NACHA Online Payment Initiatives:

Joint Payment Center Conference

Rob Unger, AAPSr. Director Network ServicesNACHA703-561-3913, runger@nacha.org

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Agenda

NACHA/ACH Overview EBIDS (Electronic Billing and Information

Delivery Service) Secure Vault Payments Exception Processing Mitigation

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Introduction to NACHA

Not for profit association Two primary functions

Establishes operating rules for Automated Clearing House Network

Trade association to promote electronic payments

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What is the ACH Network?

“ACH” stands for Automated Clearing House. The ACH Network is an electronic banking system:

Batch processing, store and forward Transactions are stored during the day and sent to the

network in batches, usually in the afternoon and/or evening

Transactions are not real-time or online.

The ACH Network processes both credits and debits.

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Scope of ACH Rules

18,000 Financial Institutions 6 million companies 145 million consumers 16 billion transactions in 2006 33 trillion dollars in 2006

Direct Deposit Direct Payment Corporate payments And more

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ACH Volume Growth

Growth of selected ACH transactions update

2005 2006 Increase

Total ACH 13,957 15,984 14.5%

POP 224 356 59.0%Avg $ 79

WEB 1,343 1,807 34.5%Avg $ 385

ARC 2,154 2,839 31.8%Avg $ 290

TEL 319 388 21.5%Avg $ 403

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Agenda

NACHA/ACH Overview EBIDS (Electronic Billing and Information

Delivery Service) Secure Vault Payments Exception Processing Mitigation

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1. EBIDS Concept

2. Processes1. Biller Enrollment

2. Consumer Enrollment

3. Bill Presentment

4. Bill Payment

3. Benefits

4. Pilot Status

EBIDS Discussion

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Electronic Billing and Payment Needs Despite significant gains, overall EBPP adoption still low

compared to entire possible volume Current state bill presentment/delivery

Unique customization requirements for bill Proprietary channels are the only option for bill delivery Greater adoption requires interoperable, secure method for bill

distribution Current state bill payment

Check payments still generated from online banking because banks don’t know how to send electronic payments to all billers

Lack of data/incorrect data from online banking systems increases exception processing

Bill payment is a costly “free” service for banks to provide

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The EBIDS Breakthrough

Bill delivery: The ACH is an interoperable, rules-based, secure network that can provide a ubiquitous bill delivery/payment channel to thousands of FIs and millions of businesses

Bill payment: The ACH credit model is a low-risk, low-cost option that eliminates non-electronic payments and user-based exceptions from online banking when coupled with bill presentment.

New revenue paradigm: EBIDS proposes a business model for banks to be compensated for enrolling consumers and presenting consumers’ bills, and provides a least cost routing option for payment.

Pilot sponsored by NACHA’s Council for Electronic Billing and Payment

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Electronic Billing Information Delivery Service (EBIDS)

Consumer enrolls for ebill via Internet banking with consumer’s bank

Biller (via a bank) sends summary billing information/remittance data in an ACH addenda record with a URL to provide access to bill detail

ACH network serves as ‘switch’ and delivers summary bill information to consumer’s bank

Consumer’s bank provides billing information to consumer via Internet banking system

Consumer authorizes credit payment, transacted through normal ACH processes with remittance data

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EBIDS Summary Process Flow

Consumer

ACH OperatorConsumer Financial Institution (CFI) Biller Financial Institution (BFI)

4. Bill PaymentConsumers will connect to CFI system to view summary bills and authorize payment to Biller

3. Bill PresentmentBiller to route the consumer’s next bill to the CFI using a zero-dollar CTX transaction, with the summary bill info embedded in an addenda record

2. AcknowledgementBillers need to acknowledge EBIDS enrollment requests. Biller confirms/rejects an enrollment using the ENR entry

1. EnrollmentConsumer enrolls through CFI to receive summary bills from Billers via ACH using ENR

1 2

Biller

3

4

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Allows for data capture, storage and retrieval of biller and bank information.

Supports consumer banks’ need to know which billers are participating

Supports consumer enrollment and delivery of electronic payments with remittance data

Support delivery of epayments without e-bills Ensure e-payment and remittance data go to most

current and correct electronic lockbox A web-based application

Biller Enrollment

B i l l e r / C o n s u m e r F i n a n c i a l I n s t i t u t i o n THE PROFILE INFORMATION FOR YOUR INSTITUTION MUST BE COMPLETED BEFORE CONTINUING.

Please enter the following contact information and click Submit to update your financial institution contact information.

* Indicates required field

Institution Name: ABC Bank

Financial Institution Type: Biller/Consumer Financial Institution

*Business Contact Name:

*Business Contact Phone: (xxx-xxx-xxxx)

*Business Contact Email:

*Technical Contact Name:

*Technical Contact Phone: (xxx-xxx-xxxx)

*Technical Contact Email:

*Consumer Business Contact Name:

*Consumer Business Contact Phone: (xxx-xxx-xxxx)

*Consumer Business Contact Email:

*Consumer Technical Contact Name:

*Consumer Technical Contact Phone: (xxx-xxx-xxxx)

*Consumer Technical Contact Email:

Public Key:

*Automatic Notification of Changes? Yes No

Email Address for Automatic

Notification of Changes:

Submit

Reset

Biller Profile Information

Consumer FIsdownloadbiller directory data via XML file,add biller to theirbillpay system

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Consumer Enrollment

1. Consumer enrolls through CFI providing the required enrollment info

2. Consumer Financial Institution (CFI) initiates ENR for each biller and transmits entries to ACH Operator

Consumer Biller

ACH Operator

3. ACH Operator routes ENR to appropriate BFI

4. BFI delivers ENR to biller – biller enrolls consumer

Consumer Financial Institution (CFI) Biller Financial Institution (BFI)

Automated Enrollment Entry (ENR) via the ACH

MAINTENANCEConsumers may deactivate their EBIDS enrollment through the same process flow through the CFI

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Record Type Code

Addenda Type Code

Enrollment Related Information Addenda Sequence Number

Entry Detail Sequence Number

M M R M M

Contents ‘7’ ‘05’ Include characters of addenda noted below in 80 character segments in multiple addenda See Field Defs.

See Field Defs.

Length 1 2 80 4 7

Position 01-01 02-03 04-83 84-87 88-94

Example7 05 <RTN>09100001</RTN><CHKDIG>8</CHKDIG><ENRTYPE>E</

ENRTYPE><ENRACTIONCODE>A</EN0001 48296323

Example7 05 RACTIONCODE><ACCTID>123456789</ACCTID><PAYEEID>2234</

PAYEEID><LASTNAME>Lewis</LA0002 48296323

Example7 05 STNAME><FIRSTNAME>Stephanie</FIRSTNAME><ADDR1>925 Grand

Blvd</ADDR1><ADDR2>8th floor</0003 48296323

Example7 05 ADDR2><CITY>KC</CITY><STATE>MO</STATE><POSTALCODE>64198</

POSTALCODE><FIACCT>440004 48296323

Example 7 05 140000009999999</FIACCT><TOKEN1>225415</TOKEN1><TOKEN2>A152CAJ</TOKEN2> 0005 48296323

ENR Sample: “7” Addenda Record

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Enrollment Acknowledgement

4. Consumer connects to CFI system to view enrollment status

3. ACH Operator routes ENR to CFI, CFI updates bill presentment data system with enrollment status

2. BFI transmits ENR to ACH Operator for delivery to CFI

1. After accepting ENR, Biller transmits acknowledgement to BFI to confirm receipt and acceptance (or rejection)

ENR Enrollment Confirmation

Consumer Biller

ACH OperatorConsumer Financial Institution (CFI) Biller Financial Institution (BFI)

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Bill Presentment

4. Consumer logs on to CFI to view bill

3. ACH Operator routes CTX to CFI, CFI updates bill presentment data system with new bill

2. BFI transmits CTX to ACH Operator for delivery to the CFI

1. After receiving ENR and enrolling consumer, Biller transmits zero-dollar CTX with bill summary data embedded in an addenda record

Zero-Dollar CTX Bill Presentment

Consumer Biller

ACH OperatorConsumer Financial Institution (CFI) Biller Financial Institution (BFI)

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Click here to see ebill

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Bill detailfrom Verizon site no sign-in required

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Accessing Full Bill Detail: SAML Server (Strategic Assertion Markup Language) Consumer clicks to “view bill” on the consumer FI

site then receives bill detail from the biller site SAML is a message protocol for passing the

consumer FI credential to the biller, without requiring the consumer to log-in with the biller

Accomplished through the exchange of assertions and seamless to the consumer

Result: a ‘single sign on’

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CTX (Corporate Trade Exchange) for Bill Summary Sent by Biller to Consumer FI – Sample “7” Record

CTX ADDENDA RECORD for EACH CONSUMER

Record Type Code

Addenda Type Code

Ebill Summary Information Addenda

Sequence

Number

Entry Detail

Sequence

Number

M M O M M

Contents 7 05 Include first 80 characters of data noted below See Field Defs.

See Field Defs.

Length 1 2 80 4 7

Position 01-01 02-03 04-83 84-87 88-94

Example 7 05 <PAYEEID>34980</PAYEEID><ACCTID>4899027763</ACCTID><AMTDUE>120.00</AMTDUE><MINAM

0001 7667878

Example 7 05 TDUE>10.00</MINAMTDUE><DTPMTDUE>20060309</DTPMTDUE><DTBILL>20060216</DTBILL><PRE

0002 7667878

Example 7 05 VBAL>478.34</PREVBAL><ACCTBAL>0.00</ACCTBAL><IMAGEURL>http://www.thewebsite.com/getmybi

0003 7667878

Example 7 05 ll.exe?id=xxkkfj3355kj2l4k55LFRT5436KJT23RE4632WF758VJK56E32JK579642L </IMAGEURL><DTEXPIR

0004 7667878

Example 7 05 E>20070309</DTEXPIRE> 0005 7667878

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Bill Payment

1. Consumer authorizes payment to Biller after viewing summary bill on CFI system

2. CFI sends CIE to biller via the ACH Operator

3. ACH Operator routes CIE to appropriate BFI, BFI credits Biller account

4. BFI routes Biller remittance identifier data to Biller; Biller credits consumer account

CIE Bill Payment

Consumer Biller

ACH OperatorConsumer Financial Institution (CFI) Biller Financial Institution (BFI)

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CIE (Consumer Initiated Entry) Sent by Consumer FI to Biller – Sample “6” Record

ENTRY DETAIL RECORD (CIE)

Record Type Code

Trans-action code

Receiving DFIIdentification

Check Digit

Account Number

Amount Individual Name

Individual Identification

Discre-tionary Data

Addenda Indicator

Trace Number

M M M M R M R M O M M

Contents 6 (2)22

(3)Biller’s RTN at

BFI

(3)Biller RTN

Check Digit

(3)Biller’s Acct. #

at BFI

(4)$ amt. Paid

by the customer; zero filled

(4)Biller’s

CustomerName

(4)Customer’s

account number at

Biller

Blank

Always 0(no

addenda)

Assigned by ODFI

Length/Alpha-

Numeric

1 2N

8TTTTAAAA

1N

17A

10N

15A

22A

2A

1N

15N

Position 01-01 02-03 04-11 12-12 13-29 30-39 40-54 55-76 77-78 79-79 80-94

Example 6 22 23456787 8 12345678901234567

0000008673

STEPHANIE LEWIS

1234567890123456789012

0 455427797657788

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Biller Benefits

Meets preference for multiple channels Increased adoption Reduces unapplied payments Guaranteed funds No administrative returns Accelerated posting of payment Cost reduction Improved customer experience

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FI Benefits Supports online banking: lowers attrition, higher account

balances, increases cross-sell, lower service costs EBIDS leverages ACH Network for enrollment, presentment,

and payment Lowest cost channel and best potential reach Uses industry standards – NACHA rules Non-proprietary

Provides compensation to consumer’s financial institution – new revenue stream

Enables a more direct working relationship between biller and banks for EBPP

New revenue opportunity for bill delivery/remittance services

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Consumer Benefits

Privacy of information – financial account information remains with financial institution

Remains in control of account and timing of payment

Access to more bills, bills are consolidated at one site

Access to bill detail through single sign on

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Pilot Status

EBIDS Product Design complete Processes, rules, and data formats for consumer enrollment,

presentment and payment Biller Directory complete SAML Server – in final testing phase Pilot revenue model complete Participant system update and integration - ongoing Target date for launching transactions: 3rd quarter 2007 NEED MORE BILLERS!

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Agenda

NACHA/ACH Overview EBIDS (Electronic Billing and Information

Delivery Service) Secure Vault Payments Exception Processing Mitigation

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Market Drivers Rapid growth of Internet commerce has led to industry challenges.

Security and privacy concerns 50% of US Internet users avoid making purchases online, afraid

financial information may be stolen (CyberSecurity Alliance Research 5/06)

Nearly half of consumers avoid online Bill Pay due to security concerns (comScore Networks, cited in American Banker 4/20/06)

Alternative online payments will account for 26% of eCommerce volume by 2009 (Celent, 5/06)

Continued fraud and chargebacks 35% of online orders are flagged for manual review related to fraud

detection (CyberSource Corp., cited in Digital Transactions 6/13/06)

6% of good sales lost due to fraud/risk screening (Cardline 2005)

Fraud is the top reason given for chargebacks on several networks (American Banker interviews with network executives, 1/17/06)

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Market Drivers Cont. Businesses want payment options

− 72% of consumers surveyed say the have abandoned an online purchase− 74% of consumers willing to spend $960 more per year (Javelin Strategy

and Research, 7/06)− 24% of consumers report shopping less online (Visa news release, 1/06)

Open new markets− Digital content – music, games, subscriptions, video− Last-minute/expedited payments

Online account opening− Bank reliance on non-bank providers – CashEdge,Yodlee

Guaranteed & authenticated payment options for billers− Card issuers− Mortgage and loan payments− Bank-centric substitute for biller-direct

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The Private, Secure, Bank-Authenticated Payments Solution ‘Secure Vault’ simply refers to using online banking to

initiate Internet payments

Consumers keep financial information private – never disclosed to the seller

Seller receives real-time authorization of guaranteed payment (ACH Credit)

Financial Institution authenticates the buyer, reducing risk, fraud, and charge backs

Relieves seller burden to secure/protect consumer financial information

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Demos Consumer Purchases Bill Payments Funds Transfers

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Key Features Bank customers keep financial information

private – never disclosed to businesses Bank leverages existing online banking

platform and connections to payment networks

Bank receives interchange revenue for authenticating existing customer and guaranteeing payment

Bank is central to its customers’ transactions

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Stakeholder Benefits – Businesses

Real-time authorization of a guaranteed payment (ACH Credit)

Sales lift – new customers, higher tickets, more purchases, less shopping cart abandonment

FI Authentication - reduces risk, fraud and charge backs

Eliminate need to secure/protect customers’ financial data

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Stakeholder Benefit - FIs

Use existing infrastructure - costs to support this channel have increased in the areas of authentication and security (FFIEC Guidance)

Create new potential revenue stream - FIs generate little direct revenue from the online banking channel today

Leverage customer relationships Grow the eCommerce ‘pie’ and enable new

online transactions Take a leadership role in privacy

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Stakeholder Benefits – Consumers

Security and privacy – no financial information shared with the seller

Familiar user interface with online banking More payment control and flexibility Consumers are most comfortable sharing

private financial information and account access with their Financial Institution

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NACHA’s Online Payments Pilot Pilot Participants:

Buyer’s FI (Guaranteeing ODFI) Seller’s FI (Receiving FI)Businesses (online merchants, billers, state

govt. agencies)Third Party providers (enable FI and business

customers)eWise (pilot network provider)

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Participation Requirements Participation Requirements:

Buyer’s FI (Guaranteeing ODFI) must be FFIEC compliant for online banking

Businesses must be sponsored by a Receiving FI Receiving FI warranties performance of sponsored businesses Resources necessary for integration work with eWise

Pilot Fees There is no registration fee to join the pilot Inter-bank and network fees will be collected Fees will vary by transaction type Fee structures have been announced

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Next Steps

INTERESTED IN LEARNING MORE ABOUT THIS PAYMENT TYPE AND THE PILOT?

Check out the new Online Payments Pilot Website at paymentspilot.nacha.org

Contact George Throckmorton at NACHA: gthrockmorton@nacha.org regarding pilot participation

Contact eWise at pilot-info@ewisesystems.com for technical and implementation information

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Agenda

NACHA/ACH Overview EBIDS (Electronic Billing and Information

Delivery Service) Secure Vault Payments Exception Processing Mitigation

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Exception Processing Mitigation

Purpose: to reduce errors (and costs) and improve straight-through processing for bill payment exceptions that originate from online banking systems Sponsored by NACHA’s Council for Electronic Billing and Payment

Typical issues Incorrect account number (front-end) Biller account number changes (back-end) Biller metrics for identifying costs

Stakeholder costs = $533 million in 2006 Consumers-$25.9 million Consumer service providers-$130.6 million Banks/3rd party processors-$14.1 million Billers-$362.7 million

All data from TowerGroup.All rights retained by TowerGroup.

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Exception Processing Mitigation: What Can We Do? Identify best practices to minimize consumer

errors (front-end) Develop benchmark biller metrics for identifying

the cost of exceptions Define biller/processor processes for account

number changes (back-end) Develop a communications plan for maximizing

industry outreach

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Summary

NACHA seeking to improve the payments process for billers.

More information: NACHA home page

http://www.nacha.org

Council for Electronic Billing and Payment http://cebp.nacha.org

Secure Vault Payments http://securevaultpayments.org