Published on February 28, 2014
The Story of NACHA An Overview of a Subject That Can’t Be Covered In An Overview
Table of Contents The NACHA Story The World of ACHs ACHs on the Network NACHA Operating Rules 3rd Party Service Providers
The NACHA Story The Electronic Payments Association “…manages the development, administration, and governance of the ACH network, the backbone for the electronic movement of money and data.” …in other words…
The NACHA Story They make sure money gets from Point A… …to Point B safely.
A little background… Back in the 1970’s, some California bankers started to explore the idea of electronic payments.
A little background… Electronic payments require countless technical, operational, and legal components. So NACHA was formed to make electronic payments efficient and safe.
A little background… “…through industry councils and forums, bring together stakeholders to foster dialogue and innovation to strengthen the ACH network.” NACHA started holding conferences where key players could brainstorm about how to make electronic payments work.
NACHA’s territory At these conferences, they make the tough decisions that make up the… • NACHA Operating Rules • ACH Network Enforcement & Risk Management • ACH Network Development
So what is an ACH? A direct account-to-account payment Consumer Business Business Business Government Business Government Consumer
So what is an ACH? You can use an ACH payment for almost anything. • • • • • • Paychecks Deposits between two banks Paying your utility bill, mortgage, or loans Tax refunds and social security Business-to-business payments E-commerce payments …they’re pretty popular.
The Growth of the ACH ACH Payments Over Time (In Billions) 24.00 22.00 20.00 18.00 16.00 14.00 12.00 10.00 18.00 18.20 18.76 19.40 20.20 21.00 2011 2012 16.00 14.00 2005 2006 2007 2008 2009 Source: https://www.nacha.org/ACHntwkstats 2010
The Growth of ACH It’s pretty obvious why ACH payments are so popular… • Much easier than writing and submitting a check • Paper isn’t needed to carry necessary transaction information (Catch Me If You Can, anyone?)
What is the ACH network? The system that transfers ACH payments between financial institutions and is governed by the NACHA Operating Rules.
What is the ACH network? Basically, because there are so many ACH transactions made each day, they are stored and processed all at once in a batch.
What is the ACH network? The ACH Network is where all of the ACH payments are “stored” until they’re ready to be sent all at once.
What is the ACH network? With all these electronic payments floating around, the ACH Network has pretty tight security… That’s where the NACHA Operating Rules come in.
NACHA Operating Rules • Govern the exchange of ACH payments • Define the roles and responsibilities of financial institutions and other participants in the ACH Network (like small businesses…)
The Key Players Originator: Any individual, corporation, or other entity that initiates entries into the ACH Network ODFI: The ODFI (Originating Depository Financial Institution) that originates ACH entries at the request of and by agreement with its customers. They must comply with the NACHA Operating Rules. RDFI: The RDFI (Receiving Depository Financial Institution) qualified to receive ACH entries that agrees to abide by the NACHA Operating Rules.
The Key Players Receiver: An individual, corporation, or other entity that has authorized an Originator to initiate a credit or debit entry to a transaction account held at the RDFI. ACH Operators: The Federal Reserve and Electronic Payments Network act as ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries. 3rd Party service providers: An entity other than the Originator, ODFI, or RDFI that performs any function on behalf of the Originator, ODFI, or RDFI with respect to the processing of ACH entries.
What happens if I don’t follow them? “The National System of Fines is the rules enforcement mechanism for the ACH Network, correcting violation of and ensuring compliance with the Rules through a formal system of warnings and fines.”
NACHA Operating Rules These are incredibly complicated, difficult, and you have to do a whole lot in order to get them and figure them out. This is an example of a NACHA operating rule. Because of the complexity, many opt to use a 3rd Party Service provider. They become the experts so you don’t have to.
rd 3 Why use a party service provider? A 3rd Party Service provider’s job is to know everything about NACHA Compliance so that you don’t have to. Usually possesses a more intelligent ACH Processor with customized reporting Most are internet based meaning no expensive software
rd 3 Why use a party service provider? Customization and graphically (GUI based) where banks are usually text based Outsourcing compliance
Questions? Leave them in the comments section below and I will answer them personally. Stephen Price CEO, E-Complish LinkedIn
Image Credit • Slide 4 • http://www.freedigitalphotos.net/images/view_photog.php?photogid=2039 / Ohmega1982 • Slide 12 • http://www.freedigitalphotos.net/images/view_photog.php?photogid=6621 / patrisyu • Slide 13 • http://www.freedigitalphotos.net/images/view_photog.php?photogid=2280 / digitalart • Slide 16 • http://www.freedigitalphotos.net/images/view_photog.php?photogid=2268 / frankie_8 • Slide 17 • http://www.freedigitalphotos.net/images/view_photog.php?photogid=4061 / adamr
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