ACH news and viewsMike Watercott, CTP

Vice President

Technical Product Consultant

Office of the State Controller eCommerce Conference

Raleigh, NC

October 30, 2012

Discussion agenda

Volume trends

Recent developments

Exceptions and error correction

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ACH volume trends

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For the last three years, ACH growth has been below 5% annually

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ACH Volume 2005 – 2011

Billions of Transactions. Includes commercial and government paymentsTotal Volume includes interbank, direct send, and on-us transactionsNetwork Volume includes interbank transactions onlyData Source: Wells Fargo and NACHA

2011 ACH volume highlights

“Headline” Network growth rate of approximately 3% in 2011 “Native” electronic transactions (non-check

conversion entries) increased by over 5%

ARC volume declined over 9%

WEB transactions grew at 9% There are now more WEB transactions processed

than all check conversion transactions combined

CTX transactions – a key indicator of B2B activity – grew by almost 13%

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Selected SEC Code detail

2009 Volume

2010Volume

2011Volume

2011Growth

Accounts Receivable Conversion (ARC) 2,410MM 2,206MM 2,000MM (9.3%)

Point of Purchase Conversion (POP) 481MM 513MM 493MM (3.9%)

Back Office Conversion (BOC) 161MM 181MM 195MM 7.9%

Internet Payments (WEB) 2,280MM 2,449MM 2,680MM 9.4%

Telephone Payments (TEL) 344MM 354MM 367MM 3.7%

Direct Deposit (PPD Credits) 4,545MM 4,710MM 4,879MM 3.6%

Direct Payment (PPD Debits) 2,770MM 2,833MM 2,933MM 3.5%

Corporate Credit or Debit (CCD) 1,996MM 2,064MM 2,165MM 4.9%

Corporate Trade Exchange (CTX) 60MM 67MM 76MM 12.7%

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Millions of Transactions. Network (interbank) volume onlyData Source: Wells Fargo and NACHA

2011 Wells Fargo ACH highlights

Total origination volume up 9.1% v. 2010

Nearly 4 billion transactions originated(3.1 billion Network transactions)

20% origination market share

Top ACH Processors 2011

Wells Fargo 4,612MM

JP Morgan 4,238MM

Bank of America 3,638MM

PNC 1,081MM

Citigroup 1,050MM

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Volume includes interbank originated and received paymentsData Source: Wells Fargo and NACHA

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2011 NACHA ACH rankings

Data Source: NACHA

Largest Interbank Originators

Volume (MM)

YOY Change

1 J.P. Morgan Chase 3,189 0.5%

2 Wells Fargo 3,140 3.7%

3 Bank of America 2,033 5.1%

4 Citigroup 835 6.0%

5 U.S. Bancorp 619 5.7%

Largest Interbank Receivers

Volume (MM)

YOY Change

1 Bank of America 1,605

4.8%

2 Wells Fargo 1,472 0.8%

3 J. P. Morgan Chase 1,049 6.2%

4 PNC Financial Services Group 463 4.4%

5 U.S. Bancorp 429 6.6%

Recent developments

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Same-day ACH – update

FedACH Same Day Service

Federal Reserve service launched inAugust, 2010

Service limited to some consumer debits; optional participation by financial institutions

Minimal bank participation, to date 18 banks/30 Routing-Transit Numbers

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Same-day ACH – update

NACHA Expedited Processing and Settlement (EPS)

Developed a Rules framework for a mandatory same-day ACH settlement capability All ACH transactions would be eligible (except IAT) Unique identifier for same-day transactions In by 2:00 p.m. ET/out by 3:00 p.m. ET

$25,000 transaction cap

Next-steps: Formal ballot issued; voting concluded Aug 10th If passed, implementation in March, 2014

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ACH phishing

Increased incidence of fraudulent e-mails purporting to come from NACHA Can look legitimate by using authentic NACHA e-mail

address and IP address

Typically create a sense of urgency by reporting a failed or incomplete transaction

E-mails may contain links to fraudulent websites used to collect personal information or banking credentials

Attachments are often used to deliver/install malware

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ACH phishing examples

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From: ach_dept@nacha.orgSubject: Pending Payment from CJ Industries

We received a payment request against your account for $1,720.00 from CJ Industries.

Transaction Reference Number: 45276654

If you made this transaction or authorize its payment, please ignore this e-mail.If you would like to decline this payment, please click on the following link:Decline transaction #45276654 for $1,720.00 from CJ Industries

From: info@nacha.orgSubject: ACH Transfer Cancelled

The ACH Transaction (ID:33456941), recently initiated from your checking account (by you or any other person), was cancelled by the other financial institution.Please click here to view further information

If you have any questions or comments, contact us at info@nacha.org. Thank you for using http://www.nacha.org.

ACH phishing – best practices

Any e-mail with transaction details purporting to come from NACHA is fraudulent NACHA does not process ACH transactions

Do not respond to, open attachments, or click on links in any suspicious e-mails

Train employees never to give out online banking credentials

Use the Wells Fargo ACH Fraud Filter service on all accounts

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ACH Fraud Filter service

Stop option Automatically returns all ACH debits you do not

authorize in advance Best for accounts with predictable ACH activity

Review option Allows you to review all ACH debits you do not

authorize in advance Make your pay/return decision by 7:00 p.m., CT

the day following the Effective Date

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ACH Fraud Filter service

Extensive CEO® reporting for unauthorized transactions, preauthorizations, anddecisioned items

CEO Event Messaging alertsyou when you have exceptionsto decision

Use CEO Mobile® to decisionitems on the go!

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Exceptions and error correction

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Exceptions and error correction

Rejects

Returns/Notifications of Change (NOCs)

Deletes and Reversals

Recalls

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Rejects

Items rejected by the Wells Fargo ACH system before being released to the ACH Network

Common reject reasons: Invalid Routing/Transit Number Invalid Transaction Code Mandatory data element missing

Information on rejected transactions is available shortly after receiving your ACH file

How are rejects reported to you? Data transmission file CEO ACH Origination Report or ACH Customer Activity Report E-Mail (available September, 2012)

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Returns

Items returned by the receiving bank (or ACH Operator) after being released to the ACH Network

Common return reasons: Non-sufficient funds (item can be redeposited one or

two additional times) Account closed Unauthorized

Most returns are received within 48 hours of the original settlement date Some consumer debit returns can be received up to 60

days after the original settlement date

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Returns

Information on returned items is available by 10:00 a.m., CT each business day

How are returned items reported to you? Data transmission file CEO ACH Return Item/NOC Report

Use CEO Event Messaging to notify you of returned item activity

Fax (mid-day)

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Notifications of Change (NOCs)

Informational transaction sent by the receiving bank Original transaction posted successfully; requested

change must be made before initiating another transaction to that account

Common change codes: Change Routing/Transit Number (RTN) Change account number Change RTN and account number

Most NOCs are received within 48 hours of the original settlement date

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Notifications of Change (NOCs)

Information on NOCs is available by 10:00 a.m., CT each business day

How are NOCs reported to you? Data transmission file CEO ACH Return Item/NOC Report Fax (mid-day)

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Deletes and Reversals

Deletes allow you to remove a transaction from your file before your transactions are released to the ACH Network Credits can be deleted up to 3:00 p.m., CT two business

days before your Effective Date or 3:00 p.m., CT the day you deliver your file to us, whichever is later

Debits can be deleted up to 3:00 p.m., CT one business day before your Effective Date or 3:00 p.m., CT the day you deliver your file to us, whichever is later

A separate settlement transaction will post to your account for the amount of your deletes

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Deletes and Reversals

Once a transaction has been released, you can initiate a Reversal Reversals can be requested up to 3:00 p.m., CT four

business days after the original Settlement Date If you request a delete and the transaction has already

been released, we will automatically initiate a Reversal A separate settlement transaction will post to your

account for the amount of your Reversals

Reversals can be returned; there is no guarantee you will recover the funds (when reversing a credit)

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Deletes and Reversals

Requesting a delete or Reversal CEO portal – ACH Deletes and Reversals Online service E-Mail Fax

Reporting CEO ACH Customer Activity Report E-Mail (available September, 2012)

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Recalls

Can be requested after the allowable Reversal time period has passed

Manual request from Wells Fargo ACH Operations to the receiving bank requesting the return of the transaction Typically done for debits Almost never successful for credits

Some receiving banks will charge Wells Fargo for each item returned

27© 2012 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.