ACH by the Numbers
Last month, I shared with you reasons why a merchant would want to consider offering ACH as a payment option but I didn’t give you any specific details about ACH. This month, I selected eight number-based facts to give you some understanding of the breadth of ACH processing and the organization that is responsible for its continued well being.
In 1974 the National Automated Clearing House Association (NACHA) was formed to nationalize a system that was working well regionally. ACH processing started out as regional networks that exchanged transactions within participating members and has grown to be a national vehicle to move money between banks on behalf of businesses and people. NACHA is a real organization that has great resources for consumers, businesses and bankers. You can find a lot of information at www.NACHA.org.
There is an annual conference where thousands of people come to hear presentations on understanding the rules, product developments, the regulators perspectives and to gain practical advice from real experience. This conference covers more than just ACH processing by providing sessions on prepaid, mobile payments, merchant processing and alternative payments around the globe.
NACHA represents nearly 11,000 financial institutions. NACHA is a self-funded council that proposes rules, modifications to these rules, puts these rule proposals out for comment and then enforces the rules that are put in place. NACHA is self-regulated. There is no act of government required to modify the rules, like there is in Check Processing for instance. Due to this “freedom,” NACHA and its participants are very diligent in adhering to the rules and keeping the network nice and safe to avoid any future government intervention.
It is the 10th anniversary for web transactions. NACHA defines transaction types based on how the authorization for the transaction was obtained from the consumer. Web is the transaction type that indicates that the user authorized this transaction online. With these classifications the rules change regarding the requirements for submitting this transaction. For instance, a web transaction must be submitted at all times using an encrypted channel with a minimum of 128-bit RC4 encryption technology or equivalent and you must keep the authorization for a period of at least two years.
This is the number of banking days that a business has to return an ACH transaction for any reason, including unauthorized, that has hit their account. This is a very good reason to stay on top of your business accounts daily. Consumers, on the other hand, have 60 days to return a transaction for unauthorized to give them time to receive a bank statement and act on it.
Two is also the number of banking days that a consumer’s bank has to return a transaction to the merchant for any reason other than unauthorized. This includes reasons like: insufficient funds, invalid accounts, account not found, etc.
In the fourth quarter of 2010 alone there were 3.96 million transactions worth more than $8.2 trillion processed through ACH. That’s a staggering amount of money movement in a period of only three-months time. The ACH network continually grows quarter over quarter as more merchants use it and more consumers embrace it. This number represents both credits (e.g. payroll) and debits (e.g. bill payments) into the network. Debits were 63.6 percent of the nearly four million transactions. Specifically regarding online transactions, there were 641,500 web transactions in 4th quarter of 2010. This is up 3.67 percent from the 3rd quarter of 2010 and up 8.04 percentfrom the same quarter in 2009. This is great news because with the continued growth of the Internet transaction type, better authentication methods will result.
NACHA has a designation for its certified professionals — AAP (Accredited ACH Professional). There are nearly 4,000 individuals that have passed the examination and maintained their accreditation through education credits.
In 2010, 637 individuals became newly accredited ACH professionals. In support and acknowledgment of this group of professionals, there is actually a National AAP Recognition day that happens annually on the second Tuesday in February.
Similar to the Card Associations’ chargeback ratio rules, NACHA implemented a 1 percent rule in March 2008. This rule states that in a given 60 day period, the number of unauthorized returns divided by the sales in that same period can not exceed 1 percent. There is another variation on the rule as well, that bodes well for this industry, and that is a calculation that says take the number of unauthorized transactions for the last 60 days and divide that by the number of sales that were submitted in the same batches as the sales that resulted in those chargebacks. Although this sounds complicated, if you think about it, in that model if you experience an unauthorized transaction from every day of sales in a 60 day period you would have at best 120 days worth of sales to divide into the 60 days worth of unauthorized returns. This is as a result of a consumer having 60 days to report the transaction and the unauthorized transactions are measured for a 60 day period.
As part of the efforts to keep the ACH network safe, NACHA has implemented a Terminated Merchant list.
According to the NACHA site: “The Terminated Originator Database facilitates the exchange of information regarding Originators and/or Third-Party Senders terminated for cause from ACH processing by Originating Depository Financial Institutions (ODFIs). The Terminated Originator Database supplements ODFIs due diligence and risk management processes, and assists in the evaluation and ongoing monitoring of new Originators and Third-Party Senders, allowing ODFIs to benefit from other financial institutions’ experiences.”
The number of current pilots that are taking place at NACHA is three. Believe it or not, NACHA is constantly innovating. NACHA creates new and useful products by using its existing debiting and crediting products as building blocks. One current initiative is Secure Vault Payments. This is a wonderful product that gives the merchant a real time response on a bank account and confirms payment immediately. As a new product it is just growing in adoption and currently all merchants have to be explicitly approved by NACHA.
I will be attending the NACHA 2011 Payments conference April 4-6 and will be privy to very current information regarding developments in the payment industry globally.