White Paper. International ACH Processing: The Complexities and the Opportunities

Transcription

1 White Paper International ACH Processing: The Complexities and the Opportunities

2 The Changing Payments Landscape As the global economy expands, the volume of international ACH outbound credit transactions is growing for financial institutions (FIs). With that growth, revenue opportunities are emerging through client demand for enhanced international ACH services. With foreign exchange (FX) rates and regulatory rules differing by country, however, international ACH transactions pose a new set of challenges. The available offerings are expensive, and increasingly, are not enabling institutions to capitalize on the growing demand for international ACH services. Providing real-time FX conversion while managing numerous regulatory guidelines that vary by country can make the origination process both complex and demanding on resources. And, connection to the gateway operator for payment routing and distribution can pose settlement concerns for both the FI and its clients. But challenges aside, the FIs that can successfully balance opportunity with risk can generate new transaction and foreign exchange revenue by leveraging their existing PEP+ application to manage the process. The Current State of the Payments Industry in the United States Today, international ACH payments fall into several categories. On the business to business (B2B) side, payments typically occur via wire transactions, corresponding bank partner transfers and through thirdparty services. On the person to person (P2P) side, in addition to those mentioned, card-based services are also a prevalent payment type. For both B2B and consumer to consumer (C2C) payments there are definite pluses and minuses. Both wire and card-based transactions are reliable, proven and ingrained as payment types. They support high profitability margins because they enable FIs to command a premium price for the service. And, because they cover many different business aspects such as exchange of information in addition to money movement they also help build and sustain longstanding relationships with the FI s customer base. There are definite drawbacks however. Wire transactions are expensive and irrevocable. Card transactions can be equally expensive and are not practical for all payment situations. Lack of transparency throughout the cumbersome initiation and receipt processes is only magnified by an ever-changing regulatory environment and Office of Foreign Assets Control (OFAC) rules. Further, most international ACH solutions that exist today do not process, fund and settle these transactions as they would a normal ACH transaction opening the door to inefficiencies in origination settlement, reconciliation, exceptions processing, billing and reporting. Throw in high management costs, frequent process disruption and payment option migration and

3 you have a very complex balance of risk versus reward. So, why would an FI want to enter into this unfamiliar payments territory? Because demand is high and only growing as the economy becomes more global. And demand translates to profitability. International ACH (IACH) Payment Delivery the Golden Opportunities Macroeconomic trends are validating the need and growth of global payments. Non-U.S. GDP growth, foreign trade growth and non-u.s. population growth are all driving the global economies and the need for efficient cross-border money movement. A more mobile, transient workforce and repatriation are scattering companies (and their employees, families and business interests) worldwide, again driving up the demand for international payments. Marketplace validation is just as compelling, as FIs are creating global financial networks to meet the worldwide demand for financial services. Similarly, non-bank competitors including Western Union and MoneyGram have established a market share and increased stock value by addressing the growth in payment volume and total payment value of international money transfers. The Business Case So, both the need and the growth are present in the market, but is there a business case argument for entering into international ACH service delivery? In a word, absolutely. Strategically, FIs that offer this service are in an advantageous position relative to their peer groups (both banks and non-fis) in the market. Just as important, offering international ACH capabilities positions the FI to alter the payments landscape within its organization. Adding international ACH provides the FI with an opportunity to address both retail and corporate international payment needs, bringing in new FX dollars for the international line of business. This helps the FI bridge the traditional divides that often exist between its individual product teams and other lines of business, and in effect, maximizes its return on investment. Fiscally, international ACH brings in new revenue streams through account growth, increased transaction volumes, foreign exchange fees and fees for offering a premium service. It is often a much more cost-effective alternative to wire and credit card transactions for customers as well, offering a reduction in corresponding bank fees, payment transaction fees and third-party service costs. Managing the risk and regulatory conditions inherent with international money movement, while challenging, is very achievable with the right technology partner in place. FIs that try to manage this internally by establishing correspondent agreements with FIs in other countries to facilitate a global payments business can find managing the complexities overwhelming. The different regulatory requirements that vary by country, transparency concerns as the money moves across borders, as well as the inability to control compliancy adherence for the partner institutions across the globe, leave the FI vulnerable to regulatory scrutiny from all sides. 3

4 With the right technology partner, these issues are managed directly for the FI, freeing up the institution to manage its core business. Fiserv is fully vetted and regulated as a software and service provider. In the international ACH space, our gateway operator that moves the funds globally is also stringently regulated, and its beneficiary institutions are fully regulated as well. With this level of focus on compliance mandates, FI management can feel a level of confidence that all regulatory initiatives are being met for today and the future. Transparency throughout the payment chain (from payment initiation to completion) is managed by the technology partners, again freeing up the FI to offer international ACH payment with far less worry or risk. Fiserv and the ACH Landscape Fiserv has built a strong reputation as the proven technology leader in ACH transactions processing. Financial institutions process more than half of the 22 billion Automated Clearing House transactions in the U.S. using software applications provided by Fiserv. We also provide operational risk management, financial messaging, corporate actions and compliance software to hundreds of organizations worldwide to help businesses improve operating efficiencies and reduce risk. automated ACH settlement solutions provide settlement account information maintenance and customizable same-day ACH settlement capabilities that offer a value-added (and revenue generating) service to key clients. Payment and account reconciliation is supported through Fiserv solutions that deliver comprehensive in-depth reporting analysis for clearer business insights, richer operational understanding and increased regulatory needs. The International ACH Approach from Fiserv Building on the versatility of PEP+ for ACH processing, PEP+: International ACH Transactions from Fiserv enables institutions using PEP+ to process international transactions just as they would any domestic ACH transaction, from origination, settlement and exceptions management to billing and reporting. By managing international ACH payments using the same IT and operational components as U.S. domestic ACH payments, International ACH Transactions offers a level of consistency across payment services not available through other international transaction services. The International ACH Transactions service is compatible and integrated with other PEP+ modules, including OFAC Monitoring solutions, Risk, SEC Code Monitor, and Prefunding. Our operational risk mitigation strategies and solutions encompass pre-funding capabilities to validate the realtime DDA account balances of designated originators; and OFAC sanctions screening components that lower an FI s risk by programmatically monitoring for and intercepting ACH items deemed as OFAC suspect transactions and not allowing them to process. Fiserv There are three methods by which International ACH transactions can be ingested into PEP+: via direct transmission, file upload or an ad hoc transaction initiated through the FI s secure, online banking portal. These file collection methods are consistent with domestic ACH transactions managed by PEP+. Specifically, direct transmission and file upload 4

5 collections are essentially the same process for international ACH. For ad hoc, International ACH transactions, however, there are necessary material changes to front-end screens and integrations. country-specific settlement schedules to be used in the PEP+ window. International ACH payment transactions can be submitted and comingled with existing domestic ACH files or submitted separately. Further, this revenue generating service provides new payment distribution and acknowledgement, file formatting, return notification and reconciliation, settlement, and reporting functionality necessary to support international ACH, all from the institution s existing operational ACH processing and risk evaluation environments. The solution is made up of three integrated component parts: PEP+: International ACH Transactions module that introduces API connectivity, flowing foreign exchange rate and country-specific payment clearing information through the Fiserv international gateway access service International gateway access service, a Fiserv-hosted service that connects the PEP+: International ACH Transactions module with the third party gateway partner Earthport, enabling the transaction flow and information exchange Earthport TM, a leading gateway operator that clears the international ACH transactions and enables the distribution of U.S. dollar or foreign exchange payments to over 60 countries across the globe International ACH Transactions Module International ACH Transactions is an optional PEP+ module that allows PEP+ to retrieve FX rates and International ACH Transactions allows institutions to offer Fixed to Fixed, Fixed to Variable and Variable to Fixed international payment methods based on authorized country, currency and transaction types supported by the FX service. It supports the ability to hold and release international ACH payments to the ACH Operator Gateway on a timely basis for processing on the appropriate day. Further, the module provides the ability to reject payment activity that is not supported by the FI prior to releasing those payments to the gateway operator. The International ACH Transactions module co-exists in the PEP+ system with other existing international ACH payment solutions and only requires limited PEP+ setup once implemented. It offers options to turn the service on and off and enables FI records for distribution and settlement to the gateway operator. ACH processing, reporting and procedures are consistent for all ACH activity, both U.S. Domestic and International. The new gateway operator point and distribution application(s) are required for the module to operate. International Gateway Access Service The second component is the international gateway access service, the Fiserv-hosted service that connects the International ACH Transactions module to the network provider Earthport. This gateway access retrieves the FX rate and country-specific schedule information from Earthport and formats that information 5

6 for the PEP+ API interface. This enables and manages the transaction flow and information exchange between the FI and Earthport. The international gateway access service provides standard ACH return files for all payment activity rejected by the gateway operator, and for all incoming returns. Further, it delivers baseline reconciliation, file receipt, acknowledgement and currency position reporting. that all file transmissions meet Fiserv and Earthport format requirements. This is necessary because in the processing of international ACH transactions, certain data fields are changed. For example, if an international payment is initiated in U.S. dollars and is to be converted to Euros, certain fields will change in the process of the conversion. Depending upon the type of transaction initiated (Fixed to Fixed, Fixed to Variable or Variable to Fixed), PEP+ fields will be changed in the batch window. Earthport The third component is the clearing and transfer of cross-border funds, managed by Earthport. Earthport has a proven reputation for safe and secure low value international funds delivery. The company has expansive global reach to more than 60 countries, offering a powerful suite of products that manage and deliver cross-border payments including high urgency volume payments, bulk payroll, expense disbursements, pension payments and direct to bank disbursement services. Earthport provides the money transfer compliance and risk processing required for international ACH transactions. Further, the company offers an administration system to manage payment positions and to initiate funding and transaction inquiries. Integration Requirements The PEP+: International ACH Transactions module must be installed into the FI s PEP+ application. All front-end, client facing systems must be edited to support international ACH file and transaction format requirements. In addition, the institution must educate its corporate and retail clients on NACHA IAT (international ACH transaction) file and transaction formats so There are four main steps to implementing the International ACH transactions module into the FI s existing PEP+ system: International ACH Transactions module installation Integration of the PEP+ CICS API interface to Web Service utility, which serves as the communication link between the FI s PEP+ application and the international gateway access service-this API setup includes FI profile setup, API interface security, FX and transmission setup, and notification setup Setting up the Gateway Operator connections, including the FI s records, plus any distribution points required to facilitate smooth file transmission between the FI and Fiserv The service is turned on so that international ACH transactions can be processed in the PEP+ batch window Upon installation of the module, it is important to note that all PEP+ system and reporting changes created by the International ACH Transactions integration are implemented into existing PEP+ screens, meaning that the user experience remains consistent. Further, as a part of the installation process, Fiserv implementation experts and trainers educate FI staff through the 6

7 entire process to ensure a comfort level in using the International ACH Transactions module as a part of existing PEP+ processing flow. Other Details to Keep in Mind All PEP+ integrations will need to establish connectivity between the FI and the international gateway access service and will need to be maintained by Fiserv. Fiserv will establish connectivity with Earthport to support the international ACH transactions, and the institution will need to establish an account with Earthport and connectivity to Earthport s customer service portal. Settlement and Funding Requirements As International ACH Transactions is a module within PEP+, it is fully integrated with other PEP+ module capabilities. For institutions that use PEP+: Memo Post Prefunding, the process for funding international ACH transactions remains largely the same. For example, if the FI initiates $10,000 USD in various international payments on behalf of its corporate client, the prefunding functionality is applied within the PEP+ processing window just as if the payment was for a domestic transaction. PEP+ ensures that the funds are available from the corporate client prior to the transactions being processed and distributed to Fiserv, and then ultimately to Earthport. The funding of Earthport, by the FI is managed differently. This process, which is covered by an agreement, is strictly between the FI and Earthport. To fund these transactions, the FI will send funds via wire transfer or ACH to a pre-defined Earthport account. Once Earthport has secured the funds, the transactions will be released by Earthport to bank partners and ultimately to the beneficiaries. Earthport will not release transactions without funds in place. The decision as to when the funding of the Earthport account occurs (before the international ACH transaction is initiated, with the initiation of the transaction, or after the fact) is again, between the FI and Earthport. International ACH Process Flow When an international ACH file is ingested into the PEP+ window, PEP+ calls out to the API service through the PEP+CICS adapter to get the current FX rate and settlement calendar date information from the international gateway service. Because all schedule and rate information is called at the beginning of the PEP+ window and stored locally for processing, there is virtually no impact on PEP+ window processing time. The settlement calendar information includes seven business /calendar days for each supported country, cutoff time of day for accepting payments and a lead date for supported countries (used for future dated items over seven days). The transaction is then interrogated by PEP+ to verify qualification, followed by real-time FX conversion and scheduling of the payment based on the international calendar. Once this is complete, the item leaves the PEP+ window and is distributed in a standard NACHA file to the international gateway access service through the file transmission utility. (NOTE: This file transmission utility is established and verified during the initial module installation and implementation to assure that the FI and the international gateway access service are 7

8 communicating and that NACHA files can be transferred and processed accurately by Fiserv.) At this stage, the international gateway access service forwards the NACHA-formatted item(s) to Earthport through a secure transmission. (NOTE: Fiserv also retains a copy of the item(s) for 90 days to help support reconcilement and returns processing.) From here, one of two events can happen: Earthport accepts the item for payment and returns a file acknowledgment receipt back to Fiserv; or the item is rejected by Earthport and a return/reject notification is returned to Fiserv and then to the FI. Reconciliation and Reporting When Earthport returns either the acknowledgment report or the reject notification back to the international gateway access service, a reconcilement report is generated by Fiserv (broken out by settlement accounts and currency) of the amount the FI needs to fund Earthport. Returns are also reported for items that Earthport was unable to process. In instances where the FI is settling through multiple banks and currencies, the report specifies how much Earthport will need to settle for each payment/bank/currency, as well as the amount of returns coming back to the FI that Earthport was not able to process. Reporting is managed through the international gateway access service. Specific reports generated include: an AFX Optional File Receipt (acknowledgement that the item(s) ingestion occurred); an AFX Forward NACHA File Report (acknowledgment that the item(s) has been passed off to Earthport); a detailed file level Reconcilement Report (what the FI needs to fund Earthport by currency and what items were returned/rejected); and a Return-Refund Report (returns the FI should have received and the dollars Earthport is refunding, broken out by originating currency to aid in reconcilement). OFAC Compliance For international ACH transactions, OFAC compliance is of utmost importance for all parties associated with the payment. Fiserv offers all parties involved a double layer of security, beginning in the PEP+ window. When an international ACH item enters PEP+, it is systemically recognized as such, and the item is made available for the FI s pre-existing OFAC screening tools (both Fiserv and third-party solutions). Because all connections are established during the implementation of the International ACH Transactions module, no new connections to the existing screening tools need to be built in the FI s PEP+ environment to manage the OFAC screening. If the item fails the screening process, PEP+ systemically manages the reject, moving it aside so that it can be addressed operationally by FI personnel. The second layer of security is offered by Earthport, a regulated global financial services organization specializing in the provision of white label cross border payment services. Earthport is also responsible for interrogating each transaction for OFAC screening prior to funds distribution. Working in tandem, Fiserv and Earthport offer a robust defense for blocking illegal funds delivery to both country and individual entities, as depicted in the flow diagram on the following page. 8

9 Process Flow for International ACH Payments Through PEP+: International ACH Transactions Financial Institution ACH Processing Fiserv International Gateway Access Services Earthport Gateway Operator Originator NACHA IAT PEP+ Batch Window FX Date/Rate Interface Collection FX Rate and Scheduling Gateway Distribution PEP+ Return Processing Get Rates Get Date NACHA IAT NACHA NACHA IAT Returns PEP+ CICS Adapter User Exit File transmission Utility Web Service Connectivity File transmission Utility Foreign Exchange Web Services Bulk FX Rate Settlement Calendar International ACH Forward Processing File Acknowlegdement Processing International Returns Secure Internet Interfaces Bulk FX Rate and Settlement Calendars Payment Collection File Acknowlegdement Processing International Returns and Rejects Report Files (text) International Reports 9

10 Simplified International ACH Processing from Fiserv As the volume of international ACH outbound credit transactions continues to grow, so do the demands and opportunities for FIs. PEP+: International ACH Transactions delivers a cost-effective payment alternative to wire and credit card transactions. International ACH Transactions provides new transaction and FX revenue opportunities by meeting the growing payment demands of global trade, e-commerce and a migrant workforce. And, by using PEP+ to process both domestic and international ACH transactions together on one platform, operational efficiency is maximized for the organization. Working in partnership with Earthport, International ACH Transactions provides compliant, turnkey access to local clearing networks in more than 60 countries worldwide. 10

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