What Originators Really Want From Same Day ACHFrom Same-Day ACH

Steven Cordray, Federal Reserve Bank of AtlantaChristopher Huppert Wells FargoChristopher Huppert, Wells Fargo

Jason Marshall, WalmartKaren Redwood, PayPal

David Vogt, Paychex

Changing Environment• ACH schedules in place for 35 years without material• ACH schedules in place for 35 years without material

change

• Demand exists for faster clearing and settlement ofDemand exists for faster clearing and settlement of payments– Private ACH exchanges operating today that clear ACH converted

h k l h d I dchecks, telephone and Internet payments same-day

– Some commercial banks clear on-us ACH payments same-day

Check 21 premium service enables same day clearing of some– Check 21 premium service enables same-day clearing of some check payments

– Other countries have implemented same-day clearing for low-value paymentspayments

Same-Day and Next-Day ACHSame Day and Next Day ACH Payments• Same-Day Payments: Commercial debit

payments from consumer accounts. Payments settle on the processing datesettle on the processing date.

• Next-Day Payments: All-inclusive term covering y y gcommercial credit and debit payments that settle on the morning of the business day after the processing date and commercial credit pa mentsprocessing date and commercial credit payments that settle on the morning of the second business day after the processing date. y p g

FedACH Same-Day Service - Description• Allows converted check payments (ARC BOC POP and RCK) as well as TEL and • Allows converted check payments (ARC, BOC, POP, and RCK) as well as TEL and

WEB consumer debit payments. Includes support for mobile payments.

• Supports 38 percent of all payments by volume. Majority of remaining non-t d t t i ll h d l d i b i d tl supported payments are typically scheduled on a recurring basis and consequently

do not require expedited processing.

• Payments must be originated and received through FedACH.y g g

• Origination is limited to non-government payments.

• Same-day and next-day payments can be included in the ACH input file and can be comingled in the same payment batch. Non-eligible payments will settle next day.

• The service does not require any non-standard use of NACHA file, record, or field formats.

FedACH SameDay Service -FedACH SameDay Service Description (continued)

• Service is opt-in for both the ODFI (Originating Depository Financial Institution) • Service is opt-in for both the ODFI (Originating Depository Financial Institution) and RDFI (Receiving Depository Financial Institution), by agreement, and is available to any FedACH customer.

• For each RTN (Routing Transit Number) participants may choose to be an ODFI For each RTN (Routing Transit Number), participants may choose to be an ODFI only, an RDFI only, or both for forward payments.

• RDFIs can opt-in for any or all participating ODFIs.

• ODFI participants can originate payments to all RDFI participants agreeing to accept such payments.

• List of participants is web accessible.p p

• Participant list may be printed or downloaded in a processor-ready format that can be uploaded into an ACH origination application.

• Service commenced on August 2, 2010.

Comparison of Forward Debit pPayment TimeframesSame-day forward items may be sent between 2:15 am and 2:00 pm, delivered by 4:00 pm, and settled at 5:00 pm ET.

Comparison of Return PaymentComparison of Return Payment Deadlines

• Return of same-day forward items may be sent between 2:00 pm and 4:30 pm Return of same day forward items may be sent between 2:00 pm and 4:30 pm, delivered by 5:00 pm, and settled at 5:30 pm ET. Alternatively, RDFIs can use the existing “immediate” return service at 2:00 pm ET.

• RDFIs will not be required to return same-day forward items by the above schedule. q y yFor return of same-day forward items, the current return deadline rules apply.

Looking Ahead• Important to have an industry dialogue to address best ways• Important to have an industry dialogue to address best ways

to handle same-day credit needs• Roles and characteristics of ACH and wire transfer networks

should be debated and clarifiedshould be debated and clarified• Industry preferences for future same-day applications

o Payroll (contingency and hourly/temporary), tax payments, and cash y ( g y y p y), p y ,concentration (push and pull)

o Mobile credit payments, emerging P2P, and other spontaneous purchasesOnline bill payment and account to account transferso Online bill payment and account-to-account transfers

o Contingency, disaster recovery, and faster reversalso International payments

What Originators ReallyWhat Originators Really Want From Same-Day ACH

Jason MarshallSr. Director Payment ServicesCorporate TreasuryCorporate TreasuryWalmart Stores Inc.

Walmart is a $405B global retailer

U S

• 3,708 retail stores • Walmart.com• Other formats: 1-800 Contacts; Mail order pharmacy

U.S.

• $258.2 billion in sales

• 596 wholesale clubs• Samsclub.com• $46.7 billion in sales

International

• 4,112 units• 53 retail banners• 15 countries

$100 1 billi i l• $100.1 billion in sales

Note: Sales for year ending January 31, 2010 Note: Photos above illustrate a few of Walmart’s 53 international banners

The ACH Network is Important ToThe ACH Network is Important To WalmartThe ACH network allows Walmart to efficiently pay:• Over 1 million U.S. associates• Over 60,000 suppliers

The ACH network enables innovation• POP check conversion at Walmart & Sam’s ClubPOP check conversion at Walmart & Sam s Club• TEL/WEB at Samsclub.com & mail-order pharmacy• Account-to-account funds transfer

from payroll cardsfrom payroll cards• Alternative payments such as PayPal• Mobile?

Corporations Need A Faster ACHCorporations Need A Faster ACH Network

The industry should immediately develop a timeline for:– Ubiquitous same-day ACH– Debits and credits

A faster ACH network would reduce risk in the network– Reversals, error corrections, exceptions– Payroll issues

R– Returns

A faster ACH network would promote innovation– Disaster/contingency payments– P2P– Mobile– Other

“ ' fi i i ' fi i ” i“When you're finished changing, you're finished.” – Ben Franklin

After 35 Years It Is Time To AccelerateAfter 35 Years It Is Time To Accelerate ACH Settlement Timing

1970’s telephone 1970’s computer 1970’s internet

“Innovation is the ability to see change as an opportunity, not a threat” – Steve Jobs

What Originators Really Want FromWhat Originators Really Want From Same-Day ACHAFP Conference

November 8, 2010

Karen RedwoodDirector, Global Core Payments

PayPal Enables Global Commerce

• 16.5% of U.S. e-commerce and nearly 15% of global e-commerce

• Founded 1998; acquired by eBay 2002

commerce

• Over 224 million total accounts; 87 million active accounts

• HQ in San Jose, CA; International HQ in Singapore active accounts

• 190 markets

• 24 currencies

HQ in Singapore

• Operation Centers in Omaha

• Localized service in 20 markets

Omaha, Nebraska and Dublin, Ireland

In 2009 $71B total payment volume (19% yoy growth)In 2009, $71B total payment volume (19% yoy growth)

PayPal and ACH Network

• Online ‘wallet’ with multiple financial instruments that customer can use

• We believe that customers want options

• Customers use the ACH network for purchasesCustomers use the ACH network for purchases, sending money (P2P or P2B) and transferring funds in/out of their wallet

• PayPal uses for receipt of payments from partners and to send payments to suppliers (AP/AR)

Innovation = customer value• Innovation is critical not for its own sake but in• Innovation is critical not for its own sake but in

delivering value to customers• Value of Same Day ACH Pilot is limited to receiving returns 1

day earlier

• To create a true customer benefit we need:• Consistent commitment that funds will be moved in a stated

time frame

• Faster returns processing – must reduce the risk for allFaster returns processing must reduce the risk for all parties

• 100% participation by FI’s

• Debits and Credits

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What Originators Really Want F S D ACHFrom Same-Day ACH

David K. VogtTreasury Operations Manager

Paychex, Inc.

Paychex, Inc.Paychex is a leading provider of

AFP Annual ConferenceAFP Annual Conference

• Paychex is a leading provider of comprehensive payroll, human resource, and benefits outsourcing solutions for small-to medium-sized businesses.

R f FY10 t d $2 billi• Revenue for FY10 topped $2 billion

• We have 12,200 employees and maintain our corporate headquartersmaintain our corporate headquarters in Rochester, NY, with more than 100 offices nationwide and 4 offices in Germany.

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Paychex, Inc.

• In the U.S., we service approximately 536,000 clients and have an additional 1,700 clients in Germanyclients in Germany.

• Over 80% of our clients have less than 19 employees.less than 19 employees.

• We print 75 million payroll checks annually.

• We originate about 185 million ACH transactions annually.

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Paychex, Inc.

• ACH Applications• Payroll processing

Emplo ee pa ment ser ices (Direct Deposit Pa roll card )– Employee payment services (Direct Deposit, Payroll card…)• Tax Administration• Retirement services (401(k) Record keeper)• Human resource outsourcing

services that include our premier full service platform and Professional E l O i ti (PEO)Employer Organization (PEO)

• Health & benefit ancillary insurance services

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P h IPaychex, Inc.

• Breakdown of ACH annual activity

ACH Format Volume DollarsACH Format Volume Dollars

CCD 40 million $265 billion

PPD 145 million $167 billionPPD 145 million $167 billion

IAT 40 thousand $ 87 million

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Paychex, Inc.• Same-day ACH value to PaychexSame day ACH value to Paychex

– Same-day ACH service is currently of no value to Paychex. – Expanding the same-day ACH service to include the ability to reach all

endpoints same day for CCD collections and PPD payments:• instantly enhances our ability to deliver payroll services to meet

increasingly shortened industry payroll timeframes• improves our current business continuity process by eliminating the

inefficient and expensive process of converting ACH transactions toinefficient and expensive process of converting ACH transactions to Fed Wire transfers, and

• allows us to further mitigate collectionlosses due to insufficient funds, by reducing the length of time beforereducing the length of time before a collection is returned.

– Expanding the Same-day ACH service to include later deadlines will provide a significant benefit to us operationally. It will allow us to morebenefit to us operationally. It will allow us to more effectively service our clients across different time zones.

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Paychex, Inc.• Other Considerations

– Paychex has commercial bank partners that will clear same-day “on-us” ACH. However, to use this service requires additional internal sorting of ACH transactions by endpoint priortransactions by endpoint prior to sending files to the bank.

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Same-Day ACH

Christopher HuppertSenior Vice President

Wells Fargo Background• Diversified financial

services company providing banking, iinsurance, investments, mortgage, and consumer and commercial financecommercial finance

• 6,600+ retail banking stores, 12,000+ ATMs, ,

• 275,000+ team members

© 2010 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

NACHA – ACH rankingsNACHA – ACH rankings

Volume (MM) YOY Change

Largest inter-bank originators for 2009Volume (MM) YOY Change

1 J.P. Morgan Chase 3,264 -7.0%2 Wells Fargo 2,948 12.0% 3 Bank of America 1,959 26.1%4 Citigroup 809 -4.0%5 U.S. Bancorp 519 19.0%

Volume (MM) YOY Change1 Bank of America 1 500 1 0%

Largest inter-bank receivers for 2009

1 Bank of America 1,500 1.0%2 Wells Fargo 1,485 3.9%3 J. P. Morgan Chase 968 -6.9%4 PNC Financial Services Group 449 1.7%

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5 U.S. Bancorp 372 5.0%Source: NACHA

Same-Day ACH Perspective• Same-Day Opt-In Model creates complexity in

selling a solution to Corporate Originators to reach a limited number of endpoints.limited number of endpoints.

• Opt-In model requires significant development to manage participant lists.

• Debit and credit entries should be supported in a same-day solution with appropriate limits.

• Same-Day ACH Service should be a premiumSame Day ACH Service should be a premium service that reflects increased risk and increased costs and benefits.

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Same-Day ACH Perspective

• A limited same-day ACH service has potential benefit for electronic check conversion, emergency payroll / tax payments, expedited bill payment and reversal entries.

• Same-day deadlines need to meet the needs of participants.

• Same-day ACH has value for emerging P2P and mobile payments.

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Q ?Questions?

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