1. Payments 101
Billie Higgins
Kay Limbaugh

2. Federal Reserve Central Banking system Created in 1913
Private banking system composed of
Board of Governors appointed by the President
Federal Open Market Committee
12 regional Banks
Member banks
Advisory councils

3. Electronic Funds Transfer
Act (aka Reg E)
Federal Reserve
Issued by the Board of Governors of the
Federal Reserve System
Implemented in 1978
Governs electronic fund transfers from a consumer’s account
Protects consumers’ rights and sets limits on consumer liability
for unauthorized payments
Imposes specific obligations to billers for recurring payments

4. Federal Reserve Check 21 Passed in Oct 2004
Produces a digital image by scanning
both sides of a paper check
If a paper document is needed, a
photo-reduced copy of the original
checks is created (“substitute check”
or IRD (Image Replacement Document)
Since we only have about 20 minutes to give you this quick overview and have time to open up for questions, I’ll give you the 30,000 foot elevation of Electronic Payments.

5. IRD – Image Replacement Document

6. Network = Automated Clearing House
(ACH)
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 slide

7. ACH ACH - Automated Clearing House
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 interbank 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 Receiver’s account
A debit takes funds from a Receiver’s account

9. ACH Participants & Definitions
Originator: The company or individual that initiates an ACH transaction according to an agreement with a Receiver.
Originating Depository Financial Institution (ODFI): The financial institution that transmits ACH files on behalf of the Originator into the ACH Network.
ACH Operator: The central clearing facility operated by a private organization or Federal Reserve Bank, on behalf of participating financial institutions, to or from which financial institutions transmit or receive ACH entries.
Receiver: A natural 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): The 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).

10. Automated Clearing House
Network =
Automated Clearing House
(ACH)
NACHA
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 slide

11. NACHA – The Electronic Payments Association
(formerly known as the National Automated Clearing House Association)
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.

12. Automated Clearing House
Network =
Automated Clearing House
(ACH)
NACHA
ACH Rules
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 slide

14. Each type/method of payment in the ACH “world” has its own rules and guidelines. These are determined by the Standard Entry Code (SEC) used in the payment file.

15. PPD
POS
TEL
DNE
ACK
ATX
MTE
WEB
RCK
ARC
CIE
CBR
TRX
COR
BOC
ENR
MTE
PBR
DNE
POS
CCD
SHR
XCK
TRC
CTX
AAAAAHHHHHHH ! ! ! !

16. Commonly used SEC codes for the Utility Industry
There are many more rules and guidelines that we are going to talk about. These are the high level bullets.
(High level definitions!)

17. ARC – Accounts Receivable Conversion
Mailed in payments to a biller’s lockbox
Dollar limit $25,000
Must be a consumer check
Check is scanned, destroyed
Must have notification on bill statement each month (see ACH rules for requirements)
Must give customer option to Opt-out
Must retain legible copy of front for 2 years
Original document must be stored securely and/or destroyed
Volume in 2007 for ARC grew by more than 600 million payments to 3.5 billion, an increase of 23 percent.
Wording and specifics supplied by NACHA
ARC – The biller can accept a check as a source document to initiate an ARC entry only if it has been sent through the us mail or delivered to a dropbox

18. POP – Point of Purchase
Customer writes check and it’s converted at time of purchase
Check is returned to the customer
Authorization = supplied by merchant and signed by customer at time of payment
$25,000 limit
No AUX On-Us on MICR line

20. WEB - Internet Initiated Payments
Authorization received via the internet
Authorization must be in writing or similarly authenticated.
Consumer transactions only
Customer must be “reasonably” authenticated
Applies to both one-time or recurring payments; but rules are different for each (stop payment, revocation of authorization, etc.)
NACHA reports WEB payments grew by an estimated 26 percent to 2.3 billion in 2007

21. TEL – Telephone Initiated Entries
Single entry payments
Consumer accounts
Must use commercially reasonable procedures to verify consumer’s identity
Authorization must be oral and recorded (cannot use key entry for authorization)
Must provide in authorization:
Date
Amount
Name
Telephone number to be reached during business hours
Cannot exceed 2.5% “unauthorized payments”

22. RCK – Re-Presented Check Entries
Returned paper checks can be converted by your financial institution to an ACH item
This allows 2 re-presentments instead of 1 with paper check
PGE (before ARC) enjoyed a 25+% success rate on the 2nd re-presentment
Notification must be clear and conspicuous on your billing statement
Must retain copy of the front and back of the check for 7 years

23. PPD or CCD Used for Automatic Debit Programs (Direct Payment)
Recurring payments initiated by biller
Must have written authorization
Retention of authorization - kept for 2 years after customer requests cancel
PPD used for “Consumer” bank accounts
CCD used for “Corporate” bank accounts (have an auxiliary on-us in MICR line)
NACHA reports pre-authorized payments increased by 3.6 percent to 3.4 billion payments in 2007

24. Resources
Nacha.org
Ebilling.org
Your New Best Friend

25. PGE has converted all payment channels to ACH……
Mail-in payments – ARC
Community Office – Remote Deposit (BOC)
Walk-up Retail Locations – POP
Kiosk Payments - vendor
IVR Payments –TEL
IVR Credit Card payments – vendor
Consolidators
Auto Pay – PPD and CCD
Web payments – WEB
EDI 820’s - CTX

26. Other terms (Your homework!)
Aux on us
EDI
MICR line
Non-contracted payments
NOC
EBPP
Lockbox
M-payments
B2B, B2C
Questions?