The Green Sheet Online Edition
March 08, 2010 • Issue 10:03:01
ACH through and through
A company out of Chattanooga, Tenn., is helping small businesses expand their payment platforms by connecting to the automated clearing house (ACH) network. The company, ACH Federal, has a new merchant services product that allows businesses to connect to the Federal Reserve to process transactions like business-to-business payments, electronic checks, e-commerce purchases, tax payments and direct deposits.
For businesses whose existing banking institutions do not offer ACH services, ACH Federal will set them up with a "sponsor bank" that does, allowing the business to maintain its existing banking relationship(s) and process ACH payments through the sponsor bank.
In conjunction with that bank, ACH Federal provides the information technology capability to process through the Fed as well as monitor for fraud and compliance issues.
"With big banks, what we've seen is they have these huge mainframe systems they build and internally keep up, and [they] can offer a lot of different products and services," said Craig Cotter, Senior Account Representative for ACH Federal.
"But with smaller, community banks and mid-tier banks, they don't have all those things. Regulators are all over the banks, and this banking climate is advantageous to us because all of that staff is tied up with regulation.
"The advantage we bring is we have people that do nothing but monitor compliance issues and watch what NACHA [- The Electronic Payments Association, which governs the ACH network] is doing."
Hard to keep up
Cotter said that because the rules governing ACH payments change so frequently, a bank lacking sizable staff devoted to the process will have difficulty keeping up. For example, in September 2009, international ACH payments were allowed for the first time. And with them came a host of new rules, many of which differed from those governing intranational ACH payments.
According to Cotter, at the core ACH Federal's platform is a Web-based portal that operates in real time, allowing businesses and banks to enter and track various ACH payments and view reporting about funds monitoring and payment acceptance or denial.
Payments made through the company's platform require "dual authentication": both the originating business and originating bank must sign on to the password-protected system and green-light a payment before it's sent to the Federal Reserve.
"The Federal Reserve moves [a payment] from one bank to the other; then they report to us whether it was a
successful transaction," Cotter said. "Or if it wasn't, what was the reason - there are a whole bunch of return codes, like for account frozen, or account closed - and then we report that back to the merchant and say the payment went through, or you didn't get this payment because of this."
Cotter said ACH Federal has a strict underwriting process to ensure that illegal or otherwise unstable businesses (for example, illicit online gambling sites) do not hook in to the ACH network.
It also monitors merchant payments for consistency; for example, regarding a merchant that normally conducts transactions between $10 and $100, a payment of $500 would be flagged for review before being sent to the Fed.
Additionally, ACH Federal has a referral program that compensates ISOs that refer the outfit to new merchant customers.
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