Nacha, the electronic payments association, has approved a rule designed to make international automated clearing house transactions easier for government agencies to monitor for signs of terrorism or crime.
The rule, requiring banks to add more information about senders and receivers to ACH files, will force banks and vendors to update their systems. Several payments executives said the rule also could boost the use of the ACH network for cross-border transactions.
The Herndon, Va., clearing house group said Wednesday that its voting members had approved a new standard entry class code, IAT, to be used with all international ACH transactions.
Banks are already required to monitor their customers' accounts and transactions such as wire transfers to ensure they are not being used to send funds to groups or people on government watch lists. However, Priscilla Holland, Nacha's senior director of network development, said that ACH files cannot currently be screened in the same manner, because they lack the data for which an automated tool could search.
"There is no way to know those transactions are international, even if you looked at them," she said in an interview Thursday.
For example, many international correspondents initiate their ACH transactions at U.S. banks, so the payments look like common domestic transactions, such as payroll, Ms. Holland said.
That would be corrected by the IAT code, which is due to take effect in March 2009 and would cover all ACH payments entering or leaving the United States.
The code would replace two currently used for international transactions, CBR (for corporate transfers) and PBR (for personal ones). The new code will include detailed information about the people sending and receiving ACH payments, including the payment amount and the name, address, account number, and financial institution of both the originator and the receiver.
The IAT code will impose changes all through the payment system and "will impact more people than most people expect," Ms. Holland said. For instance, a company sending a pension payment to a retiree living in Mexico would have to provide more detailed information than is required now.
She cited estimates by the Society for Worldwide Interbank Financial Telecommunication that international transactions account for as much as 1% to 2% of the U.S. ACH volume.
Elizabeth McQuerry, an assistant vice president in the Federal Reserve Board's retail payments office, said the new code could be a boost to the Fed's international ACH business.
"There have been questions about the robustness of the existing standard entry class codes," she said, and the IAT code would address those questions. "The changes may encourage others and give them the confidence to use international ACH."
The Fed is the only ACH operator that officially does business with international payment codes, sending payments to Canada, Mexico, the United Kingdom, the Netherlands, Switzerland, Austria, and Germany, but because of Office of Foreign Asset Control concerns, the Fed has restricted itself to processing only outbound transactions, Ms. McQuerry said.
Under the new rule, the Fed will process ACH credits coming from the other countries, she said, though it will not accept debits that would pull funds from this country into foreign accounts.
Rossana Salaris, a senior vice president at The Clearing House Payments Co. LLC, of New York, said the rule change will be a major undertaking for banks.
"The industry has a lot to do," she said. Even though the rule will not take effect for 19 months, "banks will probably say that's not long enough for everything that has to be done."
Stuart Williams, the manager of payment services at CheckFree Corp., whose ACH software is used by many of the nation's largest banking companies, expressed concern that the compliance burden could outweigh the economic benefit to financial companies.
"Banks will have to invest the time and effort, but they may not see much from it," he said.
Though the new rule could drive international ACH, it also would require companies to provide much more detailed information to the banks, he said. "It may discourage those customers from even attempting to send international ACH transactions."
