Demystifying ACH Payments to Canada NACHA Payments 2008 May 18-21, 2008 Elizabeth McQuerry Assistant V.P., Retail Payments Office Federal Reserve Doug Kreviazuk V.P., Policy & Research Canadian Payments Association Presentation Overview Opportunities for X-Border Payments Canada U.S. Comparison Role of the Canadian Payments Association Canadian Rules for Credits & Debits X-Border ACH Payment Flow Processing Tips & Considerations
Future Opportunities 2 Opportunity for X-Border Payments Top 5 U.S. Trade Flows 2007 U.S. Exports 2007 U.S. Imports (In Billions of U.S. Dollars) (In Billions of U.S. Dollars) 300 250 350 $249.9 $321.5 $313.1 300 250 200
Mexico China Japan United Kingdom 0 China Canada Mexico Japan Germany (Source: US Census Bureau) 3 Opportunity for X-Border Payments U.S. Canada Trade Increasing Total U.S. Trades with Canada
(In Billions of U.S. Dollars) 600 500 400 300 200 100 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
(Source: US Census Bureau) 4 Opportunity for X-Border Payments Long-Term Non-Immigrant U.S. Admissions of Canadians # of Adm issions 300,000 250,000 200,000 150,000 100,000 50,000 0 1996 1998 1999 2000 2001
2002 2003 2004 2005 2006 (Source: U.S. Department of Homeland Security ) 5 Canada U.S. Comparison (2007) CANADA: Canadian Payments Association Population: 33 million GDP: $1.6 trillion (US) Retail Payment Volumes: 5.5 billion Avg. Transactions per Person: 167
UNITED STATES: ACH Federal Reserve NACHA Population: 301 million GDP: $14.1 trillion (US) Retail Payment Volumes: 14 billion Avg. Transactions per Person: 46 6 Role of the Canadian Payments Association (CPA) Oversees Canadas national clearing system Not an ACH
Automated Clearing Settlement System U.S. Dollar Bulk Exchange System Large Value Transfer System Clearing & settlement only (member to member) Establishes domestic rules framework 7 CPA Rules for Credits Set out in CPA Rules Section F - Automated Funds Transfers Focus on inter-member exchange Only contemplate domestic transactions Recourse for misdirected credits:
Initiated by originating FI: error correction must be done within 4 days after delivery or 3 days after the date funds are to be made available Originators encouraged to get a void check to avoid misdirected credits Initiated by receiver: currently no restrictions on timing 8 ACH Gateway Cross-Border Transaction (Direct Deposit Example) ACSS US$ or CDN$ Receiving FI Payee Handles currency exchange & format conversion. Canadian Receiving Gateway Operator Originating FI U.S. Originating
Gateway Operator US$ Originates credit using NACHA formats & SEC codes CBR/PBR. Pays all fees (no fees for Canadian receiver). Payor 9 CPA Rules for Pre-Authorized Debits Rule H1 Only contemplates domestic PADs Underlying Agreements required between: Payee & Originating FI (Letter of Undertaking) Payee & Payor (Payors PAD Agreement)
Mandatory elements for Agreements Requirements for remote PAD Agreements Recourse: Consumers 90 days, Businesses 10 days 10 days notice required for variable date PADs Additional authorization required for variable date PADs 10 Upcoming Changes to CPA PAD Rule
Mandatory minimum elements for all PAD Agreements New process for remotely authorized PAD Agreements (e.g. over the telephone/Internet) New requirements for canceling PAD Agreements New notice requirement in cases where a Payees name has changed Properly authorized one-time debits will be permitted 11 Implementation of CPAs New PAD Rule New rule effective June 20, 2008 (will be published on www.cdnpay.ca) Grace period: compliance mandatory by February 28, 2010
Existing PAD Agreements grandfathered (i.e. will not have to be re-established/re-signed) 12 Processing Tips & Considerations Learn Canadian N A C H A T e r m in o lo g y Originator ACH agreement (between the Payee/Originator and Sponsoring member/ ODFI) Receiver Pre-authorized debit authorization form between the Payor and Payee Originating Depository Financial Institution (ODFI) Receiving Depository Financial Institution (RDFI) Consumer returns are permitted for up to, and including, 60 calendar days after settlement date C P A T e r m in o lo g y Payee Letter of undertaking Payor Payor's PAD agreement Sponsoring member
Processing member Consumer returns of PADs are permitted for up to, and including, 90 calendar days after settlement date1 Corporate returns are permitted for up to, and including, 2 banking days after settlement date Corporate returns of PADs are permitted for up to, and including, 10 business days after settlement date1 Variable date notice: 7 calendar days prior Variable amount notice: 10 calendar days prior Variable PAD date: additional authorization required Variable PAD amount notice: 10 calendar days prior Pre-notification is a test entry in advance of any real entry Pre-notification is used to describe each written notice sent to the Payor/Receiver in advance of a recurring debit 1) The timeframes allowed by the CPA exceed those in the current NACHA rules.
14 Account Numbers are Different To use the numbers on a Canadian check to populate the NACHA record: Average Company Ltd. N408911 0234567 = Foreign Receivers Account Number (max. 12 digits) 408911: 95042 : 002 : 0694:0234567 95042 = Branch Transit Number 555 Main Street East Toronto, Ontario M5K1X1 ________20___ Pay to the order of ___________________________________________$_______ VOID ______________________________________________________/100 DOLLARS The Scotiabank Bank Toronto Centre Branch
55 King St. W. & Bay St. Toronto, Ontario M5K 1A2 408911: 95042 : 002 : 0694:0234567 002 = Institution Number To create Foreign Receiving DFI Identification 000295042 1) Add leading 0 to Institution Number 2) Combine with Branch Transit Number 15 Understand Differences in Rules Longer Return Timeframes for Debits Consumer PADs up to 90 days after the debit Businesses PADs up to 10 days business days Credits error correction process within 3-4 days No Dishonored Returns
All disputes regarding returns must be handled between the ODFI and the receiver 16 Understand Differences in Rules Debit rules vary substantively See previous section on rules differences One time debits not currently allowed (will be permitted as of June 20, 2008) NACHA Reversals not allowed NACHA Pre-notes not allowed 17 Learn Processing Schedules
Fixed to Variable (FV) and Fixed to Fixed (FF) items have different ACSS processing schedules Canadian RDFIs can post funds according to their own internal procedures 10:00 ET exchange of FV and FF items 14:30 ET exchange of FV items A survey of posting times varied: FV items - 17:30 ET on Day 1 to 08:00 ET on Day 2 FF items - 11:00 ET on Day 1 to 08:00 ET on Day 2 Processing schedules may be leveraged to guarantee posting of payroll and pensions 18
Other Tips Banking holidays vary somewhat No trace requests for items under US $20 Generally 10 days each; some provinces may observe an additional heritage day Only send low value test payments to accounts where you have a direct relationship and can verify result Returned CAD payments may have different value due to foreign exchange conversions If in doubt on the account number, send a low value test payment first 19
Prepare for IAT International ACH Payments must use SEC Code IAT IAT payments must include Travel Rule information as set out in the Bank Secrecy Act Applies to all international payments made via the ACH Network To be implemented in March 2009 20 Future Opportunities CPA Strategic Priority: Facilitate interaction and global interoperability of the CPAs systems with other payment-related
systems. CPA work with NACHA & Fed. Reserve Format interoperability Rules framework 21 Discussion Elizabeth McQuerry Doug Kreviazuk Assistant V.P., Retail Payments Office Federal Reserve 404-498-7888 [email protected] Vice President, Policy & Research Canadian Payments Association 613-238-4173 ext. 3281 [email protected] 22
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