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NACHA Online Payment Initiatives: Joint Payment Center Conference

Rob Unger, AAP Sr. Director Network Services NACHA 703-561-3913, [email protected]

Agenda

 NACHA/ACH Overview  EBIDS (Electronic Billing and Information Delivery Service)  Secure Vault Payments  Exception Processing Mitigation (c) NACHA

Introduction to NACHA

 Not for profit association  Two primary functions  Establishes operating rules for Automated Clearing House Network  Trade association to promote electronic payments (c) NACHA

What is the ACH Network?

 “ACH” stands for Automated Clearing House.

 The ACH Network is an electronic banking system:  Batch processing, store and forward  Transactions are stored during the day and sent to the network in batches, usually in the afternoon and/or evening  Transactions are not real-time or online.

 The ACH Network processes both credits and debits.

Scope of ACH Rules

     18,000 Financial Institutions 6 million companies 145 million consumers 16 billion transactions in 2006 33 trillion dollars in 2006  Direct Deposit  Direct Payment  Corporate payments  And more (c) NACHA

ACH Volume Growth

Growth of selected ACH transactions update Total ACH 2005 13,957 2006 15,984 Increase 14.5% POP Avg $ 79 WEB Avg $ 385 ARC Avg $ 290 TEL Avg $ 403 224 1,343 2,154 319 356 1,807 2,839 388 59.0% 34.5% 31.8% 21.5% (c) NACHA

Agenda

 NACHA/ACH Overview  EBIDS (Electronic Billing and Information Delivery Service)  Secure Vault Payments  Exception Processing Mitigation (c) NACHA

EBIDS Discussion

EBIDS Concept 2.

Processes 1.

Biller Enrollment 2.

Consumer Enrollment 3.

Bill Presentment 4.

Bill Payment 3.

Benefits 4.

Pilot Status (c) NACHA

Electronic Billing and Payment Needs

    Despite significant gains, overall EBPP adoption still low compared to entire possible volume Current state bill presentment/delivery    Unique customization requirements for bill Proprietary channels are the only option for bill delivery Greater adoption requires interoperable, secure method for bill distribution Current state bill payment  Check payments still generated from online banking because banks don’t know how to send electronic payments to all billers  Lack of data/incorrect data from online banking systems increases exception processing Bill payment is a costly “free” service for banks to provide (c) NACHA

The EBIDS Breakthrough

   Bill delivery: The ACH is an interoperable, rules-based, secure network that can provide a ubiquitous bill delivery/payment channel to thousands of FIs and millions of businesses Bill payment: The ACH credit model is a low-risk, low cost option that eliminates non-electronic payments and user-based exceptions from online banking when coupled with bill presentment.

New revenue paradigm: EBIDS proposes a business model for banks to be compensated for enrolling consumers and presenting consumers’ bills, and provides a least cost routing option for payment.

 Pilot sponsored by NACHA’s Council for Electronic Billing and Payment (c) NACHA

Electronic Billing Information Delivery Service (EBIDS)

 Consumer enrolls for ebill via Internet banking with consumer’s bank  Biller (via a bank) sends summary billing information/remittance data in an ACH addenda record with a URL to provide access to bill detail  ACH network serves as ‘switch’ and delivers summary bill information to consumer’s bank  Consumer’s bank provides billing information to consumer via Internet banking system  Consumer authorizes credit payment, transacted through normal ACH processes with remittance data (c) NACHA

EBIDS Summary Process Flow

2. Acknowledgement 1. Enrollment Consumer enrolls through CFI to receive summary bills from Billers via ACH using ENR Billers need to acknowledge EBIDS enrollment requests. Biller confirms/rejects an enrollment using the ENR entry 4 Consumer Financial Institution (CFI) ACH Operator Biller Financial Institution (BFI) 1 3. Bill Presentment Biller to route the consumer’s next bill to the CFI using a zero-dollar CTX transaction, with the summary bill info embedded in an addenda record Consumer 4. Bill Payment Consumers will connect to CFI system to view summary bills and authorize payment to Biller

2 Biller 3 12

Biller Enrollment

      Allows for data capture, storage and retrieval of biller and bank information.

Supports consumer banks’ need to know which billers are participating Supports consumer enrollment and delivery of electronic payments with remittance data Support delivery of epayments without e-bills Ensure e-payment and remittance data go to most current and correct electronic lockbox A web-based application

Biller Profile Information

Consumer FIs download biller directory data via XML file, add biller to their billpay system

Consumer Enrollment

Automated Enrollment Entry (ENR) via the ACH

2. Consumer Financial Institution (CFI) initiates ENR for each biller and transmits entries to ACH Operator 3. ACH Operator routes ENR to appropriate BFI Consumer Financial Institution (CFI) 1. Consumer enrolls through CFI providing the required enrollment info ACH Operator Biller Financial Institution (BFI) 4. BFI delivers ENR to biller – biller enrolls consumer Consumer MAINTENANCE Consumers may deactivate their EBIDS enrollment through the same process flow through the CFI

Biller 16

Contents Length Position

Example Example Example Example Example

ENR Sample: “7” Addenda Record

Enrollment Related Information Record Type Code Addend a Type Code Addend a Sequen ce Numbe r M Entry Detail Sequence Number M M R M ‘7’ ‘05’ 7 7 7 7 1 01-01 7 2 02-03 05 05 05 05 05 Include characters of addenda noted below in 80 character segments in multiple addenda 80 04-83 091000018EA1234567892234LewisStephanie925 Grand Blvd8 th floorKCMO64198< FIACCT>44 140000009999999 225415A152CAJ See Field Defs.

4 84-87 0001 0002 0003 0004 0005 See Field Defs.

7 88-94

48296323 48296323 48296323 48296323 48296323 22

Enrollment Acknowledgement

ENR Enrollment Confirmation

3. ACH Operator routes ENR to CFI, CFI updates bill presentment data system with enrollment status 2. BFI transmits ENR to ACH Operator for delivery to CFI Consumer Financial Institution (CFI) ACH Operator Biller Financial Institution (BFI) 1. After accepting ENR, Biller transmits acknowledgement to BFI to confirm receipt and acceptance (or rejection) 4. Consumer connects to CFI system to view enrollment status Consumer Biller

Bill Presentment

Zero-Dollar CTX Bill Presentment

3. ACH Operator routes CTX to CFI, CFI updates bill presentment data system with new bill 2. BFI transmits CTX to ACH Operator for delivery to the CFI Consumer Financial Institution (CFI) ACH Operator Biller Financial Institution (BFI) 1. After receiving ENR and enrolling consumer, Biller transmits zero dollar CTX with bill summary data embedded in an addenda record 4. Consumer logs on to CFI to view bill Consumer Biller

Bill detail from Verizon site no sign-in required (c) NACHA

Accessing Full Bill Detail: SAML Server (Strategic Assertion Markup Language)

 Consumer clicks to “view bill” on the consumer FI site then receives bill detail from the biller site  SAML is a message protocol for passing the consumer FI credential to the biller, without requiring the consumer to log-in with the biller   Accomplished through the exchange of assertions and seamless to the consumer Result: a ‘single sign on’ (c) NACHA

Length Position

Example Example Example Example Example

CTX (Corporate Trade Exchange) for Bill Summary Sent by Biller to Consumer FI – Sample “7” Record Record Type Code Addend a Type Code

CTX ADDENDA RECORD for EACH CONSUMER

Ebill Summary Information Addend a Sequen ce Numbe r M Entry Detail Sequen ce Numbe r M M M O Contents 7 1 01-01 7 7 7 7 7 05 2 02-03 05 05 05 05 05 Include first 80 characters of data noted below 80 04-83 349804899027763120.0010.0020060309200602 16

478.340.00http://www.the
website.com/getmybi ll.exe?id=xxkkfj3355kj2l4k55LFRT5436KJT23RE4632WF758VJK56E32JK579642L 20070309 See Field Defs.
4 84-87 0001 0002 0003 0004 0005 (c) NACHA See Field Defs.
7 88-94 766787 8 766787 8 766787 8 766787 8 766787 8
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Bill Payment
CIE Bill Payment
2. CFI sends CIE to biller via the ACH Operator 3. ACH Operator routes CIE to appropriate BFI, BFI credits Biller account Consumer Financial Institution (CFI) ACH Operator 1. Consumer authorizes payment to Biller after viewing summary bill on CFI system Biller Financial Institution (BFI) 4. BFI routes Biller remittance identifier data to Biller; Biller credits consumer account Consumer
(c) NACHA
Biller 29

(c) NACHA
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(c) NACHA
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CIE (Consumer Initiated Entry) Sent by Consumer FI to Biller – Sample “6” Record
Record Type Code M Trans  actio n code M Receiving DFI Identification M Check Digit M
ENTRY DETAIL RECORD (CIE)
Account Number Amount Individual Name R M R Individual Identification M Discre  tionar y Data Addenda Indicator O M Trace Number M Contents 6 (2)
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Length/A lpha Numeric Position
Example
1 2 N 01-01 6 02-03 22 (3) Biller’s RTN at BFI 8 TTTTAAAA (3) Biller RTN Check Digit 1 N (3) Biller’s Acct. # at BFI 17 A (4) $ amt. Paid by the customer; zero filled 10 N 04-11 23456787 12-12 8 13-29 123456789012 34567 30-39 000000867 3 (4) Biller’s Customer Name 15 A (4) Customer’s account number at Biller 22 A 40-54 STEPHANIE LEWIS 55-76 123456789012 3456789012 Blank 2 A 77-78 Always 0 (no addenda) 1 N 79-79 0 Assigned by ODFI 15 N 80-94 45542779765778 8
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(c) NACHA

Biller Benefits
 Meets preference for multiple channels  Increased adoption  Reduces unapplied payments  Guaranteed funds  No administrative returns  Accelerated posting of payment  Cost reduction  Improved customer experience (c) NACHA
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FI Benefits
     Supports online banking:  lowers attrition, higher account balances, increases cross-sell, lower service costs EBIDS leverages ACH Network for enrollment, presentment, and payment   Lowest cost channel and best potential reach Uses industry standards – NACHA rules  Non-proprietary Provides compensation to consumer’s financial institution – new revenue stream Enables a more direct working relationship between biller and banks for EBPP New revenue opportunity for bill delivery/remittance services
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Consumer Benefits
 Privacy of information – financial account information remains with financial institution  Remains in control of account and timing of payment  Access to more bills, bills are consolidated at one site  Access to bill detail through single sign on (c) NACHA
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Pilot Status
       EBIDS Product Design complete  Processes, rules, and data formats for consumer enrollment, presentment and payment Biller Directory complete SAML Server – in final testing phase Pilot revenue model complete Participant system update and integration - ongoing Target date for launching transactions:  3 rd quarter 2007 NEED MORE BILLERS!
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(c) NACHA

Agenda
 NACHA/ACH Overview  EBIDS (Electronic Billing and Information Delivery Service)  Secure Vault Payments  Exception Processing Mitigation
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(c) NACHA


Market Drivers
Rapid growth of Internet commerce has led to industry challenges.   Security and privacy concerns  50% of US Internet users avoid making purchases online, afraid financial information may be stolen (CyberSecurity Alliance Research 5/06)   Nearly half of consumers avoid online Bill Pay due to security concerns (comScore Networks, cited in Alternative online payments will account for volume by 2009 (Celent, 5/06)
American Banker
4/20/06)
26%
of eCommerce  Continued fraud and chargebacks    35% of online orders are flagged for manual review related to fraud detection (CyberSource Corp., cited in 
Digital Transactions
6/13/06) 6% of good sales lost due to fraud/risk screening (Cardline 2005) Fraud is the top reason given for chargebacks on several networks (
American Banker
interviews with network executives, 1/17/06) (c) NACHA
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
Market Drivers Cont.
Businesses want payment options − 72% of consumers surveyed say the have abandoned an online purchase − 74% of consumers willing to spend $960 more per year (Javelin Strategy and Research, 7/06) − 24% of consumers report shopping less online (Visa news release, 1/06)  Open new markets − Digital content – music, games, subscriptions, video − Last-minute/expedited payments  Online account opening − Bank reliance on non-bank providers – CashEdge,Yodlee  Guaranteed & authenticated payment options for billers − − Card issuers Mortgage and loan payments − Bank-centric substitute for biller-direct
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(c) NACHA

The Private, Secure, Bank-Authenticated Payments Solution  ‘Secure Vault’ simply refers to using online banking to initiate Internet payments  Consumers keep financial information private – never disclosed to the seller  Seller receives real-time authorization of guaranteed payment (ACH Credit)  Financial Institution authenticates the buyer, reducing risk, fraud, and charge backs  Relieves seller burden to secure/protect consumer financial information (c) NACHA
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Demos
 Consumer Purchases  Bill Payments  Funds Transfers (c) NACHA
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Key Features
 Bank customers keep financial information private – never disclosed to businesses  Bank leverages existing online banking platform and connections to payment networks   Bank receives interchange revenue for authenticating existing customer and guaranteeing payment Bank is central to its customers’ transactions (c) NACHA
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Stakeholder Benefits – Businesses 
  Real-time authorization of a guaranteed payment (ACH Credit) Sales lift – new customers, higher tickets, more purchases, less shopping cart abandonment   FI Authentication - reduces risk, fraud and charge backs Eliminate need to secure/protect customers’ financial data
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(c) NACHA

Stakeholder Benefit - FIs
 Use existing infrastructure - costs to support this channel have increased in the areas of authentication and security (FFIEC Guidance)  Create new potential revenue stream - FIs generate little direct revenue from the online banking channel today   Leverage customer relationships Grow the eCommerce ‘pie’ and enable new online transactions  Take a leadership role in privacy (c) NACHA
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Stakeholder Benefits – Consumers
 Security and privacy – no financial information shared with the seller  Familiar user interface with online banking  More payment control and flexibility  Consumers are most comfortable sharing private financial information and account access with their Financial Institution
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(c) NACHA

NACHA’s Online Payments Pilot
 Pilot Participants:  Buyer’s FI (Guaranteeing ODFI)  Seller’s FI (Receiving FI)  Businesses (online merchants, billers, state govt. agencies)  Third Party providers (enable FI and business customers)  eWise (pilot network provider)
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(c) NACHA

Participation Requirements
 Participation Requirements:  Buyer’s FI (Guaranteeing ODFI) must be FFIEC compliant for online banking  Businesses must be sponsored by a Receiving FI   Receiving FI warranties performance of sponsored businesses Resources necessary for integration work with eWise  Pilot Fees  There is no registration fee to join the pilot    Inter-bank and network fees will be collected Fees will vary by transaction type Fee structures have been announced (c) NACHA
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Next Steps
INTERESTED IN LEARNING MORE ABOUT THIS PAYMENT TYPE AND THE PILOT?
 Check out the new Online Payments Pilot Website at paymentspilot.nacha.org
 Contact George Throckmorton at NACHA:  [email protected] regarding pilot participation  Contact eWise at [email protected]
technical and implementation information for (c) NACHA
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Agenda
 NACHA/ACH Overview  EBIDS (Electronic Billing and Information Delivery Service)  Secure Vault Payments  Exception Processing Mitigation
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(c) NACHA

Exception Processing Mitigation
   Purpose:  to reduce errors (and costs) and improve straight-through processing for bill payment exceptions that originate from online banking systems  Sponsored by NACHA’s Council for Electronic Billing and Payment Typical issues    Incorrect account number (front-end) Biller account number changes (back-end) Biller metrics for identifying costs Stakeholder costs = $533 million in 2006     Consumers-$25.9 million Consumer service providers-$130.6 million Banks/3 rd party processors-$14.1 million Billers-$362.7 million
All data from TowerGroup.
All rights retained by TowerGroup.
(c) NACHA
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Exception Processing Mitigation:  What Can We Do?
 Identify best practices to minimize consumer errors (front-end)  Develop benchmark biller metrics for identifying the cost of exceptions  Define biller/processor processes for account number changes (back-end)  Develop a communications plan for maximizing industry outreach
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(c) NACHA

Summary
 NACHA seeking to improve the payments process for billers.
 More information:  NACHA home page  http://www.nacha.org
 Council for Electronic Billing and Payment  http://cebp.nacha.org
 Secure Vault Payments  http://securevaultpayments.org
(c) NACHA
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