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Doing just one thing well is no longer good enough for payments processors serving community banks. That was the thinking behind Jack Henry & Associates Inc.'s deal to buy Goldleaf Financial Solutions Inc.
August 17 -
Nacha, the electronic payments association, is developing a database of abusive automated clearing house originators and is sharing it with member banks, though concerns about risks — to members' reputations and their bottom lines — are making banks cautious about sharing too much about their dealings with third parties.
April 22 -
Nacha, the electronic payments association, is poised to implement a new system for fighting fraud on the automated clearing house network.
November 27
Does the world need another automated clearing house processor?
The founders of a start-up outsourcer, ACH Federal LLC of Chattanooga, Tenn., say it does.
Clint Blaylock, the company's vice president of operations, said ACH Federal has the first automated clearing house system built from the ground up to comply with recent rules by Nacha, the electronic payments association, designed to fight fraud and tighten compliance.
"That's a big part of our story," Blaylock said.
ACH Federal, which announced itself last week, has been in development for three years, Blaylock said. It processed its first transactions in March of last year and is now working with nine banks and 170 of their customers.
Since its inception the company has handled more than 1.8 million transactions. It is now handling 260,000 payments a month — a fraction of the system's capacity, Blaylock said.
ACH Federal enters a market where there is no shortage of alternatives. Major core processing vendors provide ACH software and services to their bank customers, and as do other independent service bureaus.
Goldleaf Financial Solutions Inc., perhaps the most prominent independent vendor providing ACH software to community banks, was acquired in October by the core processor Jack Henry & Associates Inc. of Monett, Mo.
Terri Pelle Sands, a managing director at Payments Information Circle LLC, an Atlanta membership group for community banks and credit unions, welcomed the new entrant to the market.
"One person in a community bank or credit union is doing 14 jobs," Sands said.
Because ACH Federal's automated system is rules-based, "they take them through step by step and won't let them go off and do something that would violate Nacha rules," she said.
ACH Federal also enters a market where transaction volumes are growing because of new transaction types. ACH was once mainly for recurring transactions between well-known parties, such as direct deposit of payroll, but has been transformed in the past decade by a profusion of alternatives — including point of sale purchases and online and telephone transactions — that raise the risk of fraud and even organized crime.
Recognizing the issue, Nacha, of Herndon, Va., established new network enforcement rules that took effect in December 2007, giving it the power to fine violators up to $500,000 a month (typically targeting banks that fail to resolve problem transactions) and to require special reports from institutions that it believes are allowing practices that create risk management problems for others on the ACH network.
Craig Cotter, a senior account representative at ACH Federal, said the economic crisis has led the government to impose additional rules on electronic transactions, and he argued that his company's modular system is well suited to handle changes in the automated clearing house system.
"With the changes that are occurring now and the changes that are going to continue to occur, you've got to be ready to move, monthly," Cotter said.
Blaylock said ACH Federal built its system using service-oriented architecture, specifically Microsoft Corp.'s Dot.Net framework, to make it easy to use.
For mom-and-pop companies with simple payment needs — a significant customer base for community banks — the processor collects payments from customers online, makes payments to vendors and deposits payroll funds into employee accounts.
Pam Pliler, the senior operations officer at the $119 million-asset Summit Bank in Eugene, Ore., said she was willing to take a chance on the untested company because she had worked with several of its founders at another Tennessee company, ACH Commerce LLC of Ooltewah, which was sold in 2005 to the money transfer company MoneyGram International Inc.
After conducting its due diligence and considering a number of providers, Summit began moving its 50-plus ACH originators to ACH Federal in September. Those clients do not currently use Nacha formats for Web or telephone payments, she said. "But I knew to be competitive I had to choose a vendor that could offer that capability."
She had found the ACH Commerce service levels to be exemplary and was pleased to work with the same group of people again, she said. I feel like I'm back in the same family of people, but with better software."
