NationalACH

Archive for July, 2009

NACHA has a winner with its Secure vault payments product. Secure vault payments is an alternative payment method. Secure Vault is an ACH payments credit model that offers real-time authorization from consumers’ banks.

With secure vault payments, students or parents are directed to their personal online banking site where they simply enter their password credentials to authorize the payment and complete the transaction. Secure vault payments remove the risk of NSF. All payments are guaranteed by the the bank (except in the the unlikely event of fraud).

Secure vault payments uses the student or parent’s bank for data protection and authentication. The college or university does not need to store any financial information or personal date.

PayItGreen was formed by NACHA as an education resource. The mission of the organization is to show the environmental benefits of paying bills and issuing payroll electronically rather than with paper.

One of the most helpful parts of the site is calculators where businesses and consumers can track savings on carbon footprints by comparing paper to electronic transactions. It is a fun way to quickly see how much impact even the smallest changes can make in keeping our environment safe.

The site says that 22 million Americans still do not use direct deposit. If these employees chose to receive wages electronically, 8.7 million pounds of paper would be saved. And, 25 million pounds of greenhouse gases would not be released.

Large companies have offered direct deposit for years. Small and medium companies are now jumping on the band wagon too.

Consider a company that employs 300 people, with payroll twice per month. Paying all employees electronically rather than issuing checks and payroll stubs saves 121 pounds of paper and avoids the release of 346 pounds of greenhouse gases into the atmosphere in one year.

For businesses, the case for ACH payments electronic transactions is a positive financial equation. According to a study by PayitGreen, businesses saved $6.7 billion over the last ten years by switching employees to direct deposit.. This is an average annual savings for each employee of $176.55.

The US Federal Reserve Banks announced plans for financial institutions to clear and settle certain automated clearing house (ACH) transactions in one day. This will be the first material change to the settlement schedules for the Federal Reserve in 35 years.

The recent action was caused by the increasing threat of bilateral exchanges developed among the largest ACH players (e.g. Wells Fargo and Bank of America, Citigroup and Capital One with certain institutions). These exchanges, made possible because of new Check 21 legislation, cause big drops in the volume of transactions clearing and settling through the ACH network.

Direct relationships between banks for clearing and settlement create an inefficient payment system and drives up prices. As network revenue drops because fewer transactions are cleared, the cost per unit for all remaining ACH transactions increases The Federal Reserve has expressed concerns that lack of NACHA regulations and rules in bilateral exchanges reduces the ability to monitor transactions for illegal activies.

The new plan calls for ACH deposits made by 2:00 pm to be settled by the close of business that day rather than on the first business day after they are originated. The expedited clearing will make ACH more competitive with check-image exchange networks and bilateral image exchanges between banks.

Faster settlement times provide quicker funds availability and earlier returns for credit risk management. Despite the obvious benefits, some banks are worried about same-day credit eroding profits from lucrative wire business by driving down the price of wire transfers.

The plan will not require file format changes for submission of transactions. The fast ACH service maintains the existing formats for the standard entry class codes and complies with NACHA rules.

Third-party checks are a $300 billion business, according to 2006 data from Boston based researcher Aite Group. The majority of third party checks are payroll checks. About half the checks are cashed at banks. The other half are cashed at grocers, convenience stores, check cashers, and other retail locations.

NACHA, the governing body for the ACH Network does not permit third party checks to be cleared and settled through the ACH network. But the checks can be processed electronically via remote deposit capture, using technology which complies with Check 21 legislation. Check 21 allows images of third party checks to be cleared and settled through the Federal Reserve , completely bypassing the ACH network.

Third party checks represent a good niche market for Check 21 remote deposit capture. But, like ACH processing, remote deposit capture is a volume driven business. With profits of only a few cents per transaction, it takes a lot of transactions to make any money.

Although Check 21 remote deposit capture itself is not hugely profitable, banks are using the service as an incentive to capture more direct deposit account business. Many banks will provide free scanners or lease the scanners for a few dollars per month. For the banks, the profits come cross-selling additional products to commercial customers as well as from money generated from the float of the new deposits.