Transcript Allstate Insurance Payment Strategies

Payments 101
Terms and Acronyms
October 17, 2007
Agenda

Payment Organizations and Associations

Payment Regulations

Payment Tenders, Terms and Acronyms

Miscellaneous Payment Information
2
Payment Organizations & Associations
NACHA
 Federal Reserve

3
NACHA
NACHA-The Electronic Payments Association
(formerly known as the National Automated Clearing House )


Not-for-profit association
Represents more than 11,000 financial institutions
through direct memberships


Network of regional payments associations, and 650
organizations through its industry councils.
Develops operating rules and business practices for:


Automated Clearing House (ACH) Network
Electronic payments in the areas of Internet commerce, electronic
bill and invoice presentment and payment (EBPP, EIPP), echecks, financial electronic data interchange (EDI), international
payments, and electronic benefits services (EBS)
4
Federal Reserve



The Federal Reserve System is the central banking
system of the United States
Was created in 1913
Is a private banking system composed of



The Board of Governors (responsible for monetary policy) in of
the Federal Reserve System, appointed by the President
The Federal Open Market Committee
12 regional Federal Reserve Banks located in major cities
throughout the nation acting as fiscal agents for the U.S. Treasury



Each with its own nine-member board of directors;
Including numerous private U.S. member banks, which subscribe
to required amounts of non-transferable stock in their regional
Federal Reserve Banks
Various advisory councils.
5
Payment Regulations

Regulation E
6
Regulation E
 Regulation issued by the Board of Governors of the
Federal Reserve System
 Authorized under the Electronic Fund Transfer Act
governing electronic fund transfers from a consumer’s
account
 It does not apply to check drafts, credit cards, Federal wire
transfers, interbank transfers or non consumer accounts
 It applies to ACH, ATM and debit card transactions to or from a
consumer account
 Is a consumer protection statute that assures consumer
rights are protected with regard to electronic transfers by
making sure that transfers are:
 authorized, clearly disclosed to consumers and that consumers are
granted specifically defined rights with regards to error resolution
and to challenging transactions they claim they did not authorize
 Sets limits on consumer liability for unauthorized
transactions.
7
Regulation E Cont’d…
Imposes specific obligations for recurring payments
 Transfer must be authorized by a “writing” that is signed or similarly
authenticated
 Writing is on paper or displayed on a computer terminal
 Telephone recording alone does not comply with “writing”
requirement.
 Similarly authenticated, some methodology is needed to confirm
identity of person giving authorization.



Example: “Shared secrets” - Credit card number and client account
number
Person obtaining the authorization must supply a copy to the
consumer by mailing or in case of Internet, by generating a receipt
that can be printed
When the fund transfers vary from month to month, Reg. E
requires:


Notice be sent of the date and amount of the transfer at least 10 days
before the scheduled date of the transfer
Consumer may authorize payments within a certain range and require
notice only when the payment falls outside of the range.
8
Payment Tenders, Terms and Acronyms









ACH
ARC
Authorized
BOC
Check21
Contracted
CTX
EBPP
Electronic Check
Conversion







EDI
Internet
payments
IRD
IVR
M-payments
MICR
NOC








Non-contracted
P2P
POP
PPD
RCK
RDFI
ODFI
Unauthorized
9
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 Federal Reserve and Electronic Payments
Network act as:
 ACH Operators, central clearing facilities through
which financial institutions transmit or receive ACH
entries
 The ACH network can be used to send either debits
(payments) or credits (refunds)
 A credit sends funds to a Receiver’s account
 A debit takes funds from a Receiver’s account
10
How ACH Works
In accordance with the rules and regulations of ACH, no financial
institution may simply issue an ACH transaction (whether it is debit
or credit) towards an account without prior authorization from the
account holder (known as the Receiver in ACH terminology).

An ACH entry starts with a Receiver authorizing an Originator to
issue ACH debit or credit to an account.
 An Originator can be a person or a company (such as the gas
company, a local cable company, or one's employer).
 Depending on the ACH transaction, the Originator must receive
written (ARC, POP, PPD), verbal (TEL), or electronic (WEB)
authorization from the Receiver.
 Written authorization constitutes a signed form giving consent on
the amount, date, or even frequency of the transaction.
 Verbal authorization needs to be either audio recorded or the
"Originator" must send a receipt of the transaction details before or
on the date of the transaction.
 A WEB authorization must include a customer reading the terms of
the agreement and typing or selecting some form of an "I agree"
statement.
11
ACH Continued…

Once authorization is acquired

the Originator creates an ACH entry to be given to an Originating
Depository Financial Institution (ODFI), which can be any financial
institution that does ACH origination.
 The ACH entry is then sent to an ACH Operator (usually the Fed)
and is passed on to the Receiving Depository Financial Institution
(RDFI), where the Receiver's account is issued either a credit or
debit, depending on the ACH transaction.

The RDFI may reject the ACH transaction and return it to the
ODFI with an appropriate reason


Insufficient funds in the account
Account holder indicated that the transaction was unauthorized


An RDFI has a prescribed amount of time in which to perform returns,
ranging from 2 to 60 days from the receipt of the ACH transaction.
The majority of transactions, if going to be returned, are done so within
24 hours from midnight of the day the RDFI receives the transaction.
12
ACH Continued…

An ODFI receiving a return of an ACH entry may re-present
the ACH entry two more times, or up to three total times, for
settlement.

Again, the RDFI may reject the transaction. After which, the
ODFI may no longer represent the transaction via ACH.
13
ACH Transaction Terms
 ARC – Accounts Receivable Conversion (mail)
 BOC – Back Office Conversion
 ODFI – Originating Depository Financial Institution
 POP – Includes check serial number
 PPD – Pre-authorized Payment and Deposit (auto draft)
 RCK – Return Check
 RDFI – Receiving Depository Financial Institution
 TEL – Phone
 WEB – Internet
14
ACH Volumes
ACH Volumes

Nearly 16 billion automated clearing house (ACH) payments were
made in 2006, a 14.5 % increase over 2005. This includes
consumer, business, and government transaction types. Annual
ACH volume continues to double every 5 years.

In 2006, nearly 8 billion consumer bill payments were collected via
the ACH Network which included pre-authorized debits, checks
converted to ACH payments, and Internet and telephone.



PPD increased by 6.1% to 3.3 billion payments;
ARC increased by 30% to 2.8 billion payments;
WEB increased by 35% to 1.8 billion payments (85 percent of
Internet-initiated ACH payments are to
 pay bills via companies’ or billing services’ web sites)

Direct Deposit is still the most widely used type of ACH payment.
The number of Direct Deposits in 2006 increased by 5.5 percent to
4.7 billion payments.
15
Electronic Check Conversion




is a process in which your check is used as a source of
information for the check number, your account
number, and the number that identifies your financial
institution.
The information is used to make a one-time electronic
payment from your account- an electronic funds
transfer.
The check itself is not the method of payment.
Transaction types include
 ARC – Accounts Receivable Conversion
 BOC – Back Office Conversion
 POP – Point of Purchase
http://www.federalreserve.gov/pubs/checkconv/#what
16
Check Conversion Benefits

Privacy – personal information is seen by fewer
people when a check is turned into an electronic
payment.

Secure and protected – customers have more
protection with electronic payments than with paper
checks.
 ARC transactions are governed by federal laws that apply to
electronic banking
 (Electronic Funds Transfer Act and Regulation E)

Rules indicate customer has 60 days from the date a
bank statement was sent, to notify your bank of a
problem. The bank then has up to 45 days to
investigate.
17
Check Conversion Benefits Cont’d…

Information – the name of the originating company and a
descriptive statement appear on your bank statement rather than
an entry that just says “check”.
This helps in reconciling and balancing your account and an
account statement that includes this information serves as proof
of payment.

Environmental - there is an environmental impact to using paper
checks. In addition to the natural resources used to
manufacture/print paper checks, processing the checks relies
heavily on our nation's transportation systems; including trucks
and airplanes.
It takes a considerable amount of fuel to ship our country's
millions of checks each year between companies, financial
institutions, and your home.
18
Check21
The Check Clearing for the 21st Century Act (Check 21) was signed into law
on October 28, 2003 and became effective on October 28, 2004
 Check 21 is designed to foster innovation in the payments system and to enhance
its efficiency by reducing some of the legal impediments to check truncation
 The law facilitates check truncation by creating a new negotiable instrument called
a substitute check which permits banks to truncate original checks to banks that
want to continue receiving paper checks
 A substitute check is the legal equivalent of the original check and includes all the
information contained on the original check
 The law does not require banks to accept checks in electronic form nor does it
require banks to use the new authority granted by the Act to create substitute
checks
 Check21 is represented by:
 IRD – Image Replacement Document
 POP – Point of Purchase
http://www.federalreserve.gov/pubs/checkconv/#what
19
Accounts Receivable Conversion (ARC)

ARC (Accounts Receivable Conversion) - Through
electronic Accounts Receivable Check (ARC) Conversion,
eligible consumer checks received at a lockbox or drop box
can be converted into electronic debits and processed through
the ACH network.
Checks drawn on consumer accounts payable in U.S. dollars
are eligible for ARC conversion.
Checks are machine read to capture the Magnetic Ink
Character Recognition (MICR) information

routing number, account number and check serial number along
the bottom of the check
The data elements, along with the check amount, are used to
create an ACH record. Typically, the biller's bank account is
credited the next business day.
20
Back Office Conversion (BOC)

In March, 2007 Under the new BOC rules, retailers and
other billers can convert eligible checks to Automated
Clearing House (ACH) debits in a controlled
environment in the back-office rather than at the pointof-sale or at manned bill payment locations.
Businesses no longer have to obtain a signature
authorization for conversion or have scanners installed
at each checkout or bill payment location.
A business needs only to disclose to its customers that
their check will be converted into electronic
transactions by means of a notice at the register and
on a document that customers take with them, such as
the back of a receipt. Checks that contain auxiliary onus fields or those over $25,000 are ineligible for BOC.
21
Image Replacement Document (IRD)

Is the legal equivalent of the original check if
it has the following requirements:
 Accurately represents all information on
the front and back of the original check
 Contain the legend “This is a legal copy of
your check. You can use it the same way
you would use the original check.”
 Must conform to industry standards
applicable to the MICR line
 Must
conform to the industry standard for the
physical characteristics of checks (size, paper,
etc.)
22
Point of Purchase (POP)

Is the location where payment takes place and
where the purchaser and seller are both
present and

Information from the consumer's check is used
to create the electronic transaction
23
Corporate Trade Exchange (CTX)

Is a corporate ACH format which allows for up
to 9,999 addenda records with approximately
800,000 characters.

The CTX payment format combines payment
information and a variable length record
(called an addendum record) with related
information, such as invoice numbers,
allowing multiple payments to creditors or
billers in a single transfer of funds.
24
Electronic Data Interchange (EDI)





Is a set of standards for structuring information that is
to be electronically exchanged between and within
businesses, organizations, government entities and
other groups.
Is considered to be a technical representation of a
business conversation between two entities, either
internal or external.
Documents generally contain the same information
that would normally be found in a paper document
used for the same organizational function.
Standards were designed to be independent of
communication and software technologies.
Can be transmitted using any methodology agreed to
by the sender and recipient.
25
Internal Voice Response Payments (IVR)
Can be either PPD or TEL Entry
Requires written authorization if treated as
PPD
One-time or recurring for PPD
If no written authorization on file then can
complete only per TEL rules. This requires
written receipt or tape recording (actual oral
authorization)
TEL = one-time payment
Setting up PPD Payments via IVR is
complex, normally IVR should be a TEL entry
26
Notice of Change (NOC)

Information sent by an RDFI to notify the ODFI
that previously valid information for a receiver
has become outdated or that information
contained in a pre-notification is erroneous.
27
Pre-Authorized Payment & Deposit (PPD)

Used to credit or debit a consumer account.
Popularly used for payroll direct deposits and
preauthorized bill payments.
28
Return Check (RCK)

A physical check that was presented but
returned because of insufficient funds may be
represented as an ACH entry.
29
Internet Payments (WEB)
One-time or recurring
Should include Terms & Conditions
Privacy statement
Appropriate authorization language
Receipts / confirmations delivered
electronically upon completion of payment
30
Electronic Bill Presentment & Payment (EBPP)


On the Internet, electronic bill presentment
and payment (EBPP) is the process that
enables bills to be created, delivered and paid
over the Internet
The service has applications for many
industries, from financial service providers to
telecommunications and utilities.
31
Lockbox

A service offered by banks to companies where the
company receives payments by mail to a post office
box and:
 The bank picks up the payments
 Deposits them into the company's account multiple
times
 Notifies the company of the deposit

It enables the company to put the money to work as
soon as it's received.

The amounts must be large in order for the value
obtained to exceed the cost of the service.
32
Mobile Payment (M-payment)




Is a point-of-sale (POS) payment made through
a mobile device; cell phone, Smartphone or
personal digital assistant (PDA)
A person with a wireless or text enabled device
can pay a variety of bills, including a utility bill,
at anytime without interacting with anyone.
A customer would enroll for the service and
select the biller(s) they want to pay
A customer is usually provided with an account
number and personal identification number
(PIN) for authorization purposes.
33
Person To Person (P2P)

Is the ability to transfer monies with a mobile
phone from person-to-person (P2P)
34
Walk-in Bill Payment

Customers are able to pay in person at locations that accept and
process utility payments

The agent may or may not be authorized or unauthorized dependant
on the utility and or 3rd party vendor relationship

Customers generally receive a receipt for their payment

A cashier may swipe a bill stub or key in the billing details into a data
terminal

A receipt with payment transaction information is provided to the
customer

Depending on the utility and their processing capabilities, some
authorized pay agents may offer 'real-time' payment posting.

Walk-in bill payment can be by:
 Kiosk – customer initiated
 Terminal – store or cashier initiated
35
Miscellaneous Payment Information
Authorized or Contracted
 Un-authorized or Non-contracted

36
Authorized or Contracted

A utility (or its contractor) have entered into an
official contract with a payment vendor

The vendor is authorized to accept payments for
the utility

The agent usually is able to accept cash, check
and money order tenders

The utility usually advertises or notifies their
customers about the (authorized) payment
options available to their customers to use
37
Un-authorized or Non-Contracted

A business or retailer that accepts biller/utility payments
and the utility (or its contractor) have NOT entered into an
official contract

Typically an un-authorized pay agent will only accept cash
as tender

There is usually a 2 - 5 (business) day delay from the time
a payment is accepted and until it's actually received and
posted by the biller

The consumer will pay a convenience fee of $1 - $5 for
the ability to generate their payment.
38
Payment Vendors

Visit the Joint Payment Center Conference booths to
learn more about the services available to you from
our supporting vendors
39
Consumer Payment Evolution
For the first time, electronic bill payments exceeded bill payments made by paper
check among the 82.5 million estimated U.S households using the Internet*
Over time, more of these consumers will
migrate to electronic payments
 Perception of more control over finances
 Confidence that biller receives payment
 Typically more payment types are available
*Source:
 Perception of more control over finances
 Convenience of paying multiple bills at once
 Eliminates the cost of postage
Harris Interactive and the Marketing Workshop: 2007 Consumer Bill Payment Survey; Electronic Transaction Association
40
Jeff Hill
Process Design Specialist
Sherri Hobbs
Senior Business Analyst
Customer Account Services
Lauren Mesch
New Business Development
41