Building Successful Third-Party Sender Partnerships
A Third-Party Sender partnership can be both a risky and rewarding proposition to an ODFI. NACHA has clearly outlined the necessary protocols for managing the risks, even going as far as providing best practices in a Third-Party Sender Case Studies white paper. With these risk procedures in place, ODFIs are now asking – how can I build a successful partnership with a Third-Party Sender?
Let’s first take a look at the potential value of a Third-Party Sender relationship. Third-Party Senders typically solve a specific problem by integrating ACH with layers of technology. In addition to the transactional revenue, this can be valuable to the ODFI when the Third-Party Sender acts as an innovation arm. Technology investments made by the Third-Party Sender are designed to meet the needs of a specific market segment, extending the ODFI’s market reach. For example, WEB transactions are growing rapidly and now constitute 22.2% of overall Network volume. Third-Party Senders are innovating to meet the needs of this growth by simplifying online enrollment, validating bank accounts, and creating online bill platforms. Regardless of the solution, these innovators are driving transactional volume and incubating new technology that improves a legacy payments framework.
In order to mitigate risk and become a true asset to their ODFI partner, Third-Party Senders need to be a worthy custodian of the ACH Network. This can be accomplished by employing technology that lowers return rates, complies with bank regulations, and creates an ACH environment in line with the ODFI’s values. Therefore, ODFI’s evaluating Third-Party Sender relationships should assess the following characteristics to promote a successful partnership:
BUSINESS MODEL
ODFIs considering Third-Party Sender partnerships should focus on the intended use of ACH origination capabilities. ODFIs need to understand the specific problem being solved, market segment(s) experiencing this problem, and how this model impacts the end user. NACHA recently cut the return rate threshold for unauthorized transactions from 1% to 0.5%, producing heightened scrutiny on returned transactions. Third-Party Senders should be using risk management tools, such as account validation and identity verification, to maintain return rate thresholds below NACHA’s limits.
ACCREDITED ACH PROFESSIONAL (AAP)
Third-Party Senders investing employee resources to achieve or retain AAP certification helps assure an effective partnership with an ODFI. Whether it’s a full-time employee or a part-time consultant, an AAP on staff shows a commitment to risk management and regulation compliance. Third-Party Senders showcasing an expertise in the NACHA Operating Rules builds confidence with examiners and certifies compliance in operational workflows.
AUDITING PROCESS
A Third-Party Sender is a direct extension of the ODFI and creates liability when originating ACH transactions. Therefore, it’s imperative for Third-Party Senders to understand an ODFI’s auditing process and quickly resolve any transactional inquiries. Third-Party Senders can accomplish this by hiring former bankers in operational positions, maintaining auditable transaction data, and providing the ODFI with various contact points for resolutions. These steps build a symbiotic relationship between the ODFI and Third-Party Sender which promotes an expedient resolution for audits and examinations.
Learn more at our conference session “Third-Party Senders and ODFIs – Shining the Light on Effective Partnerships” at the upcoming EPCOR Payments Conference- Spring on Thursday, May 19th at 9:10 am.
The session panel of Third-Party Senders and financial institutions will provide additional insights into building successful partnerships while mitigating risks for both organizations.
Shawn Princell
President
Cash Flow Solutions, Inc.