Tipping the Scale

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Edging out the big banks with ACH originations

By Collin Canright

Community banks win customers the old-fashioned way: through better, speedier customer service. Now more community banks are finding that ACH origination services can provide another edge to attract more business customers, particularly from the largest banks.

“We’re a very small bank, and we win business from larger banks,” says Chris Macarages, senior vice president and electronic payments manager at Florida Capital Bank, a $300 million-asset community bank in Jacksonville, Fla.

Five Tips for ACH Origination

For a more successful ACH origination program, community bankers offer the following advice.

  1. Know your customers. Examine the financial condition of the companies for which payments are made. Look at their reputation, including whether they receive an inordinate number of customer complaints. For third-party processors, look at their underwriting standards to see if they meet or exceed the bank’s own standards.
  2. Play by the rules. Make sure the companies have someone on staff who understands the NACHA rules and that your systems can monitor and report compliance.
  3. Include your regulators. Keep them apprised of your plans and progress. You may even need to educate them on the risks and how you are managing them.
  4. Create a short business plan. Include new systems and regulatory requirements, plus sales and revenue goals.
  5. Join the ACH associations. They can provide a wealth of operational and rules information, as well as best practices.

—Collin Canright

Last year, Florida Capital Bank began a push to generate more fee income from four lines of business: residential mortgage lending, small-business and government lending, health savings accounts, and electronic banking. Macarages put together the bank’s electronic banking plan, with the ACH business as its focus. Florida Capital Bank markets to third-party payment senders and high-volume ACH customers, such as property management companies and local payroll processors.

The nationwide chain banks have thousands of customers and cannot answer every email or call in a timely fashion. Community banks can. As Amy Roberts, assistant vice president and risk manager at Heritage Bank in Burlington, Ky., put it, “Business customers are asking for a full-service bank. Customers want someone to take care of them.”

Like Florida Capital Bank, Heritage Bank also started to focus on ACH origination and treasury management in 2015 as a source of non-interest income as well as a service to lure new commercial business. A $600 million-asset community bank,
Heritage Bank offers ACH origination to small and midsize local businesses and third-party senders and payroll firms.

Both Macarages and Roberts spoke at NACHA’s Payments 2016 conference, held in April. They and other community bankers at the conference say they have won ACH and treasury-management business from their largest competitor banks, even some that provide such payment services at no charge.

Commercial customers know they can get personal attention at a community bank with a live person in the branch or on the phone, which is important to a company facing a problem when sending payroll or some other ACH payments task. Community banks often can match large banks on their payment product mix and may have more flexibility on pricing. Bankers also report success in working with larger local employers that want to eliminate paper checks.

The biggest reason banks shy away from ACH origination is the payment fraud and reputation risk that could result from the business and billing practices of its third-party ACH processor’s commercial customers. “Believe it or not, some of the bigger banks are starting to get out of this line of business to reduce their overall risk,” Macarages says. Community banks have won business from larger banks by picking up customers that are within their risk appetite.

Because a bank could be considered liable for the business practices of its payment customers, including the customers of third-party processors, knowing a commercial customer and its payment activities is critical to ACH origination success, community bankers say. It is imperative to know what types of payments the bank is moving and to keep its board of directors informed.

Macarages has segmented commercial customers into risk categories. “With a normal, everyday third-party sender, like a payroll processor or property manager, I know I can onboard them without board approval,” he says. With other customers, he makes a case to the board committee for a decision on whether to proceed.

Software systems are also critical. Florida Capital Bank was at a point where its existing ACH platform was outdated and needed to be replaced. The bank stayed with its same vendor but upgraded its platform to a version that provided more robust reporting to ensure it meets NACHA targets for return thresholds and account limits. “You have to maintain return thresholds and manage limits,” Macarages says.

Florida Capital Bank created a new brand and website, NEPSolutions.com, to market its electronic banking solutions nationally. Macarages asks existing customers for more business and hits the road to spread the word.

Additional opportunities may be available for community banks that decide to initiate same-day ACH items, in addition to meeting requirements to receive same-day ACH transactions starting in September. “We plan on originating same-day ACH,” Macarages says, but the bank’s timing on starting such service depends on how quickly its customers expect to receive benefits of same-day ACH payments.

Florida Capital Bank’s biggest origination customers will not see the full benefits of same-day ACH until 2018, when NACHA rules will require banks to complete ACH processing by 5p.m. local time. “Everyone is waiting,” Macarages says, “but we are putting together programs to market right now.”


Collin Canright is a financial writer in Illinois.

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