Automated clearing house (ACH) payments are growing at a steady pace. And increasingly these transactions involve not just traditional ACH payments - big, scheduled transactions such as payroll - but small, unscheduled transactions such as a cup of coffee at Starbucks. As the volume increases so too are the number of requests to investigate transactions by confused customers and vigilant law enforcement agencies.
The trouble for banks is their old ACH processing systems were not designed for these sorts of investigations. The popular PEP-Plus ACH processing from Fiserv only holds data online for 60 days, even though by law customers can contest debits for six months.
This has made investigations time consuming and created a growing need for banks to find solutions that can sort more efficiently. One of these banks is PNC Bank, which recently struck a deal with eGistics to host its ACH archive.
The ACH numbers tell the story of what banks are up against. In the first quarter of 2009 - even during the deepest recession in seventy years-ACH transaction volume still managed to increase 1.9 percent over a year ago. There were 3.8 billion transactions, according to NACHA, worth $7.3 trillion. That follows the full year 2008 totals when transaction volume grew 6.9 percent compared to 2007; that, in turn, was 13.2 percent higher than 2006. "A lot of what's going on with ACH is just dealing with and getting a handle on this volume," says Aaron McPherson, the research manager of payments at IDC Financial Insights.
By working with eGistics, which has built a vertical workflow architecture on top of a secure archive, PNC Bank is the first top ten bank to respond to this volume pressure by deciding to outsource its ACH archive. "What [eGistics] is doing is unique," McPherson says. "They're selling the archive with a wide variety of applications. Think of it as a business process outsourcing play."
Steve Stone, the svp of treasury management operations at PNC, says that in the past a research request from a customer or law enforcement would initiate a time-consuming, multi-step process of pulling each transaction individually. "The step we decided to take was to create a database that we could research more efficiently and quickly. Now we just plug in the account number and the date ranges."
Another advantage for PNC is that when the bank investigates a transaction, which it does 5,000 times a month, bankers can make annotations in the archive. So, for instance, someone in the future can see if this person's account was investigated. The bank can avoid duplicative work and spot other problems, like too many contested transactions, which could be a sign of fraud.
In the past, the receiving depository financial institution, or RDFI, relied on the originating bank, the ODFI, to have proper fraud controls and to flag suspicious transaction, says IDC's McPherson. Now, however, the RDFIs need their own tools to screen transactions and weed out suspicious ones. PNC is strategizing along these lines. "The next logical step for us is to use the accumulated information on customer accounts to red flag behavior," Stone says. "Are payments consistent enough to go forward, or should we create an exception to review? We don't have enough data yet to do this, but we're building a warehouse of information."
PNC began building the database in February and it took only a few months from concept to completion with eGistics. "PNC is the first customer for our ACH product," says Bob Lund, CEO of eGistics. "We built it for PNC, and other large banks are looking at it."
Bob Meara, senior analyst at Celent, says that the deal between PNC and eGistics is significant for two reasons. First is the fact that a top ten bank would opt for a hosted solution and not an in-house one. However, Stone says eGistics "could develop the solution faster than if we did it internally." Plus, the pricing is attractive. There's a one-time transaction loading fee into the archive but then an unlimited ability to view the item. Plus, there's no capital investment in the software since it's hosted.
Meara says eGistics also provides PNC healthcare lockbox services, which is a subset of wholesale lockbox, for scanning and archiving of explanation of benefits. As consumers direct more of their own healthcare dollars from accounts such as health savings accounts, banks' role in healthcare payments could become greater. PNC was conducting the user acceptance testing of the healthcare solution during the summer and is expected to complete installation by year end.