Well, it was yet another eventful banking conference at which the music and alcohol flowed until 8:30 p.m. This allows the payment professionals the appropriate amount of time for proper sleep in order to be bright eyed at the 7 a.m. breakfast roundtables. It is comforting to know that the people responsible for the processing of trillions of dollars annually in the U.S. are so conscientious!
In the multitude of sessions which I attended, related to risk, fraud, enforcement rules and third-party sender aspects of the payment world, many relevant and interesting points surfaced.
The concept of protecting personal identifiable information (PII) is reaching new heights.
A few key ones are identified below.
Developments in personal identifiable information. The concept of protecting personal identifiable information (PII) is reaching new heights. California used to be on the cutting edge of this topic but there is legislation in Massachusetts, which is now leading the way in the U.S. in defining and protecting PII.
Basically, when you possess a first initial, last name, and an account number of a Massachusetts resident, then you have PII and you become subject to this legislation. I would encourage you to take a closer look at this legislation when you get a chance.
New Lists. Some of you may be familiar with the concept of a terminated merchant file (TMF) or MATCH as this has been active in the credit card world for some time. This initiative impairs the merchant's ability to keep switching from bank to bank when an account is terminated with cause.
NACHA has unveiled a similar structure with its terminated originator database (TOD). Keep in mind that an Originator is NACHA's terminology for a merchant. Banks that terminate the merchant populate this database. Its purpose is to allow other banks to reference this one central database during their underwriting of new merchants to see if this merchant has been an issue in the past and to keep the risk out of the network.
Another list has been introduced called the originator watch list (OWL). This list is basically a suspect list. NACHA states the following: "…Originator watch list identifies originators and third-party senders that meet certain risk criteria, but does not introduce or imply any prohibition on initiating entries for entities listed." Nowhere have they released what defines these "certain risk criteria" but they will become apparent and we will respond to it accordingly.
Everyone is patting themselves on the back in their great success in taking risk out of the NACHA network. The conclusion that has been drawn is … current measures are working so let's do more of the same!
The Risk Management Group at NACHA is preparing a new request for comment. The teasers they were giving us were noncommittal but included reducing the one percent rule down to .75 percent then .5 percent. Their reasoning is that the network as a whole runs at .03 percent so if someone is running at one percent then they are at a rate of 33 times the average. Another enhancement that they would like is to reduce the length of time a merchant has for corrective action. Today it is 60 days, and they are suggesting perhaps 45 or 30 days would be more appropriate. Several years ago when they were suggesting 60 days, people were arguing that a consumer has 60 days to dispute the transaction so 60 days to correct is inadequate. The presenter also relayed that at the merchant level there didn't seem to be any improvement with processing within the existing 60 days so, that being the case, 60 days can easily be reduced and we can get bad merchants out of the network more quickly.
Why is it that no one supports that maybe more than 60 days would be a better number to preserve the volume and give a merchant time to adjust to the circumstance that led to the issue?
The request for comment is in process and is expected to hit the public domain in the next few weeks. There is a group working on providing real data, real experience and real thought regarding the true issues and the results of changes of this nature. The belief is that by providing empirical evidence as to the reality of these changes, the rule makers may postpone and re-evaluate any proposed changes.
NACHA's annual conference yet again provided insights into rule making, regulatory concerns, and opportunities to meet payment professionals from both sides of the spectrum. As I left the conference I reflected how truly amazing it is to me that the banking industry is so focused on the understanding and performance of the rules that they lose sight of the real issues they are trying to solve.