Responsibility. That word takes on a whole new meaning when looking at an Originator’s role in ACH transactions. If something out of the normal occurs, when you’re resolving the issue, the question comes back to where the responsibility lies. Regulators and auditors will seek to identify how the FI managed its required compliance responsibilities. Internal risk management teams will factor transactional liabilities into their evaluations. Operations staff will dissect what could have been done differently to have prevented the issue from arising.
In each of those scenarios, odds are that the subject of Originator education emerges. An informed Originator is a safer Originator.
The ODFI’s Responsibility
When an ODFI enables an Originator to send and receive ACH transactions, they are providing keys to the network, and granting access to a simple, efficient electronic payment option for their customer. However, they are also making warranties with regard to every Entry they transmit out into the network. The ODFI takes ultimate responsibility for transactions they transmit, even those transmitted on behalf of their Originators.
In short, as an ODFI, you are absolutely responsible for your customer’s rules compliance, and everything with respect to entries you put into the network. That’s why education plays a critical part in both strengthening your relationship with your customer and protecting your financial institution.
Common Originator Misfires
Each month, we get calls to the Payments Hotline that speak to tricky Originator scenarios. While nuanced, these issues generally fall into two categories: 1. Authorization; and 2. Reversals.
In the first instance, the problem often comes down to authorization requirements not being met. Originators need to understand that there are specific requirements depending on the type of transactions they’re originating, and one type of authorization will not satisfy another one. By allowing them to process ACH transactions, the ODFI is warranting that the payment is properly authorized. So, taking that step to educate the Originator on the specifics of authorization requirements will help to save the ODFI from unauthorized returns and transactional issues.
Reversals also arise in a number of different scenarios, not just because of an erroneous file or entry, but because Originators truly don’t understand when they are appropriate. They think they can invoke them around mistakes that don’t necessarily fall under Nacha’s definition of erroneous. It comes down to them not understanding appropriate use cases for reversals, and a little education in this area can go a long way. (See my Q3 Member Update for a deeper dive on this topic.)
Gaining Originator Attention
It can be hard to capture the attention of a corporate customer on these topics. Businesses are pulled in a wide variety of directions, and payments aren’t always their top priority. That said, they do want to protect their organization from fraud threats and losses, so by helping them to understand the threats around creating files and processing payments—the potential for account takeover or business email compromise, for example—they may be more apt to pay attention to the nuances in their transactions. It’s not about scaring the Originator, but rather, about making them aware of best practices in processing payments, including physical security, tokens, dual control, file balancing, and call backs.
How NEACH Can Help
In addition to answering your Originator questions, NEACH also offers a corporate membership that can help your Originators understand their obligations to the agreement they have with you, the ODFI. In fact, corporate members have access to the Payments Hotline for detailed questions, and we also are providing three complimentary corporate member webinars in 2023: “Fraudsters Want Your Business;” “ACH Origination: What do Businesses Need to Know about the ACH Rules?” and “B2B Payments: What’s Happening with Business Payments?” We’re also working on an education track that will be specifically designed for businesses and Originators operating in the payments space.
Our goal is to provide education that can help you in raising the required payments knowledge of your Originators. Because it all comes back to responsibility. Yours is to your customers and to the safety and quality of transactions entering the ACH Network, and ours is to support you in achieving those goals. Working together, we can simplify ACH payments for Originators, raising their payments knowledge and limiting your liability at the same time.
For more information on NEACH Corporate Membership and how it can complement your Originator education efforts, message me here or contact me at email@example.com.
AUTHOR: Elyssa Morgan, AAP, APRP
Vice President, Membership
As the VP of Membership for NEACH, Elyssa focuses on developing and implementing strategies to stay connected with current membership and educate on the value of membership. Connect with Elyssa to read more of her blogs, articles, and posts.