The Introduction of ACH

This system worked well prior to the introduction of ACH and debit cards, and the proliferation of electronic payment systems.

While processors scrambled to find solutions, many credit unions had to find solutions on their own. This situation resulted in numerous "work arounds," many of which are still in place today.

Although these solutions worked to resolve the majority of items being received electronically, they were still ineffective at eliminating them all and resulted in inaccurate postings and exception items. This outcome resulted in credit union back-office departments -spending numerous hours attempting to identify and post exception items.

As this volume increased, additional personnel was required to keep up with number of exception items.

That Does Not Compute

With the introduction of new payment platforms such as Popmoney and funds transfer, credit unions again struggled to adopt these new payment strategies due to existing account number formats.

As consumers adopted electronic bill payments to pay their loans, credit cards and mortgage accounts, a new problem surfaced and compounded the previous issue surrounding ACH payments.

Since most bill pay systems are unable to support loan and share IDs, most of these "electronic" payments ended up being mailed as paper checks, and there was a need for credit unions to staff up their mail processing centers to post the payments.

Since most credit cards and mortgage loans are hosted by third-party systems, it made it almost impossible to direct electronic payments to those systems.

All of this led to delayed deposits, misapplied or late loan payments, late adoption of new payment strategies, staff inefficiency and unhappy members. 

What the Banks Know

Since this issue seemed unique to credit unions (not banks), our team researched the differences between credit unions and banks with regard to account numbers and electronic payments. The one obvious difference is that credit unions have share and loan IDs in addition to the member account number, however there was one other obvious distinction.

Look Under Your Nose

If you look closely at that book of checks that you no longer use, the answer is right in front of you. Almost all credit unions and banks use the common "MICR" format for the checking account number. The MICR is usually made up of 14 digits with the first digit denoting the account type, and the next 12 are the account numbers. The last digit is (for you old schoolers) the check digit.

It might appear something like this: 12102110000017.

For our credit union, we decided to use this same format to define all accounts.

The first digit indicates the account type, the next three denote the share or loan ID and the next 10 represent the member account number.

The Solution

The solution is simple. We established the same MICR account number for our Loan, Other Savings, Visa and Mortgage accounts similar to what we already have in place for checking accounts, and stored the new value within the share and loan records.

We then worked with our CORE to add custom code to our ACH program to look for these unique account numbers. When these account numbers are presented, the program immediately identifies the correct account and the payment or deposit is routed to the appropriate Share or Loan account. In the case of Visa or Mortgage, those payments are placed into the appropriate payment interface files for those systems.

The Benefits

With these changes in place, we were able to implement a new online payment system that allows our members to pay their Loan, Mortgage or Visa card from any of their primary financial institution accounts.

We also quickly positioned our credit union to launch Popmoney and funds transfer to our members.

Additionally, we worked with our primary bill pay provider to eliminate 99.9% of all of the paper checks we were receiving for loan payments and deposits.

Last but not least, we completed this without impacting any of our existing ACH deposits and payments since this change only affected our electronic payment systems and is hidden behind those interfaces.

The Future

In the near future we plan to share the new account numbers with our members. This will allow them to establish new electronic payments and share deposits utilizing any bill payment system they desire and ensure that it will post in a timely manner and to the correct account when received by the credit union.

Karl R. Mann is vice president/chief information officer at Associated Credit Union. He can be reached at [email protected] or 770-263-0908.