A study by NACHA—The Electronic Payments Association—and its Council for Electronic Billing and Payment (CEBP) reveals that 0.58% of total bill payments (including checks, ACH, cards, and cash payments) in 2011 were unable to be posted accurately upon receipt by billers. Based on this exception rate, it’s estimated that 130 million payments required exception handling, costing the industry about $720 million annually.

The 2012 report, a follow-up to a 2007 study that measured exclusively online banking bill payments, further reveals that the overall exception rate in the online banking channel increased from 0.4% in 2007 to 0.51% in 2011.

“Although the percentage of exceptions may appear inconsequential, volume is high, and the impact on billers, processors, financial institutions, small businesses, and even consumers is significant,” says Kathy Romano, director of Payment Processing for Verizon’s landline customer business and member of CEBP. “Exceptions require someone to manually resolve issues, creating additional expense for corporations and processing organizations. More importantly, consumers’ payments will be delayed in processing, sometimes resulting in late fees or even service impacts.”

“Consumers and businesses alike want convenient, versatile, and secure payment options,” says Janet O. Estep, president and CEO of NACHA. “As such, a growing number of businesses and consumers are making the conscious decision to use electronic payments such as Direct Deposit via ACH and Direct Payment via ACH. To continue to meet the needs of these businesses and consumers, and retain confidence in electronic payments systems, it is important that we work to reduce exception volume.”

According to the study, a major cause of exceptions across all bill payment channels is missing or invalid consumer account numbers with their billers. For billers, this error is the leading cause of exceptions. For processors, missing or invalid account numbers is the second leading cause of exceptions, with processing differences topping the list.

To help reduce the number of bill payment exceptions, sharing information, standardizing processes, and educating consumers is critical. Study findings indicate that more than one-third of processors do not receive required information from billers to verify account numbers and masks, which define the format for a valid account number. Requiring that mask edits be applied prior to payment origination is a key procedure for reducing exceptions, but this practice is not applied universally. Additionally, the study reveals there is a lack of standard procedures to follow when a consumer enters an incorrect account number. Some processors notify the consumer, others attempt to make an edit, while others resort to sending a paper check. Although most billers stated they provide consumers with information and systems to help them include accurate account information when paying the biller directly, the majority reported they do not provide this same service for consumers paying through a bank or bill payment provider.

“This study demonstrates how important sharing information and standardizing processes is to reducing bill payment exceptions,” says Chris Huppert, chair of CEBP and senior vice president, Wells Fargo. “It also underscores the value of programs such as EBIDS [NACHA's electronic billing information delivery service], which requires bill payment originators to apply account edits provided by the biller before originating a payment. By enforcing edit rules, EBIDS improves efficiencies and ultimately reduces bill payment exceptions.”

The CEBP recommends specific strategies to help mitigate the number of bill payment exceptions. In addition to using services such as EBIDS for standardization purposes and to ensure account masks are being used and shared, the CEBP suggests the following:

•    Developing directories/shared databases to verify account numbers, structures, and billing/remittance details.

•    Enhancing communications among billers, banks, and processors, especially for resolving exceptions.

•    Increasing available options to correct or validate account numbers by sharing scrub files and/or master account files.

https://www.nacha.org/node/1144

 

 

[This article was posted on May 15, 2012, on the website of ABA Banking Journal, www.ababj.com.]    

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