Same Day ACH ODFI & RDFI Operational and Risk Questions
Same Day ACH ODFI & RDFI Operational and Risk Questions Presented by
PAR/WACHA‐The Premier Payments Resource Mary Gilmeister, AAP, NCP President [email protected]
Disclaimer • WACHA, through its Direct Membership in NACHA, is a specially recognized and licensed provider of ACH education, publications and support. • Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. • NACHA owns the copyright for the NACHA Operating Rules & Guidelines. • The Accredited ACH Professional (AAP) is a service mark of NACHA. • This material is derived from collabora ve work product developed by NACHA ─ The Electronic Payments Association and its member Regional Payments Associations, and is not intended to provide any warranties or legal advice, and is intended for educational purposes only. • This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only. • This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information contained herein. • No part of this material may be used without the prior written permission of WACHA/PAR © 2016 PAR/WACHA All rights reserved
Same Day ACH • Same Day ACH provides opportunities for: – Faster funds availability – Decreased credit risks – More expedient returns Could remedy reasons for reversals, returns, corrections (NOCs) and faster prenotifications – Increased authentication and file delivery methods
• Dollar cap of $25,000 reduces possibility of late day, high‐dollar cash forecasting discrepancies
3
Same Day ACH • Origination of Same Day ACH Entries is optional • Receipt of Same Day Entries is not optional – All RDFIs must be prepared to pickup incoming ACH files from ACH Operator or Receiving Point and post Entries as required
• Next‐day processing schedules will remain unchanged and will continue to be available for use 4
Costs for Same‐Day • Same‐Day ACH is a premium service!! • ODFI’s will be charged 5.2 cents for each entry processed by an operator in a same‐day window • ODFI’s need to include this interbank fee when pricing their same‐day products • Be sure and have a mechanism in place to track same day entries, the operators may only give you a total monthly fee amount on your bill
A Phased Approach to Same Day ACH To ease the industry’s implementation effort, the new ACH Network functionality would be implemented across three implementation phases. Functionality Transaction Eligibility
Phase 1 Sept. 23, 2016
Phase 2 Sept. 15, 2017
Phase 3 March 16, 2018
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
($25,000 limit; IAT not eligible)
Times shown represent the approximate times for an ODFI’s deadlines to transmit Same Day ACH transactions to an ACH Operator.
6
6
Fed Processing Schedule
ODFI Impacts and Risks
ODFI Impacts • •
• •
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Offering Same Day ACH products and services is optional for ODFIs For those ODFIs that choose to offer Same Day products and services, the following relationships and areas may be impacted: – ACH Operator/Sending Point (Correspondent Bank/Corporate Credit Union/Bankers Bank) – Originators and Third‐Party Senders – Third Party Service Providers/Vendors or Processors – Enterprise‐wide operations Current ACH processing schedules and offerings will continue without change Same Day ACH offers schedules in addition to the current offerings
ODFI Impact with Originators and Third‐Party Senders Areas that may be impacted and should be reviewed: • Service offerings • File submission and delivery timelines and procedures • Proper use of the Effective Entry Date and identification of Same Day ACH Entries • Review agreements with Originators and Third Party Senders • Update Contacts • Collection/Reporting/Identification of the Same Day ACH Entry Fee • Educate Third Party Senders on their responsibilities within the Same Day ACH environment – Downstream communications to provide information to all parties to the transaction
ODFI Impact with Vendors, Processors and Software Providers Areas that may be impacted and should be reviewed: • Service offerings – Training on updated software? – Differentiate between Same Day ACH users and non‐Same Day ACH users – How will balanced Files work? – Will processes be manual or automated? – What information will be in the reports? • Will there be any Same Day ACH specific reporting information contained within?
• File submission and delivery timelines and procedures • Agreement updates • Implementation and timelines for testing
ODFI Impact (Enterprise‐wide Operations) Areas that may be impacted and should be reviewed: • Internal processing schedules and procedures • Downstream applications and systems • Eligibility of own origination for Same Day ACH • All departments, including IT, should work together • Contingency planning
Originators and Third‐Party Sender Impacts • Use of Same Day ACH Entries is optional for origination • For parties considering using Same Day ACH, the following should be considered: – Use cases for potential opportunities – FI service offerings • Discuss file requirements, new file submission and delivery schedules and procedures
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Handling of Effective Entry Dates (EED) Batch submitted by 10:30 AM ET
Batch settled 10/25/16, 1:00 PM ET Same‐ Day Entry Fee charged
Batch submitted by 2:45 PM ET
Batch settled 10/25/16, 5:00 PM ET Same‐ Day Entry Fee charged
Batch submitted after 3:00 PM ET
Batch settled 10/26/16, 8:30 AM ET No Same‐Day Entry Fee charged
Today’s date: Oct. 25, 2016 Batch EED: 161025
Case study: A batch of Entries is submitted on Tuesday, October 25, 2016 after 3:00 PM ET with an Effective Entry Date of Tuesday, October 25 (i.e., with content “161025” in the Effective Entry Date field). Because the time of submission is after the ACH Operator’s deadline, this Effective Entry Date is “stale;” the batch is settled at the next available settlement opportunity, which is the next day, Wednesday, October 26, at 8:30 AM ET. • Transactions are settled on the next day, and therefore not assessed the Same‐ Day Entry Fee • ODFIs whose Originators use default Effective Entry Dates of the current day could submit their files after 3:00 PM ET and not be settled on the same day or assessed the Same‐Day Entry Fee
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Handling of Stale/Invalid Effective Entry Dates Today’s date: Oct. 25, 2016 Batch EED: 161024 (stale)
Note: stale date means a date that is in the past
Batch submitted by 10:30 AM ET
Batch settled 10/25/16, 1:00 PM ET Same‐Day Entry Fee charged
Batch submitted by 2:45 PM ET
Batch settled 10/25/16, 5:00 PM ET Same‐Day Entry Fee charged
Batch submitted after 3:00 PM ET
Batch settled 10/26/16, 8:30 AM ET No Same‐Day Entry Fee charged
ACH transactions that have stale or invalid Effective Entry Dates will be settled by the ACH Operator at the earliest opportunity, which could be the same day Case study: A batch of Entries is submitted on Tuesday, October 25, 2016 before 10:30 AM ET with an Effective Entry Date of Monday, October 24 (i.e., with content “161024” in the Effective Entry Date field). Unfortunately, this is a late payroll file that was not submitted timely. The Effective Entry Date is stale, therefore the batch will be settled at the next available settlement opportunity, which is at 1:00 PM ET on Tuesday, October 25. • In this scenario, this late payroll file is settled 19.5 hours sooner than if the batch were treated as “next‐day” and settled at 8:30 AM on Wednesday • These transactions are assessed the Same‐Day Entry Fee, because they are settled as same‐day transactions
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Stale Date Research • FRB extracted data for October 2015 • 155,740 total batches examined • Number of ODFI’s with stale‐dated batches: 3,198 • Number of distinct company names with stale‐dated batches: 28,003
Same Day ACH Risk Overview • Same Day ACH and the faster movement of money can mitigate some risks and increase others • The phased implementation of Same Day ACH is itself a risk mitigation tactic – By limiting Phase 1 to credits, the industry has a year to adjust to the faster movement of funds before the introduction of same‐day debits – Allowing FIs and their account holders to adjust, before moving money out of accounts (debits) faster
• The $25,000 transaction limit (not batch or file limit) is a risk mitigation tool – Controls the quantity of dollars that can move faster – Controls the impact of receiving large dollar debits late in the business day
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Risk Same Day ACH Mitigates • Same Day ACH and the faster movement of money mitigates some risks, for example: – Counterparty Risk is reduced by more frequent settlement • Financial institutions will have less exposure to potential settlement failure by another financial institution
– Operational Risk is mitigated with additional contingency processing and settlement windows • These provide more frequent and flexible opportunities to recover in the event of missed deadlines or system outages • Same‐day Reversals could be used to recover from erroneous or duplicate Files
– Credit Risk can be reduced in several ways • ODFIs have less exposure time for same‐day credits – ODFI is liable for credits put into the system, and more frequent settlement reduces time for an Originator to fail, go bankrupt or have funds frozen
• ODFIs could lower an exposure limit for Originator over multiple settlement dates because of faster settlement of same‐day credits
Risk Same Day ACH Mitigates – Transaction Risk is reduced for same‐day debits: • ODFIs and Originators of same‐day debits can receive any returns at least one day sooner – A return could be even faster if the RDFI uses a same‐day window for the return
• ODFIs and Originators of next‐day debits could returns faster if RDFIs use same‐day windows for returns • Helping billers, card issuers and other better manage credit risk • RDFIs may return NSF and other unpostable debits faster – resulting in faster re‐credit
– Fraud Risk may increase in some ways (please see ODFI Risk Considerations), but is also mitigated by receiving returns faster (alerting ODFIs and Originators to potential fraud earlier)
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Before Originating Same Day ACH: Some Risk Considerations •
Develop an overall strategy for offering Same Day ACH – Should Same Day be offered to all or select Originators? • Not all customers may be suitable for same‐day origination • Not all FI products may be suitable for same‐day origination
– Determine how to identify those Originators or transaction types permitted to use Same Day ACH – Consider customer’s profile (i.e., business model) when offering Same Day ACH • Current credit limits and risk rating • Prefunding and exposure • Authentication methods
•
Review Files or have processes in place to determine compliance with Same Day eligibility rules – Ensure proper use of Effective Entry Date – Other indicators (Descriptive Date, Company Discretionary Data) – Transactions appropriate to the phase (Phase 1, Credits only)
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Origination Risk Considerations •
With multiple settlements each day, the ODFI’s exposure may change throughout the day – Established exposure limits for the Originator will not change, but the amount of exposure to risk throughout the day could change for the Originator or FI due to multiple settlement windows – If an ODFI employs intraday real time settlement capabilities they should consider how use of Same Day Entries may impact credit exposure limits
•
With the increased speed of Same Day Entries, the importance of commercially reasonable authentication methods and security around file delivery is increased – Types of entries to monitor more closely may include account openings, A2A, and P2P
•
Use of Prenotifications and responses to Prenotifications will enable better quality of Entries and serve to mitigate risk – This is true for Same Day Entries as well as non‐Same Day transactions – For example, a payroll Entry or bill payment containing an incorrect Receiver account number can be remedied more quickly if response is sent same‐day
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Originator Risk Considerations • ODFI should review policies for prefunding particularly in Phase 1 when debits will not be available for Same Day – With $25,000 per Entry limit, off‐set may not be eligible for Same Day
• Some Originators may attempt to split $25,000+ items into two or more Entries – To mitigate their risk, ODFIs should monitor for this and educate Originators – The ACH Rules Enforcement Panel will have final authority on any instances when it appears that an ODFI, Originator or Third‐Party Sender is attempting to evade the limit
• To mitigate risk of an increase in unauthorized returns, ODFI should ensure Originators have clearly communicated use of same day debit – Ensure customers understand the debit could take place same day
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How Does Can an ODFI’s Credit Exposure Change through the day with Same Day ACH? If an Originator transmits $100,000 in credit Entries in the morning, designated for three different processing windows as follows: Same Day 10:30 AM ET Window: $70,000 Same Day 2:45 PM ET Window: $20,000 Next‐Day Window: $10,000
3:00 AM - ACH Opens Total Daily Exposure
6:30 PM - Fedwire closes $100,000 First Settlement Window 1:00 PM Remaining Daily Exposure = $100,000 - $70,000 = $30,000
2:00 AM
1:00 AM
12:00 midnight
11:00 PM
10:00 PM
9:00 PM
8:00 PM
7:00 PM
6:00 PM
5:00 PM
4:00 PM
3:00 PM
2:00 PM
1:00 PM
12:00 noon
11:00 AM
10:00 AM
9:00 AM
8:00 AM
7:00 AM
6:00 AM
5:00 AM
4:00 AM
3:00 AM
As files are released and settled throughout the day, the amount of credit exposure the ODFI has outstanding decreases as settlement occurs for each processing window.
2:15 AM - ODFI Deadline Next-Day Transactions
Second Settlement Window 5:00 PM Remaining Daily Exposure = $30,000 - $20,000 = $10,000 Daily Exposure Not Previously Settled
$10,000
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Transmitting Balanced Files during Phase One Credit File of Same Day Entries – Effective Entry Date of October 18, 2016 200.00 2000.00 1000.00 600.00 Total of: 3800.00 Settlement will occur on October 18.
Offset Debit File – Effective Entry Date of 18, 2016 however, Same Day Debit Entries cannot be processed during Phase 1. 200.00 2000.00 1000.00 600.00 Total of: 3800.00 Settlement will occur after October 18. Regardless of when the Debit File is sent on October 18 the Effective Entry Date will be pushed to the next eligible settlement window.
RISK ALERT to consider when processing balanced files: Credits will settle before the funding Debit File and could fail to settle after the Credit File has been released.
Both files sent to ACH Operator at same time. Debit file cannot be processed same‐day during Phase 1 24
Returns, Reversals and other ODFI Risk Considerations • Erroneous entries may be remedied more quickly by sending reversals faster – Debits, including reversals of erroneous credits, will not be available until Phase 2 – A debit in a reversing file must not contain an Effective Entry date that is earlier than the Effective Entry Date of the credit to which it relates
• An RDFI that suspects a credit is unauthorized may treat a same day credit the same as other credit Entries, by researching and notifying the ODFI of any delays – Voluntary Exception Rule
• ODFI may consider registering for the Emergency Contact Database to be able to more quickly contact or be contacted by another FI if there is a problem – http://www.emergencyficontact.org/
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RDFI Impacts and Risks
RDFI Impacts • Receipt of Same Day Entries is not optional for RDFIs • For RDFIs the following relationships and areas may be impacted: – – – –
ACH Operator Vendors and processors Enterprise‐wide operations Receivers
• Current ACH processing schedules and offerings will continue without change – Same Day ACH offers schedules in addition to the current offerings
• Making funds available in a timely manner • Processing of files when closing early, closing on banking days – Dual controls should still be in place
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RDFI Impact with Operator • Areas that may be impacted and should be reviewed: – File receipt and delivery schedules including return timing – Service needs and offerings such as reporting tools – Collection/Reporting/Identification of the Same Day ACH Entry Fees – Settlement with the ACH Operator(s) – Review agreements with ACH Operator(s)
RDFI Impact with Vendors and Processors • •
Areas that may be impacted and should be reviewed: Service offerings – – – – – –
What and when? When available for testing? Live processing? Training on updated software? Differentiate between Same Day ACH Entries and non‐Same Day ACH Entries Will processes be manual or automated? What information will be in the reports? • Will there be any Same Day ACH specific reporting information contained within?
• • • • •
Error resolution Disaster Recovery/Contingency Planning File receipt and delivery timelines and procedures Agreements Release Notes – Ensure statements are updated correctly and accurately
RDFI Impact (Enterprise‐wide Operations) Areas that may be impacted and should be reviewed: • Internal processing schedules and procedures, including handling of exceptions and returns • Funds availability • Disaster Recovery – Do Same Day ACH entries have priority over next day entries?
• Downstream applications and systems • Reconcilement with ACH Operator(s) enterprise‐wide • Education of frontline and call center staff
RDFI Impact with Receivers • Areas that may be impacted and should be reviewed: – Corporate Receivers may want their remittance information delivered faster (premium value added service) – Corporate Receiver of credit must update records to reflect Originator's payment as having been received as of date no later than Settlement Date, has reasonable amount of time to update records
RDFI Risk Management Considerations • Policies and procedures related to returns and NOCs should be reviewed to allow for: – Returns and NOCs have more available windows for transmission – Allows these Entries to be sent from the RDFI to the ODFI more quickly – Reduced credit risk when Entries are returned sooner, but RDFIs are not required to send returns faster
• Erroneous Entries may be remedied more quickly because Reversals may be received sooner – Debits, including Reversals of erroneous credits, will not be available until Phase 2 – A debit in a reversing file must not contain an Effective Entry date that is earlier than the Effective Entry Date of the credit to which it relates.
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RDFI Risk Management Considerations •
Funds availability requirements change with Same Day ACH, RDFIs need to have resources to ensure funds are available at the required time – Phases 1 & 2 – Funds must be available at end of RDFI’s processing day – Phase 3 – Funds must be available for withdrawal by 5:00 PM local time for RDFI
•
An RDFI that suspects a credit is unauthorized may treat a same day credit the same as other credit Entries, by researching and notifying the ODFI of any delays – Voluntary Exception Rule
•
RDFIs may consider registering for the Emergency Contact Database to be able to more quickly contact or be contacted by another FI if there is a problem – http://www.emergencyficontact.org/
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Vendor and Processor Risk Management Considerations • • •
To Mitigate Risk: Confirm readiness for all implementation phases with processors and review agreements as necessary Confirm with vendors that updated software will be available for implementation – Assign someone to review release notes related to Same Day ACH programming
•
Updated software may affect other pieces of the processing downstream – Software must be available early enough for testing
•
Other Considerations: – – – –
Online account opening Online/Mobile banking platform Person‐to‐Person (P2P) Account‐to‐Account (A2A)
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Corporate Receiver Risk Management Considerations • Educate corporate Receivers on possibility of late day cash position variations – Discuss payment timing with trading partners – Entries will not be greater than $25,000
• Educate corporate Receivers on applying consumer bill payments to customer’s account as required • Corporate Receivers should ensure they receive remittance information in compliance with timing requirements or agreements
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Scenario 1 • In phase 1, a batch is submitted to the ACH Operator at 11:45 pm ET on Tuesday, October 4, 2016, with an effective entry date of October 3, 2016 (stale‐ dated)
• Since the batch was submitted prior to the 2:15 am ET deadline and is not future dated, it will settle at 8:30 am ET on Wednesday, October 5, 2016 • No same day entry fee will apply
Scenario 2 • The batch has met the • In phase 1, a batch 10:30 am ET submission containing CCD debit deadline for Same Day ACH, but debits are not allowed entries with an effective in phase 1 entry date of December • The batch will be processed 1, 2016 is submitted to as next day settlement with output delivered at 12 noon the ACH Operator on ET on December 6, 2016 December 6, 2016 at and settlement will occur at 8:30 am ET on December 7, 10:00 am ET 2016 • No Same Day ACH entry fee will be applied
Scenario 3 • In phase 1, a “balanced” file with an effective entry date of December 7, 2016, is submitted to the ACH Operator on December 7, 2016 prior to 2:45 pm ET • The file contains a single PPD debit entry for $12,500 and multiple PPD credit entries when added together, equal the $12,500 debit entry
• The credit entries are eligible for same day but the debit is not • The credit entries will settle on December 7, 2016 at 5:00 pm ET and the debit entry will settle on December 8, 2016 at 8:30 am • The credit entries are subject to the same day entry fee; the debit entry is not
Scenario 4 • In phase 1, a batch is • Because the effective entry submitted at 2:00 pm ET on date in the batch is not November 18, 2016, with an future‐dated and the batch effective entry date of is submitted prior to the November 1, 2016 (the 2:45 pm ET submission entry is stale‐dated) deadline, it will settle on November 18, 2016 (same • The batch contains credits day) at 5:00 pm ET only, and all are under $25K • The same day ACH entry fee will be applied
Scenario 5 •
•
•
In phase 1, a batch containing PPD entries with an effective date of October 1, 2016, is submitted to the ACH Operator at 2:30 pm ET on October 19, 2016 (the batch is stale‐dated) The batch contains several credit entries and one debit entry for $12,500; one credit entry is for $96,100 and all other credit entries are under $25,000 Assuming there are no edit errors, the batch will be processed at the 2:45 pm ET deadline
•
•
•
For the eligible same day entries (the credit entries under $25,000), the output files will be distributed by 4:00 pm ET with settlement occurring at 5:00 pm ET on October, 19, 2016 The credit entry for $96,100 and the debit entry for $12,500 will be included with the 4:00 pm output file, but they will settle the next business day, October 20, 2016 at 8:30 am ET The eligible same day entries will incur the Same Day Entry fee
Scenario 6 • In phase 2, a batch containing WEB credit entries with an effective date of August 1, 2017 is submitted to the ACH operator on September 28, 2017 at 4:00 pm ET • All items are $25,000 or less
• The entries are eligible for same day as the batch was submitted prior to the 10:30 am ET deadline, no entries exceeded $25,000, the effective entry date is stale and the batch contains no IAT or ENR entries • The batch will be processed as same day with output delivered by 12 noon ET and settlement occurring at 1:00 pm ET on September 28, 2016 • Same day entry fees will apply
Scenario 7 • In phase 1, a forward entry is submitted on October 4, 2016 at 9:30 am ET, meeting the 10:30 am ET same day submission deadline • The effective entry date of the batch is September 30, 2016 (stale‐dated), and it qualifies for same day settlement. It is processed and settled same day, on October 4, 2016 at 1:00 pm ET • The entry must be returned , so the return entry is submitted to the ACH operator on October 4, 2016 at 3:00 pm ET, meeting the 4:00 pm ET return submission deadline. The effective entry date of the return is September 30, 2016 (same as the original forward entry)
Scenario 7 (continued) • The forward entry will settle same day (October 4, 2016) at 1:00 pm ET • The forward entry will incur the same day ACH entry fee • The return entry will settle at 5:30 pm ET on October 4, 2016 • There is no same day entry fee applied to the return • Note: The return entry is not subject to the same requirements as a forward same day entry
Scenario 8 • The entries are eligible for • In phase 2, a batch same day as the batch was containing WEB debit and submitted prior to the 10:30 credit entries with an am ET deadline, no entries effective entry date of exceeded $25,000, the effective entry date is stale, August 1, 2017 is submitted and the batch contained no to the ACH operator on IAT or ENR entries September 28, 2017, at 4:00 • The batch will be processed am ET as same day with the output delivered by 12 • All items are $25,000 or less noon ET and settlement occurring at 1:00 pm ET on September 28, 2017
Scenario 9 • In phase 2, a CCD entry • Even though the CCD entry was submitted to is submitted to the ACH meet the 2:45 pm ET operator on March 10, same day deadline, the 2018 at 2:00 pm ET with an effective date of entry was future‐dated March 11, 2018 (future and will settle on March dated) 11, 2018 at 8:30 am ET • The entry is for $23,000 • No same day ACH entry fee is applied
Scenario 10 • In phase 3, a forward entry is processed as a next‐day entry and settles on August 4, 2018 at 8:30 am ET • The entry must be returned
• Option 1: Return the entry same day (August 4, 2018) to settle at 5:30 pm ET. Submit the entry by 4:00 pm ET • Option 2: Return the entry next day (August 5, 2018) to settle at 8:30 am ET on August 6, 2018. Submit the entry by 2:15 am ET August 6, 2018 • Settlement of the return entry must occur no later than the opening of business on the second business day following settlement
QUESTIONS
Please fill out your Evaluations
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PAR/WACHA‐The Premier Payments Resource Mary Gilmeister, AAP, NCP President [email protected]
Disclaimer • WACHA, through its Direct Membership in NACHA, is a specially recognized and licensed provider of ACH education, publications and support. • Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. • NACHA owns the copyright for the NACHA Operating Rules & Guidelines. • The Accredited ACH Professional (AAP) is a service mark of NACHA. • This material is derived from collabora ve work product developed by NACHA ─ The Electronic Payments Association and its member Regional Payments Associations, and is not intended to provide any warranties or legal advice, and is intended for educational purposes only. • This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only. • This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information contained herein. • No part of this material may be used without the prior written permission of WACHA/PAR © 2016 PAR/WACHA All rights reserved
Same Day ACH • Same Day ACH provides opportunities for: – Faster funds availability – Decreased credit risks – More expedient returns Could remedy reasons for reversals, returns, corrections (NOCs) and faster prenotifications – Increased authentication and file delivery methods
• Dollar cap of $25,000 reduces possibility of late day, high‐dollar cash forecasting discrepancies
3
Same Day ACH • Origination of Same Day ACH Entries is optional • Receipt of Same Day Entries is not optional – All RDFIs must be prepared to pickup incoming ACH files from ACH Operator or Receiving Point and post Entries as required
• Next‐day processing schedules will remain unchanged and will continue to be available for use 4
Costs for Same‐Day • Same‐Day ACH is a premium service!! • ODFI’s will be charged 5.2 cents for each entry processed by an operator in a same‐day window • ODFI’s need to include this interbank fee when pricing their same‐day products • Be sure and have a mechanism in place to track same day entries, the operators may only give you a total monthly fee amount on your bill
A Phased Approach to Same Day ACH To ease the industry’s implementation effort, the new ACH Network functionality would be implemented across three implementation phases. Functionality Transaction Eligibility
Phase 1 Sept. 23, 2016
Phase 2 Sept. 15, 2017
Phase 3 March 16, 2018
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
($25,000 limit; IAT not eligible)
Times shown represent the approximate times for an ODFI’s deadlines to transmit Same Day ACH transactions to an ACH Operator.
6
6
Fed Processing Schedule
ODFI Impacts and Risks
ODFI Impacts • •
• •
9
Offering Same Day ACH products and services is optional for ODFIs For those ODFIs that choose to offer Same Day products and services, the following relationships and areas may be impacted: – ACH Operator/Sending Point (Correspondent Bank/Corporate Credit Union/Bankers Bank) – Originators and Third‐Party Senders – Third Party Service Providers/Vendors or Processors – Enterprise‐wide operations Current ACH processing schedules and offerings will continue without change Same Day ACH offers schedules in addition to the current offerings
ODFI Impact with Originators and Third‐Party Senders Areas that may be impacted and should be reviewed: • Service offerings • File submission and delivery timelines and procedures • Proper use of the Effective Entry Date and identification of Same Day ACH Entries • Review agreements with Originators and Third Party Senders • Update Contacts • Collection/Reporting/Identification of the Same Day ACH Entry Fee • Educate Third Party Senders on their responsibilities within the Same Day ACH environment – Downstream communications to provide information to all parties to the transaction
ODFI Impact with Vendors, Processors and Software Providers Areas that may be impacted and should be reviewed: • Service offerings – Training on updated software? – Differentiate between Same Day ACH users and non‐Same Day ACH users – How will balanced Files work? – Will processes be manual or automated? – What information will be in the reports? • Will there be any Same Day ACH specific reporting information contained within?
• File submission and delivery timelines and procedures • Agreement updates • Implementation and timelines for testing
ODFI Impact (Enterprise‐wide Operations) Areas that may be impacted and should be reviewed: • Internal processing schedules and procedures • Downstream applications and systems • Eligibility of own origination for Same Day ACH • All departments, including IT, should work together • Contingency planning
Originators and Third‐Party Sender Impacts • Use of Same Day ACH Entries is optional for origination • For parties considering using Same Day ACH, the following should be considered: – Use cases for potential opportunities – FI service offerings • Discuss file requirements, new file submission and delivery schedules and procedures
13
Handling of Effective Entry Dates (EED) Batch submitted by 10:30 AM ET
Batch settled 10/25/16, 1:00 PM ET Same‐ Day Entry Fee charged
Batch submitted by 2:45 PM ET
Batch settled 10/25/16, 5:00 PM ET Same‐ Day Entry Fee charged
Batch submitted after 3:00 PM ET
Batch settled 10/26/16, 8:30 AM ET No Same‐Day Entry Fee charged
Today’s date: Oct. 25, 2016 Batch EED: 161025
Case study: A batch of Entries is submitted on Tuesday, October 25, 2016 after 3:00 PM ET with an Effective Entry Date of Tuesday, October 25 (i.e., with content “161025” in the Effective Entry Date field). Because the time of submission is after the ACH Operator’s deadline, this Effective Entry Date is “stale;” the batch is settled at the next available settlement opportunity, which is the next day, Wednesday, October 26, at 8:30 AM ET. • Transactions are settled on the next day, and therefore not assessed the Same‐ Day Entry Fee • ODFIs whose Originators use default Effective Entry Dates of the current day could submit their files after 3:00 PM ET and not be settled on the same day or assessed the Same‐Day Entry Fee
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Handling of Stale/Invalid Effective Entry Dates Today’s date: Oct. 25, 2016 Batch EED: 161024 (stale)
Note: stale date means a date that is in the past
Batch submitted by 10:30 AM ET
Batch settled 10/25/16, 1:00 PM ET Same‐Day Entry Fee charged
Batch submitted by 2:45 PM ET
Batch settled 10/25/16, 5:00 PM ET Same‐Day Entry Fee charged
Batch submitted after 3:00 PM ET
Batch settled 10/26/16, 8:30 AM ET No Same‐Day Entry Fee charged
ACH transactions that have stale or invalid Effective Entry Dates will be settled by the ACH Operator at the earliest opportunity, which could be the same day Case study: A batch of Entries is submitted on Tuesday, October 25, 2016 before 10:30 AM ET with an Effective Entry Date of Monday, October 24 (i.e., with content “161024” in the Effective Entry Date field). Unfortunately, this is a late payroll file that was not submitted timely. The Effective Entry Date is stale, therefore the batch will be settled at the next available settlement opportunity, which is at 1:00 PM ET on Tuesday, October 25. • In this scenario, this late payroll file is settled 19.5 hours sooner than if the batch were treated as “next‐day” and settled at 8:30 AM on Wednesday • These transactions are assessed the Same‐Day Entry Fee, because they are settled as same‐day transactions
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Stale Date Research • FRB extracted data for October 2015 • 155,740 total batches examined • Number of ODFI’s with stale‐dated batches: 3,198 • Number of distinct company names with stale‐dated batches: 28,003
Same Day ACH Risk Overview • Same Day ACH and the faster movement of money can mitigate some risks and increase others • The phased implementation of Same Day ACH is itself a risk mitigation tactic – By limiting Phase 1 to credits, the industry has a year to adjust to the faster movement of funds before the introduction of same‐day debits – Allowing FIs and their account holders to adjust, before moving money out of accounts (debits) faster
• The $25,000 transaction limit (not batch or file limit) is a risk mitigation tool – Controls the quantity of dollars that can move faster – Controls the impact of receiving large dollar debits late in the business day
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Risk Same Day ACH Mitigates • Same Day ACH and the faster movement of money mitigates some risks, for example: – Counterparty Risk is reduced by more frequent settlement • Financial institutions will have less exposure to potential settlement failure by another financial institution
– Operational Risk is mitigated with additional contingency processing and settlement windows • These provide more frequent and flexible opportunities to recover in the event of missed deadlines or system outages • Same‐day Reversals could be used to recover from erroneous or duplicate Files
– Credit Risk can be reduced in several ways • ODFIs have less exposure time for same‐day credits – ODFI is liable for credits put into the system, and more frequent settlement reduces time for an Originator to fail, go bankrupt or have funds frozen
• ODFIs could lower an exposure limit for Originator over multiple settlement dates because of faster settlement of same‐day credits
Risk Same Day ACH Mitigates – Transaction Risk is reduced for same‐day debits: • ODFIs and Originators of same‐day debits can receive any returns at least one day sooner – A return could be even faster if the RDFI uses a same‐day window for the return
• ODFIs and Originators of next‐day debits could returns faster if RDFIs use same‐day windows for returns • Helping billers, card issuers and other better manage credit risk • RDFIs may return NSF and other unpostable debits faster – resulting in faster re‐credit
– Fraud Risk may increase in some ways (please see ODFI Risk Considerations), but is also mitigated by receiving returns faster (alerting ODFIs and Originators to potential fraud earlier)
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Before Originating Same Day ACH: Some Risk Considerations •
Develop an overall strategy for offering Same Day ACH – Should Same Day be offered to all or select Originators? • Not all customers may be suitable for same‐day origination • Not all FI products may be suitable for same‐day origination
– Determine how to identify those Originators or transaction types permitted to use Same Day ACH – Consider customer’s profile (i.e., business model) when offering Same Day ACH • Current credit limits and risk rating • Prefunding and exposure • Authentication methods
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Review Files or have processes in place to determine compliance with Same Day eligibility rules – Ensure proper use of Effective Entry Date – Other indicators (Descriptive Date, Company Discretionary Data) – Transactions appropriate to the phase (Phase 1, Credits only)
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Origination Risk Considerations •
With multiple settlements each day, the ODFI’s exposure may change throughout the day – Established exposure limits for the Originator will not change, but the amount of exposure to risk throughout the day could change for the Originator or FI due to multiple settlement windows – If an ODFI employs intraday real time settlement capabilities they should consider how use of Same Day Entries may impact credit exposure limits
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With the increased speed of Same Day Entries, the importance of commercially reasonable authentication methods and security around file delivery is increased – Types of entries to monitor more closely may include account openings, A2A, and P2P
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Use of Prenotifications and responses to Prenotifications will enable better quality of Entries and serve to mitigate risk – This is true for Same Day Entries as well as non‐Same Day transactions – For example, a payroll Entry or bill payment containing an incorrect Receiver account number can be remedied more quickly if response is sent same‐day
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Originator Risk Considerations • ODFI should review policies for prefunding particularly in Phase 1 when debits will not be available for Same Day – With $25,000 per Entry limit, off‐set may not be eligible for Same Day
• Some Originators may attempt to split $25,000+ items into two or more Entries – To mitigate their risk, ODFIs should monitor for this and educate Originators – The ACH Rules Enforcement Panel will have final authority on any instances when it appears that an ODFI, Originator or Third‐Party Sender is attempting to evade the limit
• To mitigate risk of an increase in unauthorized returns, ODFI should ensure Originators have clearly communicated use of same day debit – Ensure customers understand the debit could take place same day
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How Does Can an ODFI’s Credit Exposure Change through the day with Same Day ACH? If an Originator transmits $100,000 in credit Entries in the morning, designated for three different processing windows as follows: Same Day 10:30 AM ET Window: $70,000 Same Day 2:45 PM ET Window: $20,000 Next‐Day Window: $10,000
3:00 AM - ACH Opens Total Daily Exposure
6:30 PM - Fedwire closes $100,000 First Settlement Window 1:00 PM Remaining Daily Exposure = $100,000 - $70,000 = $30,000
2:00 AM
1:00 AM
12:00 midnight
11:00 PM
10:00 PM
9:00 PM
8:00 PM
7:00 PM
6:00 PM
5:00 PM
4:00 PM
3:00 PM
2:00 PM
1:00 PM
12:00 noon
11:00 AM
10:00 AM
9:00 AM
8:00 AM
7:00 AM
6:00 AM
5:00 AM
4:00 AM
3:00 AM
As files are released and settled throughout the day, the amount of credit exposure the ODFI has outstanding decreases as settlement occurs for each processing window.
2:15 AM - ODFI Deadline Next-Day Transactions
Second Settlement Window 5:00 PM Remaining Daily Exposure = $30,000 - $20,000 = $10,000 Daily Exposure Not Previously Settled
$10,000
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Transmitting Balanced Files during Phase One Credit File of Same Day Entries – Effective Entry Date of October 18, 2016 200.00 2000.00 1000.00 600.00 Total of: 3800.00 Settlement will occur on October 18.
Offset Debit File – Effective Entry Date of 18, 2016 however, Same Day Debit Entries cannot be processed during Phase 1. 200.00 2000.00 1000.00 600.00 Total of: 3800.00 Settlement will occur after October 18. Regardless of when the Debit File is sent on October 18 the Effective Entry Date will be pushed to the next eligible settlement window.
RISK ALERT to consider when processing balanced files: Credits will settle before the funding Debit File and could fail to settle after the Credit File has been released.
Both files sent to ACH Operator at same time. Debit file cannot be processed same‐day during Phase 1 24
Returns, Reversals and other ODFI Risk Considerations • Erroneous entries may be remedied more quickly by sending reversals faster – Debits, including reversals of erroneous credits, will not be available until Phase 2 – A debit in a reversing file must not contain an Effective Entry date that is earlier than the Effective Entry Date of the credit to which it relates
• An RDFI that suspects a credit is unauthorized may treat a same day credit the same as other credit Entries, by researching and notifying the ODFI of any delays – Voluntary Exception Rule
• ODFI may consider registering for the Emergency Contact Database to be able to more quickly contact or be contacted by another FI if there is a problem – http://www.emergencyficontact.org/
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RDFI Impacts and Risks
RDFI Impacts • Receipt of Same Day Entries is not optional for RDFIs • For RDFIs the following relationships and areas may be impacted: – – – –
ACH Operator Vendors and processors Enterprise‐wide operations Receivers
• Current ACH processing schedules and offerings will continue without change – Same Day ACH offers schedules in addition to the current offerings
• Making funds available in a timely manner • Processing of files when closing early, closing on banking days – Dual controls should still be in place
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RDFI Impact with Operator • Areas that may be impacted and should be reviewed: – File receipt and delivery schedules including return timing – Service needs and offerings such as reporting tools – Collection/Reporting/Identification of the Same Day ACH Entry Fees – Settlement with the ACH Operator(s) – Review agreements with ACH Operator(s)
RDFI Impact with Vendors and Processors • •
Areas that may be impacted and should be reviewed: Service offerings – – – – – –
What and when? When available for testing? Live processing? Training on updated software? Differentiate between Same Day ACH Entries and non‐Same Day ACH Entries Will processes be manual or automated? What information will be in the reports? • Will there be any Same Day ACH specific reporting information contained within?
• • • • •
Error resolution Disaster Recovery/Contingency Planning File receipt and delivery timelines and procedures Agreements Release Notes – Ensure statements are updated correctly and accurately
RDFI Impact (Enterprise‐wide Operations) Areas that may be impacted and should be reviewed: • Internal processing schedules and procedures, including handling of exceptions and returns • Funds availability • Disaster Recovery – Do Same Day ACH entries have priority over next day entries?
• Downstream applications and systems • Reconcilement with ACH Operator(s) enterprise‐wide • Education of frontline and call center staff
RDFI Impact with Receivers • Areas that may be impacted and should be reviewed: – Corporate Receivers may want their remittance information delivered faster (premium value added service) – Corporate Receiver of credit must update records to reflect Originator's payment as having been received as of date no later than Settlement Date, has reasonable amount of time to update records
RDFI Risk Management Considerations • Policies and procedures related to returns and NOCs should be reviewed to allow for: – Returns and NOCs have more available windows for transmission – Allows these Entries to be sent from the RDFI to the ODFI more quickly – Reduced credit risk when Entries are returned sooner, but RDFIs are not required to send returns faster
• Erroneous Entries may be remedied more quickly because Reversals may be received sooner – Debits, including Reversals of erroneous credits, will not be available until Phase 2 – A debit in a reversing file must not contain an Effective Entry date that is earlier than the Effective Entry Date of the credit to which it relates.
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RDFI Risk Management Considerations •
Funds availability requirements change with Same Day ACH, RDFIs need to have resources to ensure funds are available at the required time – Phases 1 & 2 – Funds must be available at end of RDFI’s processing day – Phase 3 – Funds must be available for withdrawal by 5:00 PM local time for RDFI
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An RDFI that suspects a credit is unauthorized may treat a same day credit the same as other credit Entries, by researching and notifying the ODFI of any delays – Voluntary Exception Rule
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RDFIs may consider registering for the Emergency Contact Database to be able to more quickly contact or be contacted by another FI if there is a problem – http://www.emergencyficontact.org/
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Vendor and Processor Risk Management Considerations • • •
To Mitigate Risk: Confirm readiness for all implementation phases with processors and review agreements as necessary Confirm with vendors that updated software will be available for implementation – Assign someone to review release notes related to Same Day ACH programming
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Updated software may affect other pieces of the processing downstream – Software must be available early enough for testing
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Other Considerations: – – – –
Online account opening Online/Mobile banking platform Person‐to‐Person (P2P) Account‐to‐Account (A2A)
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Corporate Receiver Risk Management Considerations • Educate corporate Receivers on possibility of late day cash position variations – Discuss payment timing with trading partners – Entries will not be greater than $25,000
• Educate corporate Receivers on applying consumer bill payments to customer’s account as required • Corporate Receivers should ensure they receive remittance information in compliance with timing requirements or agreements
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Scenario 1 • In phase 1, a batch is submitted to the ACH Operator at 11:45 pm ET on Tuesday, October 4, 2016, with an effective entry date of October 3, 2016 (stale‐ dated)
• Since the batch was submitted prior to the 2:15 am ET deadline and is not future dated, it will settle at 8:30 am ET on Wednesday, October 5, 2016 • No same day entry fee will apply
Scenario 2 • The batch has met the • In phase 1, a batch 10:30 am ET submission containing CCD debit deadline for Same Day ACH, but debits are not allowed entries with an effective in phase 1 entry date of December • The batch will be processed 1, 2016 is submitted to as next day settlement with output delivered at 12 noon the ACH Operator on ET on December 6, 2016 December 6, 2016 at and settlement will occur at 8:30 am ET on December 7, 10:00 am ET 2016 • No Same Day ACH entry fee will be applied
Scenario 3 • In phase 1, a “balanced” file with an effective entry date of December 7, 2016, is submitted to the ACH Operator on December 7, 2016 prior to 2:45 pm ET • The file contains a single PPD debit entry for $12,500 and multiple PPD credit entries when added together, equal the $12,500 debit entry
• The credit entries are eligible for same day but the debit is not • The credit entries will settle on December 7, 2016 at 5:00 pm ET and the debit entry will settle on December 8, 2016 at 8:30 am • The credit entries are subject to the same day entry fee; the debit entry is not
Scenario 4 • In phase 1, a batch is • Because the effective entry submitted at 2:00 pm ET on date in the batch is not November 18, 2016, with an future‐dated and the batch effective entry date of is submitted prior to the November 1, 2016 (the 2:45 pm ET submission entry is stale‐dated) deadline, it will settle on November 18, 2016 (same • The batch contains credits day) at 5:00 pm ET only, and all are under $25K • The same day ACH entry fee will be applied
Scenario 5 •
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In phase 1, a batch containing PPD entries with an effective date of October 1, 2016, is submitted to the ACH Operator at 2:30 pm ET on October 19, 2016 (the batch is stale‐dated) The batch contains several credit entries and one debit entry for $12,500; one credit entry is for $96,100 and all other credit entries are under $25,000 Assuming there are no edit errors, the batch will be processed at the 2:45 pm ET deadline
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For the eligible same day entries (the credit entries under $25,000), the output files will be distributed by 4:00 pm ET with settlement occurring at 5:00 pm ET on October, 19, 2016 The credit entry for $96,100 and the debit entry for $12,500 will be included with the 4:00 pm output file, but they will settle the next business day, October 20, 2016 at 8:30 am ET The eligible same day entries will incur the Same Day Entry fee
Scenario 6 • In phase 2, a batch containing WEB credit entries with an effective date of August 1, 2017 is submitted to the ACH operator on September 28, 2017 at 4:00 pm ET • All items are $25,000 or less
• The entries are eligible for same day as the batch was submitted prior to the 10:30 am ET deadline, no entries exceeded $25,000, the effective entry date is stale and the batch contains no IAT or ENR entries • The batch will be processed as same day with output delivered by 12 noon ET and settlement occurring at 1:00 pm ET on September 28, 2016 • Same day entry fees will apply
Scenario 7 • In phase 1, a forward entry is submitted on October 4, 2016 at 9:30 am ET, meeting the 10:30 am ET same day submission deadline • The effective entry date of the batch is September 30, 2016 (stale‐dated), and it qualifies for same day settlement. It is processed and settled same day, on October 4, 2016 at 1:00 pm ET • The entry must be returned , so the return entry is submitted to the ACH operator on October 4, 2016 at 3:00 pm ET, meeting the 4:00 pm ET return submission deadline. The effective entry date of the return is September 30, 2016 (same as the original forward entry)
Scenario 7 (continued) • The forward entry will settle same day (October 4, 2016) at 1:00 pm ET • The forward entry will incur the same day ACH entry fee • The return entry will settle at 5:30 pm ET on October 4, 2016 • There is no same day entry fee applied to the return • Note: The return entry is not subject to the same requirements as a forward same day entry
Scenario 8 • The entries are eligible for • In phase 2, a batch same day as the batch was containing WEB debit and submitted prior to the 10:30 credit entries with an am ET deadline, no entries effective entry date of exceeded $25,000, the effective entry date is stale, August 1, 2017 is submitted and the batch contained no to the ACH operator on IAT or ENR entries September 28, 2017, at 4:00 • The batch will be processed am ET as same day with the output delivered by 12 • All items are $25,000 or less noon ET and settlement occurring at 1:00 pm ET on September 28, 2017
Scenario 9 • In phase 2, a CCD entry • Even though the CCD entry was submitted to is submitted to the ACH meet the 2:45 pm ET operator on March 10, same day deadline, the 2018 at 2:00 pm ET with an effective date of entry was future‐dated March 11, 2018 (future and will settle on March dated) 11, 2018 at 8:30 am ET • The entry is for $23,000 • No same day ACH entry fee is applied
Scenario 10 • In phase 3, a forward entry is processed as a next‐day entry and settles on August 4, 2018 at 8:30 am ET • The entry must be returned
• Option 1: Return the entry same day (August 4, 2018) to settle at 5:30 pm ET. Submit the entry by 4:00 pm ET • Option 2: Return the entry next day (August 5, 2018) to settle at 8:30 am ET on August 6, 2018. Submit the entry by 2:15 am ET August 6, 2018 • Settlement of the return entry must occur no later than the opening of business on the second business day following settlement
QUESTIONS
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