Transcript Electronic Funds Transfer (EFT)

Electronic Funds Transfer 101
Office of the State Controller
August 2008
Two Types of EFT
• EFT is a generic term
– Describing two
different methods of
transferring funds
electronically
EFT
Wire Transfer
ACH
• Both performed through Federal
Reserve Bank System
(Except for “in-bank” or “on-us” transactions)
• Common mistake to call an ACH payment a wire transfer
– Each are handled by different departments at a bank
Wire Transfer
Wire Transfer
Fed Wire
Between two banks
Book Transfer
Within same bank
Foreign Wire
Foreign bank
• Movement of funds is real time – effected immediately
– FRB open for fed wires up to 6:00 p.m.
– Book Transfers are memo posted up until midnight
– ZBA (Zero Balance Account) sweeps are book transfers
• Fed Wire Affects banks’ Reserve Accounts maintained at the FRB
– Sending bank’s account at the FRB gets debited
– Receiving bank’s account at the FRB gets credited
• Foreign exchange and Euro dollars through “Clearing House for Inter-bank
Payments System” (CHIPS) – 54 New York Banks
Wire Transfer Utilization
• When appropriate to use
– Time sensitive - Funds need to be moved same day initiated
– Large dollar amounts
• Examples
– Debt Service Payments (preserve State’s credit rating)
– Funding ACH payments (e.g. payroll direct deposit)
– Funding investments (e.g., at custodian bank)
– Adjusting balances (between depository banks)
– Remitting ESC payments (to US Treasury)
• DOR accepts wire transfers from corporate taxpayers on an
exception basis only
Initiating Wire Transfers
• Banks provide corporate customers ability to initiate their
own wires via online banking access
• Templates are used
– Repetitive Transfers – Pre-established ABA# and acct.#
– Non-Repetitive - Open wire – to anywhere
• State Treasurer initiates all wire transfers for agencies
– Via Wachovia Connection and BOA Direct
– As requested by agencies via Core Banking $ystem
– Results in debit to agency’s disbursing / STIF acct.
Agency Logs in
Disb. Acct.
at DST
Online Wire System
DST’s Bank
Payee’s Bank
ACH
ACH Network – A batch-process, store and forward for future settlement
• Two types of ACH (Automated Clearing House)
ACH
ACH Credits
ACH Debits
Direct Deposit.
Debit Card Account
•
•
•
Direct Deposits
Always initiated by sender
Sender’s account is debited and
receiver’s account is credited
Receiver’s Acct
– Bank account
– Debit card account
•
•
•
Electronic Drafts
Initiated by sender or receiver
If by sender – Sender authorizes a third
party to initiate transaction
If by receiver – Receiver initiates
transaction
• Also referred to as Direct Payments
ACH Utilization
• When appropriate to use
– Large number of payments in a single file (batch)
– At least one day is available between initiation and settlement
– Any size dollar amounts
• Examples
– Outbound Payroll direct deposit to bank account (ACH credits)
– Outbound Payroll direct deposit to debit card account (ACH credits)
– Outbound Vendor payments (ACH credits)
– Inbound Taxpayer payments (ACH credits or debits)
• ACH Transactions can have Addendum Records
– Remittance data attached
– Can be interfaced with A/R system
– DOR requires taxpayers to use TXP format
Governing Org.
ACH Players
3
2
Originating
Depository
Financial
Institution
(ODFI)
Trade Group
ACH Operator
(FRB)
Receiving
Depository
Financial
Institution
(RDFI)
4
1
Originator
(Company /
Employer)
Receiver
(Company /
Employee)
Authorization / Enrollment
Primary Differences
Wire Transfers
• Item Cost - $6.75
ACH
• Item Cost < 1 penny
• Same day funds
• Transfer almost
instantaneous
• Use for critical
payment (e.g. debt
service)
• Next day funds
• One day delay in
settlement
• Used for large batch
files (e.g., payroll)
State Checks
Average Cost - Range $.74
Electronic Checks
• Loosely used term – Refers to two different methods
Electronic Checks
Online Paper Check
ACH Conversions
Online Paper Check
• Developed by “Financial Services Technology Consortium (FSTC) – Not-forprofit group of CA banks
• Initiated using a PIN and digital signature
• Receiver prints out paper check for deposit
ACH Conversions (most common method referred to)
• Transactions converted to ACH debits (e.g., ARC, POP, WEB, TEL)
• Services can be provided by third party processors
• Account verification determined upfront. Guarantees available.
• Examples of services provided through third-party CyberSource (POP)
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–
–
–
Telecheck:
CheckFree:
AmeriNet:
Paymentech:
Applies to consumer checks
only, not business checks.
Regulator Governance
•
Regulation E, per Electronic Funds Transfer Act (EFTA)
–
–
–
–
•
Issued by Federal Reserve Bank
Covers ACH and debit cards (but not wires or credit cards)
Consumer protection oriented
Some protection afforded the consumer does not apply to corporate or
government customers
NACHA Operating Rules
– National Automatic Clearing House Association
– Applies to ACH transactions only
– Applicable to both consumer and corporate (including government)
•
Uniform Commercial Code (UCC) – Article 4A
– Applies to Wire Transfers Only
•
Uniform Commercial Code (UCC) Articles 3 and 4 and Reg CC
– Applies to negotiable instruments (checks)
– Reg CC issued by Federal Reserve - Applies to checks – not EFT
– Check 21 (Check image conversion) governed by Reg CC, not Reg E
ACH Terminology
• Typical ACH Standard Entry Class Codes
– PPD – Prearranged Payments and Deposits (Consumer payments)
– CCD - Cash Concentration or Disbursements (Corporate payments)
– CCD+ - Corporate payments with 180 character addenda record
– TXP – Addendum format for Tax Payments (Used by DOR)
• Check Conversion Standard Entry Class Codes
– POP – Point-of-Purchase / Face-to-face (e.g., Wal-Mart)
– ARC – Accounts Receivable Conversion – Non-face-to-face (e.g., Lockbox)
– BOC – Back Office Conversion – Face-to-face, but later converted (Mar ‘07)
Check Conversions not eligible for use with corporate or government checks
and have an amount limit of $25,000
• Other Standard Entry Class Codes (Debit entries)
– WEB – Internet-initiated entries against a consumer account
– TEL – Telephone-initiated entries against a consumer account
– RCK – Represented check (representment of a non-sufficient funds check)
Daylight Overdraft
• Federal Reserve charges bank interest per minute for
overdrafts in their Fed account
• Banks do not allow wire transfers to be made from
account if “available balance” is not sufficient
– Over-the-counter deposits not posted until night
– ACH credits are posted in mornings (6:30 and 8:30)
– Could pose problems when need to wire funds out
• Some banks will assign an allowable daylight
overdraft limit
– Based upon customer’s credit risk
– Based upon bank overdraft cap at the FRB
– State’s arrangements with banks are handled by DST
Check 21
• Federal legislation – Result of 9/11 when planes could not fly
• Became effective October 2004
• Banks have option of presenting “substitute checks” instead of
original check
• Also referred to as “Image Replacement Documents” (IRDs)
• Originals paper checks are to be destroyed
• Substitute document is legally same as original
• Check 21 is different than “Check Conversion” (POP/BOC/ARC)
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–
–
–
–
POP, BOC & ARC - Check converted to ACH transaction
Therefore POP, BOC & ARC subject to NACHA Rules – not UCC
POP, BOC & ARC only applicable to “consumer” checks
Check 21 applicable to both “consumer” & “commercial”
Check 21 has no amount limit – Check Conversion limit is $25,000
EFT Milestones
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•
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1972 – SCOPE (Special Committee on Paperless Entries)
1974 – NACHA (National Automated Clearing House Association)
1977 – Retirement System began using Direct Deposit for retirees
1979 – Central Payroll began using Direct Deposit for employees
1980s – University Payroll Centers began using Direct Deposit - employees
1984 – GMTS (Governmental Moneys Transfer System) implemented by
DST for paying local units of government (Replaced by STEPS)
1988 – DOT Payroll began using Direct Deposit for employees
1992 – STEPS (State Treasurer’s Electronic Payments System) implemented
for local units (two-way street). (Ended 2003, except Retirement)
1994 – DOR implemented EFT for corporate tax collections
1990s – LEAs and community colleges implemented direct deposit for
employees (costs being paid for by DST)
1999 – SB 222 enacted, giving OSC responsibility for EFT
2002 – Common Payment System implemented (DMV-IRP first)
2005 – OSC initiated expansion of Electronic Commerce Program
State’s E-Commerce Program
• State’s Cash Management Legislation (G.S. 147-86.11) requires
State Controller to develop policies regarding cash management
practices, including E-Commerce.
• Two Master Services Agreements (MSAs) procured
– MSA for Electronic Funds Transfer Services – Wachovia Bank
– MSA for Merchant Card Services – SunTrust Merchant Services
• Agencies and local units of governments eligible participants
• Each participant must execute an Agency Participation
Agreement (APA)
• Paying for Services – In accordance with MSA fee schedule
– Agency pays in most cases
– EFT for payroll and NCAS payments – DST pays
E-Commerce Inbound Programs
Utilizes Both Merchant Cards and EFT
State’s E-Commerce Structure
Inbound Payments
Agency POS Terminals
NC@YourService
Yahoo! Store
Agency Windows Client
Agency Web Store Front
Gateway
( CPS or
Other )
Acquiring
Processor
Agency A/R System
Citizen
(Taxpayer)
Wachovia Web
ACHieve (Debits)
Agency’s 3rd Party Data
Collection Center
Payor’s Bank
ACH Credit
$
State’s
EFT Bank
(ODFI)
$
Card Transactions
ACH Transactions
$
State’s
Depository Bank
E-Commerce Outbound Programs
Utilizes EFT Only
State’s E-Commerce Structure
Outbound Payments
Agency / Univ A/P System
Wachovia Web
ACHieve (Credits)
Gateway
( CPS or
Other )
NCAS E-Payments
Payee
(Citizen /
Vendor/
Employee)
Central Payroll
DOT Payroll
University Payrolls
Community College Payrolls
$
State’s
EFT Bank
(ODFI)
Local Schools Payrolls
Child Support Payments
ACH Transactions
Fed Reserve Bank
Payee’s Bank
More Information
Office of the State Controller Web Site
www.ncosc.net
David C. Reavis
E-Commerce Manager
(919) 871-6483
Amber Young
Central Compliance Manager
(919) 981-5481
Support Services Center
(919) 875-HELP (4357)
August 2008
Robert Powell
State Controller