Taking the Sting Out of ACH Dispute Management

Posted by Mark Brousseau

The financial services landscape is undergoing radical change, with transaction processing rapidly migrating from paper-based to electronic payments. According to the Federal Reserve's 2007 Payments Study, electronic payments now exceed two-thirds of all non-cash payments -- a big change from a decade ago when paper checks were still king. Automated Clearing House (ACH) transactions have been a key to the growth of electronic payments. The number of ACH transactions in 2008 topped 18.2 billion, representing an increase of 1.2 billion over 2007, NACHA reports.

But this ACH growth also has created new back-office challenges, particularly in the area of transaction dispute management. The limitations of traditional in-house ACH systems and the strict time constraints and complex processing requirements imposed by NACHA rules and Regulation E have led to increases in operations expenses and potentially higher charge-offs associated with ACH disputes. And changes in the interpretation of Regulation E -- spelled out by Federal Reserve Bank staff and an OCC Advisory Letter -- may further complicate matters.

The Situation
One of the nation's largest bank ACH processors has taken proactive measures to better manage its ACH disputes. The bank's ACH operations perform a wide range of functions, including daily inbound and outbound transaction management, implementation and maintenance, customer service, compliance, and exception support.

Over the past several years, the bank has achieved significant growth in its ACH transaction volume. Along with this growth in overall ACH transactions, the bank has seen its ACH disputes increase 25 percent during the same period.

To be sure, the overall growth in ACH volumes is a factor in the increasing number of disputes. But customers also are better educated about ACH, and have higher expectations. Regardless of the cause, ACH disputes are costly to manage (with different attributes for each dispute and conflicting Regulation E and NACHA timelines), and present the risk of non-compliance and charge-off losses.

The Solution
Recognizing these challenges, the bank began an evaluation of solutions to better manage its ACH dispute process. At that time, the bank used an ACH processing product that kept transactions online for a short period of time, after which the information was archived to an offline report warehouse. The offline warehouse required the bank to "restore" reports and customer statements, a time-consuming and costly process that prevented the bank from providing quick responses to customer inquiries.

The bank evaluated three options for enhancing its ACH capabilities: further extending its legacy ACH solution's capabilities, developing an in-house solution, or leveraging a hosted solution. Scarce in-house IT resources precluded the bank from extending its legacy solution's warehouse capabilities. Similarly, the bank ruled out developing a custom solution because of competing demands for its limited IT resources and the long time-to-market required to develop an in-house solution.

Ultimately, the bank selected a hosted ACH solution from eGistics based on its compelling business case and its track record in the bank's lockbox operation. Using eGistics, the bank was able to implement an ACH Dispute Management solution faster, more effectively, and more economically than it could using internal resources or its current ACH vendor.

Within a few weeks of selection eGistics delivered its ACH solution, which supports a range of ACH functions including dispute research, customer service inquiries (notably questions about transaction details and debit authorization), and compliance reporting for potential rules violations. eGistics’ ACH Dispute Management solution provides a secure, easy to use Web interface that enables users to quickly search ACH transactions using a variety of configurable search criteria.

The Benefits
Most important to the bank, the eGistics hosted framework streamlined the research, management and reporting of ACH transaction disputes. Here's how it works: The bank receives ACH transmission files from the ACH network. A copy of these files is forwarded to the eGistics ACH solution. Operators log in to the eGistics platform and are able to search for transactions in real-time. Additionally, transactions can be marked as disputed, and then managed through the resolution process. Because there is a single view of the transactions, all operators can see the status of a dispute or inquiry. Finally, each disputed transaction is given a disposition status such as: credited, denied, or returned.

Streamlined research and management of ACH disputes were part of an overall business case for the bank that included long-term storage, improved customer service, attractive total cost of ownership, minimal internal resources, minimal capital expense, and rapid deployment. And eGistics provided the bank with the peace of mind that its solution complied with industry requirements, was reliable and scalable, ensured the privacy of critical data, and maintained complete access management through transaction tracking, auditing and reporting.

The eGistics hosted solution enhances the bank's dispute management process by providing: real-time distributed data access to any authorized user (even across branches or operations centers); intuitive search capabilities; the ability to annotate comments to disputed transactions; and the ability to export data (such as for batch extracts). The eGistics solution also has provided the bank with expanded search capabilities, including the ability to search on any alpha-numeric field (e.g. date, amount, customer, etc.) or using multiple "operators" (e.g. "contains," "greater than," "less than," "equal to," etc.). eGistics' ability to search data based on configurable parameters allows the bank to spot trends and react more effectively to unauthorized ACH debits. And the filtering capabilities provided by the eGistics research tool will enable the bank to block and restrict access to certain transactions, when required. What's more, the bank can store data in the eGistics solution for an unlimited period of time.

The functionality delivered by the eGistics solution supports a range of ACH functions at the bank, including: dispute research; customer service inquiries (notably, questions about transaction details and debit authorization); fraud mitigation; and compliance (reporting for potential rules violations).

The Bottom Line
At a time when rising ACH dispute volumes are impacting the back-office operations at banks, one of the largest ACH banks in the United States has achieved significant benefits by moving to a hosted ACH dispute management solution. These benefits include better, faster customer service, more accurate and timelier dispute status and tracking, streamlined ACH operations with lower costs, and reduced losses from charge-offs.