The two automated clearing house networks are developing reporting tools to help banks defend themselves against fraudulent payments.
This week at the Payments 2005 conference in San Antonio, the Federal Reserve announced the development of a service that originating depository financial institutions can use to monitor the payments their customers are making.
Electronic Payments Network, a unit of Clearing House Payments Co. of New York, says it offers a similar service for ODFIs and is developing a reporting tool for the receiving depository financial institutions that could create a watch list of potentially risky originators.
Executives for the Fed and EPN said the products and services are a response to the growing threat posed by electronic fraud.
Richard Oliver, an executive vice president and the manger of the retail payments office at the Federal Reserve Bank of Atlanta, said the FedACH Risk Management service would generate reports to originating depository financial institutions about the ACH payments their corporate customers are making.
The originating banks can tailor the reports to track, for example, activity from just a single company, or from a certain group of companies, such as new ACH originating customers about which a bank may know very little. It monitors both credits and debits.
If a payment meets any of the bank's preset criteria, it will trigger a report that is e-mailed to the bank. The service also lets the bank establish different automated responses, such as not processing a file until the bank can review it.
Mr. Oliver said the service will give banks a "more granular" level of control than other monitoring tools. "Banks want to have control over what's happening."
The Fed plans to pilot test the service this year with about a dozen banks and is already talking to some potential participants. It should be available early next year, Mr. Oliver said.
George Thomas, an executive vice president with The Clearing House and the president of EPN, said it already offers services similar to the one the Fed is developing. "The Fed is finally getting to where we were two years ago," he said.
Rossana Salaris, a senior vice president with The Clearing House, said its EPNWatch service offers three types of reports to ODFIs on a daily, weekly, or monthly basis, that are triggered when unauthorized payments exceed certain thresholds.
The EPN reports list several types of unauthorized payments, so banks can determine which customers are originating bad payments.
Ms. Salaris said EPN is also starting to collect the information generated by these reports to create a report for RDFIs that could warn banks of "originators that may not have good practices."
Telling ODFIs about bad payments is a reactive strategy, while notifying RDFIs about potential threats could let banks head off fraudulent payments before they are settled, she said. "This will help RDFIs be more proactive."
EPN expects to add the RDFI reports to the EPNWatch service by the third quarter.
Marcie J. Haitema, a senior vice president and the global ACH operations executive for JPMorgan Chase & Co., the largest originating bank, said risk management has become a much more important issue for the ACH system, and these services indicate that both the Fed and EPN have been listening to their customers.
The reporting tools "represent a lot of good thought," she said.
