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Payments 101 Terms and Acronyms

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Utility Payment Conference Payments 101 Terms and Acronyms October 19, 2008 – PowerPoint PPT presentation

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Title: Payments 101 Terms and Acronyms


1
Payments 101 Terms and Acronyms
Utility Payment Conference
October 19, 2008
2
Agenda
  • Payment Organizations and Associations
  • Payment Regulations
  • Payment Tenders, Terms and Acronyms
  • Miscellaneous Payment Information

3
Payment Organizations Associations
  • NACHA
  • Federal Reserve

4
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), e-checks, financial
    electronic data interchange (EDI), international
    payments, and electronic benefits services (EBS)

5
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.

6
Payment Regulations
  • Regulation E
  • Red Flag Fact A 114 315

7
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
    consumers 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.

8
Regulation E Contd
  • 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.

9
Red Flag
  • The Federal Trade Commission and federal
    financial institution
  • regulatory agencies released final rules on
    identity theft "red flags",
  • which call for financial institutions and
    creditors to adopt written identity
  • theft prevention programs by November 1, 2008.
    Section 315 and
  • Section 114(B) of the FACT Act mandate that
    institutions manage and
  • reduce the risk of identity theft fraud for
    customers.
  • The regulations, also called Identity Theft Red
    Flags Rules, implement
  • part of the Fair and Accurate Credit Transactions
    (FACT) Act of 2003.
  • What Are Red Flags? They are alerts to
    circumstances that signal a
  • Potentially high risk situation. Compliance
    professionals have compiled
  • lists of red flags for several purposes as
    indicators of potential money
  • laundering, fraud, suspicious activity, illegal
    export transactions, etc. In
  • the guidance to this new regulation, the agencies
    compiled a list of red
  • flags that signal the potential existence of
    identity theft.

10
Red Flag Continued
  • Any organization, including non-lenders including
    utilities, that use
  • Consumer credit data is required to comply with
    Red Flag regulations
  • by November 1, 2008. To satisfy Red Flag
    requirements programs
  • must include
  • Reasonable policies and procedures for detecting,
    preventing and mitigating identity theft
  • Ability to identify relevant patterns of activity
    considered red flags, including address
    discrepancies and
  • Periodic updates to reflect changes in risks from
    identity theft.
  • Identity Theft Red Flags Rules

11
Red Flag Continued
  • Examples of red flags provided by the regulatory
    agencies
  • Personal identifying information provided is
    inconsistent when compared against external
    information sources used. For Example The
    address does not match any address in a consumer
    report or
  • The Social Security Number (SSN) has not been
    issued, or is listed on the Social Security
    Administrations Death Master File.
  • Personal identifying information provided by the
    customer is not consistent with other personal
    identifying information provided by the customer.
    For example, there is a lack of correlation
    between the SSN range and date of birth.

12
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

13
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 Receivers account
  • A debit takes funds from a Receivers account

14
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.

15
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.
16
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.
17
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

18
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.

19
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

20
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.

21
Check Conversion Benefits Contd
  • 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.

22
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

23
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.

24
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 point-of-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 on-us fields or
    those over 25,000 are ineligible for BOC.

25
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.)

26
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

27
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.

28
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.

29
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

30
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.

31
Pre-Authorized Payment Deposit (PPD)
  • Used to credit or debit a consumer account.
    Popularly used for payroll direct deposits and
    preauthorized bill payments.

32
Return Check (RCK)
  • A physical check that was presented but returned
    because of insufficient funds may be represented
    as an ACH entry.

33
Internet Payments (WEB)
  • One-time or recurring
  • Should include Terms Conditions
  • Privacy statement
  • Appropriate authorization language
  • Receipts / confirmations delivered electronically
    upon completion of payment

34
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.

35
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.

36
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.

37
Person To Person (P2P)
  • Is the ability to transfer monies with a mobile
    phone from person-to-person (P2P)

38
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

39
Miscellaneous Payment Information
  • Authorized or Contracted
  • Un-authorized or Non-contracted

40
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

41
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.

42
Payment Vendors
  • Visit the Joint Payment Center Conference booths
    to learn more about the services available to you
    from our supporting vendors

43
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
  • Convenience of paying multiple bills at once
  • Eliminates the cost of postage
  • Perception of more control over finances
  • Confidence that biller receives payment
  • Typically more payment types are available

Source Harris Interactive and the Marketing
Workshop 2007 Consumer Bill Payment Survey
Electronic Transaction Association
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