1. Payments 101 Billie Higgins Kay Limbaugh

2. 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 Federal Reserve

3. Electronic Funds Transfer Act (aka Reg E) 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)

5. IRD – Image Replacement Document

6. Network = Automated Clearing House (ACH)

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. Network = Automated Clearing House (ACH) NACHA

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

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

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

16. Commonly used SEC codes for the Utility Industry (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.

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 2 nd 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?