Mike Watercott, CTP Vice President Technical Product Consultant ACH news and views Mike Watercott, CTP Vice President Technical Product Consultant ACH News and Views Come hear about new developments, pending initiatives, and recent rule changes that may impact your company's migration from paper to electronic payments. We invite payments professionals and those interested in cost reduction and process improvement to this session where we'll share news and views of the ACH system. See the latest statistics and trends in ACH usage. Explore what's in the works at NACHA, from same-day ACH to healthcare. Learn the best way to handle fraudulent emails that appear to come from NACHA. And hear how ACH is going mobile. Office of the State Controller eCommerce Conference Raleigh, NC October 30, 2012

Discussion agenda Volume trends Recent developments Exceptions and error correction

ACH volume trends 2

For the last three years, ACH growth has been below 5% annually ACH Volume 2005 – 2011 Billions of Transactions. Includes commercial and government payments Total Volume includes interbank, direct send, and on-us transactions Network Volume includes interbank transactions only Data Source: Wells Fargo and NACHA 3

2011 ACH volume highlights “Headline” Network growth rate of approximately 3% in 2011 “Native” electronic transactions (non-check conversion entries) increased by over 5% ARC volume declined over 9% WEB transactions grew at 9% There are now more WEB transactions processed than all check conversion transactions combined CTX transactions – a key indicator of B2B activity – grew by almost 13%

Selected SEC Code detail 2009 Volume 2010 Volume 2011 2011 Growth Accounts Receivable Conversion (ARC) 2,410MM 2,206MM 2,000MM (9.3%) Point of Purchase Conversion (POP) 481MM 513MM 493MM (3.9%) Back Office Conversion (BOC) 161MM 181MM 195MM 7.9% Internet Payments (WEB) 2,280MM 2,449MM 2,680MM 9.4% Telephone Payments (TEL) 344MM 354MM 367MM 3.7% Direct Deposit (PPD Credits) 4,545MM 4,710MM 4,879MM 3.6% Direct Payment (PPD Debits) 2,770MM 2,833MM 2,933MM 3.5% Corporate Credit or Debit (CCD) 1,996MM 2,064MM 2,165MM 4.9% Corporate Trade Exchange (CTX) 60MM 67MM 76MM 12.7% Millions of Transactions. Network (interbank) volume only Data Source: Wells Fargo and NACHA 5

2011 Wells Fargo ACH highlights Total origination volume up 9.1% v. 2010 Nearly 4 billion transactions originated (3.1 billion Network transactions) 20% origination market share Top ACH Processors 2011 Wells Fargo 4,612MM JP Morgan 4,238MM Bank of America 3,638MM PNC 1,081MM Citigroup 1,050MM 5.5 billion total txns processed (Network, on us, and Received) Volume includes interbank originated and received payments Data Source: Wells Fargo and NACHA

Largest Interbank Originators Largest Interbank Receivers 2011 NACHA ACH rankings Largest Interbank Originators Volume (MM) YOY Change 1 J.P. Morgan Chase 3,189 0.5% 2 Wells Fargo 3,140 3.7% 3 Bank of America 2,033 5.1% 4 Citigroup 835 6.0% 5 U.S. Bancorp 619 5.7% Largest Interbank Receivers Volume (MM) YOY Change 1 Bank of America 1,605 4.8% 2 Wells Fargo 1,472 0.8% 3 J. P. Morgan Chase 1,049 6.2% 4 PNC Financial Services Group 463 4.4% 5 U.S. Bancorp 429 6.6% Data Source: NACHA 7

Recent developments 8

Same-day ACH – update FedACH Same Day Service Federal Reserve service launched in August, 2010 Service limited to some consumer debits; optional participation by financial institutions Minimal bank participation, to date 18 banks/30 Routing-Transit Numbers Approx 30 R/Ts; 18 FIs Bank of Oklahoma larges participating bank 9

Same-day ACH – update NACHA Expedited Processing and Settlement (EPS) Developed a Rules framework for a mandatory same-day ACH settlement capability All ACH transactions would be eligible (except IAT) Unique identifier for same-day transactions In by 2:00 p.m. ET/out by 3:00 p.m. ET $25,000 transaction cap Next-steps: Formal ballot issued; voting concluded Aug 10th If passed, implementation in March, 2014 Approx 30 R/Ts; 18 FIs Bank of Oklahoma larges participating bank 332 orgs (banks and end users) answered survey questions FRB US Treasury (FMS) AFP 10

ACH phishing Increased incidence of fraudulent e-mails purporting to come from NACHA Can look legitimate by using authentic NACHA e-mail address and IP address Typically create a sense of urgency by reporting a failed or incomplete transaction E-mails may contain links to fraudulent websites used to collect personal information or banking credentials Attachments are often used to deliver/install malware

ACH phishing examples From: info@nacha.org Subject: ACH Transfer Cancelled The ACH Transaction (ID:33456941), recently initiated from your checking account (by you or any other person), was cancelled by the other financial institution. Please click here to view further information If you have any questions or comments, contact us at info@nacha.org. Thank you for using http://www.nacha.org. From: ach_dept@nacha.org Subject: Pending Payment from CJ Industries We received a payment request against your account for $1,720.00 from CJ Industries. Transaction Reference Number: 45276654 If you made this transaction or authorize its payment, please ignore this e-mail. If you would like to decline this payment, please click on the following link: Decline transaction #45276654 for $1,720.00 from CJ Industries

ACH phishing – best practices Any e-mail with transaction details purporting to come from NACHA is fraudulent NACHA does not process ACH transactions Do not respond to, open attachments, or click on links in any suspicious e-mails Train employees never to give out online banking credentials Use the Wells Fargo ACH Fraud Filter service on all accounts

ACH Fraud Filter service Stop option Automatically returns all ACH debits you do not authorize in advance Best for accounts with predictable ACH activity Review option Allows you to review all ACH debits you do not authorize in advance Make your pay/return decision by 7:00 p.m., CT the day following the Effective Date

ACH Fraud Filter service Extensive CEO® reporting for unauthorized transactions, preauthorizations, and decisioned items CEO Event Messaging alerts you when you have exceptions to decision Use CEO Mobile® to decision items on the go!

Exceptions and error correction 16

Exceptions and error correction Rejects Returns/Notifications of Change (NOCs) Deletes and Reversals Recalls

Rejects Items rejected by the Wells Fargo ACH system before being released to the ACH Network Common reject reasons: Invalid Routing/Transit Number Invalid Transaction Code Mandatory data element missing Information on rejected transactions is available shortly after receiving your ACH file How are rejects reported to you? Data transmission file CEO ACH Origination Report or ACH Customer Activity Report E-Mail (available September, 2012)

Returns Items returned by the receiving bank (or ACH Operator) after being released to the ACH Network Common return reasons: Non-sufficient funds (item can be redeposited one or two additional times) Account closed Unauthorized Most returns are received within 48 hours of the original settlement date Some consumer debit returns can be received up to 60 days after the original settlement date

Returns Information on returned items is available by 10:00 a.m., CT each business day How are returned items reported to you? Data transmission file CEO ACH Return Item/NOC Report Use CEO Event Messaging to notify you of returned item activity Fax (mid-day)

Notifications of Change (NOCs) Informational transaction sent by the receiving bank Original transaction posted successfully; requested change must be made before initiating another transaction to that account Common change codes: Change Routing/Transit Number (RTN) Change account number Change RTN and account number Most NOCs are received within 48 hours of the original settlement date

Notifications of Change (NOCs) Information on NOCs is available by 10:00 a.m., CT each business day How are NOCs reported to you? Data transmission file CEO ACH Return Item/NOC Report Fax (mid-day)

Deletes and Reversals Deletes allow you to remove a transaction from your file before your transactions are released to the ACH Network Credits can be deleted up to 3:00 p.m., CT two business days before your Effective Date or 3:00 p.m., CT the day you deliver your file to us, whichever is later Debits can be deleted up to 3:00 p.m., CT one business day before your Effective Date or 3:00 p.m., CT the day you deliver your file to us, whichever is later A separate settlement transaction will post to your account for the amount of your deletes

Deletes and Reversals Once a transaction has been released, you can initiate a Reversal Reversals can be requested up to 3:00 p.m., CT four business days after the original Settlement Date If you request a delete and the transaction has already been released, we will automatically initiate a Reversal A separate settlement transaction will post to your account for the amount of your Reversals Reversals can be returned; there is no guarantee you will recover the funds (when reversing a credit)

Deletes and Reversals Requesting a delete or Reversal Reporting E-Mail CEO portal – ACH Deletes and Reversals Online service E-Mail Fax Reporting CEO ACH Customer Activity Report E-Mail (available September, 2012)

Recalls Can be requested after the allowable Reversal time period has passed Manual request from Wells Fargo ACH Operations to the receiving bank requesting the return of the transaction Typically done for debits Almost never successful for credits Some receiving banks will charge Wells Fargo for each item returned © 2012 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.