Amanda JohnsonUtility Payment ConferenceUtility Payment Conference

September 19, 2011

PaymentsTendersTerms Acronyms

Organizations and Associations

Regulations

Federal ReserveNACHA

Central Bank systemCreated in 1913Private bank system:President appointed Board of Governors Federal Open Market Committee12 regional BanksMember banksAdvisory councils

Not-for-profit association Direct memberships represented by more than 11,000 financial institutionsNetwork of regional payments associations, and 650 organizations through its industry councilsDevelops operating rules and business practices for:ACH - Automated Clearing House Network EBPP - Electronic Bill Presentment and Payments EIPP - Electronic Bill and Invoice Presentment and Payment EDI - Electronic Data Interchange PaymentsEBS - Electronic Benefits Services

NACHA-The Electronic Payments Association(formerly known as the National Automated Clearing House)

Red FlagRegulation E

Issued by the Board of Governors of the Federal Reserve SystemImplemented in 1978Governs electronic fund transfers from a consumers accountProtects consumers rights and sets limits on consumer liability for unauthorized paymentsImposes specific obligations to billers for recurring payments

A pattern, practice, or specific activity that indicates the possible existence of identify theft

Your program must be reasonableFor additional information go to: www.ftc.gov/redflagsrule

2. DETECT Red flags that have been incorporated into the program 3. RESPOND

Appropriately to any RED FLAG(s) detected 4. UPDATE Program periodically to capture lessons learned and changes in risks

1. IDENTIFYRelevant patterns, practices and specific forms of identifying possible red flags

The ACH network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system

Governed by the NACHA operating rules

Provides for the inter-bank clearing of electronic payments for participating depository financial institutions

The ACH network can be used to send either debits (payments) or credits (refunds) A credit sends funds to a Receivers accountA debit takes funds from a Receivers account

Originator: Company /individual initiating an ACH transaction according to Receiver agreement

Originating Depository Financial Institution (ODFI): Financial institution transmitting ACH files for the Originator into the ACH Network

ACH Operator: Central clearing facility operated by a private organization or Federal Reserve Bank for participating financial institutions, to or from which financial institutions transmit or receive ACH entries.

Receiver: A person or organization that has authorized the Originator to initiate an ACH entry (debit or credit) to the Receiver's account with the RDFI.

Receiving Depository Financial Institution (RDFI): Financial institution that receives ACH entries from the ACH Operator and posts the entries to the accounts of the depositors (Receivers).

Third-Party Processors: Processors that participate between any relationship within the ACH processing flow (i.e., correspondents, sending-point processors or payroll processors).

Each type/method of payment in the ACH world has its own rules and guidelines.

These are determined by the SEC (Standard Entry Code) used in the payment file.

Commonly used SEC codes

ARC Accounts Receivable Conversion (mail) BOC Back Office Conversion POP Point-of-Purchase; Includes check serial number TEL Telephone WEB Internet PPD Pre-authorized Payment and Deposit (auto draft) RCK Return Check RDFI Receiving Depository Financial Institution ODFI Originating Depository Financial Institution

ARC Mail-in paymentsCheck 21 Mail in payments POP Walk-up Retail LocationsTEL IVR (Credit or debit card/Check) PaymentsWEB E-Lock box (Consolidators) PPD and CCD EFT Auto Pay CTX EDI 820s

Accounts Receivable Check (ARC); lock box/drop box received eligible consumer checks can be converted into electronic debits and processed through the ACH network. Checks drawn on consumer accounts payable in U.S. dollars are eligible for ARC conversion. Checks are machine read to capture the Magnetic Ink Character Recognition (MICR) information routing number, account number and check serial number along the bottom of the check. The data elements, along with the check amount, are used to create an ACH record. Typically, the billers bank account is credited the next business day. http://www.federalreserve.gov/pubs/checkconv/#what

Eligible checks converted to ACH debits Controlled environment in the back-office Authorized signature for conversion not requiredScanning equipment installation not required Customer notification of conversion disclosed at the register and on documents Checks that contain auxiliary on-us fields or those over $25,000 are ineligible for BOC

http://www.federalreserve.gov/pubs/checkconv/#what

Location where payment takes place Purchaser and seller are both present Information from the consumer's check is used to create the electronic transaction

One-time or recurring

Should include Terms & Conditions

Privacy statement

Appropriate authorization language

Receipts / confirmations delivered electronically upon completion of payment

Can be either PPD or TEL EntryRequires written authorization if treated as PPDOne-time or recurring for PPDIf no written authorization on file then can complete only per TEL rules. This requires written receipt or tape recording (actual oral authorization)TEL = one-time paymentSetting up PPD Payments via IVR is complex, normally IVR should be a TEL entry

ACHAuthorizedCheck21ContractedCTXEBPPElectronic Check Conversion

IRDEDIInternet paymentsIVRM-payments

MICRNOCNon-contractedP2PUnauthorizedE-LockboxEBIDS

Corporate Trade ExchangeThe CTX payment format combines payment information and a variable length record (called an addendum record) ACH format which allows for up to 9,999 addenda records with approximately 800,000 charactersAllows multiple payments to creditors or billers in a single transfer of funds

The legal equivalent of the original check

A set of standards for structuring information electronicallyTechnical conversation between two entities, either internal or externalInformation is the same displayed on paper documents Transmission method is agreed to by the sender and recipient

Information sent by an RDFI to notify the ODFI that previously valid information for a receiver has become outdated or that information contained in a pre-notification is erroneous

Used to credit or debit a consumer account.

Payroll direct deposits and preauthorized bill payments

Information sent by an RDFI to notify the ODFI that previously valid information for a receiver has become outdated or that information contained in a pre-notification is erroneous

A physical check that was presented and returned because of insufficient funds may be represented as an ACH entry

Enables bills to be created, delivered and paid over the Internet.

Multiple applications exist for many industries including financial service providers , communications and utilities.

Fast Secure Environmentally responsible

Mobile payment (M-payment) is a point-of-sale (POS) payment made through a mobile device; cell phone, Smart phone or personal digital assistant (PDA)

Person to person (P2P) can be a wireless or text enabled device which can be used to pay a variety of bills at anytime without interacting with anyone including:Ability to transfer monies with a mobile phone from person-to-person (P2P)

Account number and personal identification number (PIN) for authorization purposes required

A process in which your check is used as a source of information for the check number, your account number, and the number that identifies your financial institution.

Transaction types include:ARC Accounts Receivable ConversionBOC Back Office ConversionPOP Point of PurchaseBenefitsPrivacySecure and ProtectedInformation of descriptive statement Environmental http://www.federalreserve.gov/pubs/checkconv/#what

In person payment

Authorized or unauthorized Utility office location or 3rd party vendor relationshipReceipt issued for payment transactionData terminal equipment Kiosk customer initiatedTerminal store or cashier initiatedPotential 'real-time' payment posting

An official contract/agreement with a 3rd party payment vendorThe vendor authorize business or retailer to accept payments for the utilityCash, Check and Money Order tenders acceptedAdvertised by utility

No official contract or agreement with 3rd party payment vendorA business or retailer who accepts biller/utility payments without contractTypically only accepts cash as tenderUsually 2 - 5 (business) day delay of payment to billerConsumer funded convenience fee of $1 - $9.95

Credit / Debit CardeCheckCashCheckRecurringScheduledOne-TimeWebMobileAssisted PhoneMail InIn PersonChannelsCustomerMethodsFrequency

Are you currently looking to issue an RFP or RFI?Are you satisfied with your service provider?Are they providing exemplary service?If not, what are you going to do about it? Is it really too much effort to sever relations and/or add another service provider?Do you ask questions?Are they licensed? Is that really important?Are they doing exactly what you contracted with them to do?

Amanda JohnsonUtility Payment Conference

309-762-2854 Office (CST)info@paymentconference.comajohnson@paymentconference.com

Visit the Utility Payment Conference Exhibit Hall and learn more about the services available to you from your current and potential service providers

**The Federal Reserve System is the central banking system of the United StatesWas created in 1913Is a private banking system composed of The Board of Governors (responsible for monetary policy) in of the Federal Reserve System, appointed by the President The Federal Open Market Committee 12 regional Federal Reserve Banks located in major cities throughout the nation acting as fiscal agents for the U.S. TreasuryEach with its own nine-member board of directors; Including numerous private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve BanksVarious advisory councils.

Not-for-profit association Represents more than 11,000 financial institutions through direct memberships Develops operating rules and business practices for:Automated Clearing House (ACH) Network (not Check 21)Electronic payments in the areas of Internet commerce, e-bill and invoice presentment, e-checks, EDI an electronic benefits services (EBS)NACHA estimates that more than 8.5 billion consumer bills were paid via the ACH Network in 2007, including pre-authorized debits, Internet and telephone-initiated payments, and checks converted into ACH payments. *Regulation issued by the Board of Governors of the Federal Reserve SystemAuthorized under the Electronic Fund Transfer Act governing electronic fund transfers from a consumers accountIt does not apply to check drafts, credit cards, Federal wire transfers, interbank transfers or non consumer accountsIt applies to ACH, ATM and debit card transactions to or from a consumer accountIs a consumer protection statute that assures consumer rights are protected with regard to electronic transfers by making sure that transfers are:authorized, clearly disclosed to consumers and that consumers are granted specifically defined rights with regards to error resolution and to challenging transactions they claim they did not authorizeSets limits on consumer liability for unauthorized transactions.Imposes specific obligations for recurring paymentsTransfer must be authorized by a writing that is signed or similarly authenticatedWriting is on paper or displayed on a computer terminal Telephone recording alone does not comply with writing requirement.Similarly authenticated, some methodology is needed to confirm identity of person giving authorization. Example: Shared secrets - Credit card number and client account numberPerson obtaining the authorization must supply a copy to the consumer by mailing or in case of Internet, by generating a receipt that can be printedWhen the fund transfers vary from month to month, Reg. E requires:Notice be sent of the date and amount of the transfer at least 10 days before the scheduled date of the transferConsumer may authorize payments within a certain range and require notice only when the payment falls outside of the range.

October 2007 FTC issued final rules FACTA 114 and 315Rules effective January 1, 2008Compliance required November 1, 2008FACTA 114 rule requires development and implementation of written Identity Theft Prevention ProgramFACTA 315 rule requires appropriate procedures to resolve Address Discrepancies

Organizations are required to conduct a risk assessment of their accounts and proceduresMatch programs to nature of businessProgram must be periodically updatedExisting fraud procedures can be included in new program

We are going to concentrate from here on on the electronic payments through the ACH channel. The railway so to speak, is the ACH network. Processing and delivery system. The users .see next slideACH - Automated Clearing HouseThe ACH network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system Governed by the NACHA operating rules Provides for the interbank clearing of electronic payments for participating depository financial institutions The Federal Reserve and Electronic Payments Network act as:ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries The ACH network can be used to send either debits (payments) or credits (refunds) A credit sends funds to a Receivers accountA debit takes funds from a Receivers account

An ACH entry starts with a Receiver authorizing an Originator to issue ACH debit or credit to an account. An Originator can be a person or a company (such as the gas company, a local cable company, or one's employer). Depending on the ACH transaction, the Originator must receive written (ARC, POP, PPD), verbal (TEL), or electronic (WEB) authorization from the Receiver. Written authorization constitutes a signed form giving consent on the amount, date, or even frequency of the transaction. Verbal authorization needs to be either audio recorded or the "Originator" must send a receipt of the transaction details before or on the date of the transaction. A WEB authorization must include a customer reading the terms of the agreement and typing or selecting some form of an "I agree" statement.Once authorization is acquiredthe Originator creates an ACH entry to be given to an Originating Depository Financial Institution (ODFI), which can be any financial institution that does ACH origination. The ACH entry is then sent to an ACH Operator (usually the Fed) and is passed on to the Receiving Depository Financial Institution (RDFI), where the Receiver's account is issued either a credit or debit, depending on the ACH transaction.

The RDFI may reject the ACH transaction and return it to the ODFI with an appropriate reasonInsufficient funds in the accountAccount holder indicated that the transaction was unauthorizedAn RDFI has a prescribed amount of time in which to perform returns, ranging from 2 to 60 days from the receipt of the ACH transaction. The majority of transactions, if going to be returned, are done so within 24 hours from midnight of the day the RDFI receives the transaction. An ODFI receiving a return of an ACH entry may re-present the ACH entry two more times, or up to three total times, for settlement.

Again, the RDFI may reject the transaction. After which, the ODFI may no longer represent the transaction via ACH.

ARC (Accounts Receivable Conversion) - Through electronic Accounts Receivable Check (ARC) Conversion, eligible consumer checks received at a lockbox or drop box can be converted into electronic debits and processed through the ACH network.

Checks drawn on consumer accounts payable in U.S. dollars are eligible for ARC conversion. Checks are machine read to capture the Magnetic Ink Character

Recognition (MICR) information routing number, account number and check serial number along the bottom of the check The data elements, along with the check amount, are used to create an ACH record. Typically, the billers bank account is credited the next business day. In March, 2007 Under the new BOC rules, retailers and other billers can convert eligible checks to Automated Clearing House (ACH) debits in a controlled environment in the back-office rather than at the point-of-sale or at manned bill payment locations. Businesses no longer have to obtain a signature authorization for conversion or have scanners installed at each checkout or bill payment location.

A business needs only to disclose to its customers that their check will be converted into electronic transactions by means of a notice at the register and on a document that customers take with them, such as the back of a receipt. Checks that contain auxiliary on-us fields or those over $25,000 are ineligible for BOC

Is the location where payment takes place and where the purchaser and seller are both present and

Information from the consumer's check is used to create the electronic transaction

One-time or recurringShould include Terms & Conditions Privacy statementAppropriate authorization languageReceipts / confirmations delivered electronically upon completion of paymentCan be either PPD or TEL EntryRequires written authorization if treated as PPDOne-time or recurring for PPDIf no written authorization on file then can complete only per TEL rules. This requires written receipt or tape recording (actual oral authorization)TEL = one-time paymentSetting up PPD Payments via IVR is complex, normally IVR should be a TEL entry

*Is a corporate ACH format which allows for up to 9,999 addenda records with approximately 800,000 characters.

The CTX payment format combines payment information and a variable length record (called an addendum record) with related information, such as invoice numbers, allowing multiple payments to creditors or billers in a single transfer of funds.

Is the legal equivalent of the original check if it has the following requirements:Accurately represents all information on the front and back of the original check Contain the legend This is a legal copy of your check. You can use it the same way you would use the original check. Must conform to industry standards applicable to the MICR line Must conform to the industry standard for the physical characteristics of checks (size, paper, etc.)

Is a set of standards for structuring information that is to be electronically exchanged between and within businesses, organizations, government entities and other groups. Is considered to be a technical representation of a business conversation between two entities, either internal or external. Documents generally contain the same information that would normally be found in a paper document used for the same organizational function. Standards were designed to be independent of communication and software technologies. Can be transmitted using any methodology agreed to by the sender and recipient.

****AdvantagesCheck your current and past payment activitiesView and pay your bill on lineSet up your bill to be paid automaticallySchedule payments for future datesFree and convenientGood for environment, saves paper and resourcesCan discontinue paper for cost savings of bill creationNotification when ready or payment neededProvide same communication as paper inserts Is a point-of-sale (POS) payment made through a mobile device; cell phone, Smart phone or personal digital assistant (PDA) A person with a wireless or text enabled device can pay a variety of bills, including a utility bill, at anytime without interacting with anyone.A customer would enroll for the service and select the biller) they want to pay A customer is usually provided with an account number and personal identification number (PIN) for authorization purposes. is a process in which your check is used as a source of information for the check number, your account number, and the number that identifies your financial institution. The information is used to make a one-time electronic payment from your account- an electronic funds transfer. The check itself is not the method of payment. Transaction types includeARC Accounts Receivable ConversionBOC Back Office ConversionPOP Point of Purchase

Privacy personal information is seen by fewer people when a check is turned into an electronic payment.Secure and protected customers have more protection with electronic payments than with paper checks. ARC transactions are governed by federal laws that apply to electronic banking (Electronic Funds Transfer Act and Regulation E) Rules indicate customer has 60 days from the date a bank statement was sent, to notify your bank of a problem. The bank then has up to 45 days to investigate.Information the name of the originating company and a descriptive statement appear on your bank statement rather than an entry that just says check.

This helps in reconciling and balancing your account and an account statement that includes this information serves as proof of payment.

Environmental - there is an environmental impact to using paper checks. In addition to the natural resources used to manufacture/print paper checks, processing the checks relies heavily on our nation's transportation systems; including trucks and airplanes.

The Check Clearing for the 21st Century Act (Check 21) was signed into lawon October 28, 2003 and became effective on October 28, 2004 Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation The law facilitates check truncation by creating a new negotiable instrument called a substitute check which permits banks to truncate original checks to banks that want to continue receiving paper checksA substitute check is the legal equivalent of the original check and includes all the information contained on the original checkThe law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the Act to create substitute checksLockboxA service offered by banks to companies where the company receives payments by mail to a post office box and:A service offered by banks to companies where the company receives payments by mail to a post office box and: The amounts must be large in order for the value obtained to exceed the cost of the service. The bank picks up the paymentsDeposits them into the company's account multiple timesNotifies the company of the depositIt enables the company to put the money to work as soon as it's received.

Customers are able to pay in person at locations that accept and process utility paymentsThe agent may or may not be authorized or unauthorized dependant on the utility and or 3rd party vendor relationshipCustomers generally receive a receipt for their paymentA cashier may swipe a bill stub or key in the billing details into a data terminalA receipt with payment transaction information is provided to the customer Depending on the utility and their processing capabilities, some authorized pay agents may offer 'real-time' payment posting. Walk-in bill payment can be by:Kiosk customer initiatedTerminal store or cashier initiated*A utility (or its contractor) have entered into an official contract with a payment vendorThe vendor is authorized to accept payments for the utilityThe agent usually is able to accept cash, check and money order tendersThe utility usually advertises or notifies their customers about the (authorized) payment options available to their customers to use

A business or retailer that accepts biller/utility payments and the utility (or its contractor) have NOT entered into an official contract Typically an un-authorized pay agent will only accept cash as tenderThere is usually a 2 - 5 (business) day delay from the time a payment is accepted and until it's actually received and posted by the billerThe consumer will pay a convenience fee of $1 - $5 for the ability to generate their payment.

*A utility (or its contractor) have entered into an official contract with a payment vendorThe vendor is authorized to accept payments for the utilityThe agent usually is able to accept cash, check and money order tendersThe utility usually advertises or notifies their customers about the (authorized) payment options available to their customers to use

A business or retailer that accepts biller/utility payments and the utility (or its contractor) have NOT entered into an official contract Typically an un-authorized pay agent will only accept cash as tenderThere is usually a 2 - 5 (business) day delay from the time a payment is accepted and until it's actually received and posted by the billerThe consumer will pay a convenience fee of $1 - $5 for the ability to generate their payment.

This shift is largely the result of consumers desire for payment convenience and flexibility both in terms of the channels and settlement methods customers use to make payments.*A utility (or its contractor) have entered into an official contract with a payment vendorThe vendor is authorized to accept payments for the utilityThe agent usually is able to accept cash, check and money order tendersThe utility usually advertises or notifies their customers about the (authorized) payment options available to their customers to use

A business or retailer that accepts biller/utility payments and the utility (or its contractor) have NOT entered into an official contract Typically an un-authorized pay agent will only accept cash as tenderThere is usually a 2 - 5 (business) day delay from the time a payment is accepted and until it's actually received and posted by the billerThe consumer will pay a convenience fee of $1 - $5 for the ability to generate their payment.