 billion payments in 2007

Resources

• Nacha.org• Ebilling.org

Your New Best Friend

• PGE has converted all payment channels to ACH……

Mail-in payments – ARCCommunity Office – Remote Deposit (BOC)Walk-up Retail Locations – POPKiosk Payments - vendorIVR Payments –TELIVR Credit Card payments – vendorConsolidators Auto Pay – PPD and CCDWeb payments – WEBEDI 820’s - CTX

Other terms (Your homework!)

• Aux on us• EDI• MICR line• Non-contracted payments• NOC• EBPP• Lockbox• M-payments• B2B, B2C Questions?