Common in Acquiring, Sharing of Bad-Merchant Data Comes to the ACH

Taking a cue from bank card merchant acquirers, bank processor Fidelity National Information Services Inc. (FIS) and NACHA on Monday announced the formation of the Terminated Originator Database, a new service to help banks identify businesses that other banks have cut off from originating automated clearing house transactions because of high risk.

NACHA selected Jacksonville, Fla.-based FIS as its preferred vendor to operate the service, which FIS switched on March 1 but didn't announce until NACHA's Payments 2011 conference this week in Austin, Texas.  A recent NACHA board policy statement encourages but does not require banks to use the TOD service, which depends on financial institutions reporting high-risk businesses to it. In that respect, TOD bears some similarities to the three major credit-reporting agencies, Experian, Equifax, and Trans Union, all of which depend on banks and credit unions to regularly submit reports about their customers' loan-repayment behavior.

"The value of this is the collaboration," Dennis Maicon, vice president of product management in FIS's Risk, Fraud, and Compliance Solutions unit, tells Digital Transactions News. "It's the information sharing that's the first of its kind."

The first of its kind for the ACH, that is. Rather than consumer credit-reporting agencies, TOD is most similar to a system bank card merchant acquirers have used for years, a system known as MATCH, for Member Alert to Control High Risk. NACHA president and chief executive Janet O. Estep, a former acquiring executive with U.S. Bancorp, notes that MATCH takes in reports from acquirers about merchants the processors banned from card acceptance because of high chargebacks, and identifies those merchants to other processors so that the risky businesses can't get merchant accounts again.

Herndon, Va.-based NACHA's risk-control staff several years ago launched the so-called Originator Watch List, or OWL service, a database of suspect originators, but TOD is more comprehensive. "This is one tool for a financial institution's due diligence," Estep said at a Payments 2011 news conference. "It is new to the ACH network."

FIS has a Web site for financial institutions to report terminated ACH originators. The site includes reason codes for the termination. Pricing includes a signup fee and then per-transaction or subscription fees, or a combination of both. Pricing also depends on the size of the institution by assets. FIS didn't disclose details. To get the system up and running, FIS is offering "financial incentives" to early adopters, Maicon says.