ules, laws, standards, industry initiatives, company policies and more rules. In financial services, it seems that at every step of the way, there is at least one regulation concerning each aspect of the process. Actions taken by banks, acquirers, processors, ISOs/merchant level salespeople (MLSs) and merchants are restricted, mainly just to keep things fair.

Some say that rules are meant to be broken, but this is an industry where success depends on establishing a good reputation. Having integrity in business practices is crucial.

The early days of merchant acquiring were a "Wild West" frontier, when everything was open and anything went. Those days are over. Now, as the systems for processing payments become more complex, it's critical that all players know, understand and abide by the rules of the game as it's played today.

Considering the constant innovations that change the way the industry works, simply keeping up with the technology can be confusing. Add to that the rules, regulations and requirements established to guide the industry, and the potential for misinterpretation increases.

The process involved in setting those rules, whether they're compulsory or voluntary, is fairly complex in its own regard. But continuity and interoperability across the industry allow a fair game to be played on a level field.

Having rules in place totally rules.

But where do all the rules come from? Who are the organizations that set them? Exactly what authority do they have? As rule-making entities, how far does their influence go? How do they work together?

Who has the final say?

Well, no one really, and at the same time, everyone. What's happened is that burgeoning issues including compliance and risk have made the need for everyone to follow common guidelines absolute.

Cooperation, collaboration and consensus totally rule, too.

Governmental departments, offices and agencies including the Federal Reserve Board and U.S. Treasury Department oversee banking operations and commerce practices and pass laws. But there are several organizations separate from the government that also set policies, guidelines, standards, regulations and rules for the financial services industry.

NACHA - The Electronic Payments Association, American Bankers Association (ABA), National Institute of Standards and Technology (NIST), Electronic Check Clearing House Organization (ECCHO), American National Standards Institute (ANSI) and one not very well known but extremely influential organization, the Accredited Standards Committee (ASC) X9, are some of these.

These organizations serve different purposes and memberships, but their efforts are often collaborative. They depend on the input of the others when defining standards and regulations for their own constituencies and beyond.

No Small Task: Overseeing the ACH

NACHA, for example, represents 12,000 member banks, credit unions and other financial institutions, as well as another 650 organizations through its industry councils. It develops and promotes electronic solutions to improve the payments system, said Michael Herd, NACHA's Director of Public Relations.

NACHA sets operating rules and business practices for the automated clearing house (ACH) Network, the nationwide batch-oriented electronic funds transfer system for direct deposit of payroll, Social Security and other government benefits, and tax refunds and direct payment of consumer bills including mortgages, loans, utility bills and insurance premiums.

NACHA rules cover electronic payments in Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e-checks, financial electronic data interchange (EDI), international payments and electronic benefits transfer (EBT). That's a lot of ground to cover. NACHA publishes an annual guide detailing every aspect of the ACH; the "2004 ACH Rules" is one-inch thick. Although any financial institution that uses the ACH network must comply with those rules, Herd said that technically, it's all on a voluntary basis, and the rules are set by "no one and everyone."

While organizations don't have to be NACHA members to use the ACH, they do if they want to participate in the rule-making process. Members raise issues, which are discussed by committees that make recommendations; at that point in the process, members vote and set rules around the issues.

Considering the growth of the ACH network, NACHA will never run short of policies to set. In Q3 2004, U.S. financial institutions originated more than 2 billion commercial ACH payments, an increase of 24.6% over last year; that included more than 266 million accounts receivable check conversion (ARC) payments in Q3, which are up 500% over a year ago.

"Everyone can implement these types of payments using the same rules set by NACHA," Herd said. "One fairly significant thing is that the federal government will process close to 1 billion ACH payments this year and use the same set of operating rules as the private sector.

"We always have work to do," he said. "As the network grows, more issues arise."

From Banks' Perspectives

The venerable ABA serves the banking industry as a typical trade association. Its main purpose is to lobby for its members' interests; it also provides certification, conferences and education.

ABA was founded in 1875; membership consists of small and large banks and credit unions throughout the United States. ABA Associate Director of Public Relations, John Hall said that while ABA is certainly involved in promoting issues that affect its members, the organization is not involved in setting policies and rules for the industry per se.

ABA works with various agencies within the federal government and with law-making bodies on pending legislation.

Hall cited the efforts of ABA's Nessa Feddis, who did such an excellent job educating Congress on Check 21 that the law passed unanimously. He said ABA's subsidiary, American Institute of Banking, is the largest and oldest business education program in the industry. ABA also participates in other organizations; it's a member of both NACHA and ASC X9, contributing its members' views to committee discussions.

ABA goes through what he called the "comment process." Important issues are put out for comment, and then sent back to several committees within the organization. The committees meet, discuss the topics and respond with recommendations.

ABA then takes these recommendations to Capitol Hill and to the regulatory agencies to which it belongs, including NACHA and ASC X9, to provide information for comment when they go back to their own committees.

You Haven't Heard of X9?

The membership of International Standards Organization (ISO) is comprised of representatives from over 140 countries; the U.S. counterpart is ANSI, a private, non-profit organization that administers and coordinates voluntary standardization and conformity assessment in this country.

Founded in its original format in 1974 and formally accredited by ANSI in 1984 to develop standards for financial services, ASC X9 is a standards development and management effort that even its Executive Director said is perhaps the best-kept secret in the industry. X9's membership includes vendors, retailers, banks and credit unions, insurance companies, government agencies, card Associations, equipment and software makers and others.

Even if it's not a household word, some familiar names in the payments space are members of X9: Bank of America; Citigroup Inc.; JPMorgan Chase & Co.; American Express Co.; Discover Financial Services; MasterCard International; Visa U.S.A.; First Data Corp.; Hypercom Corp.; MagTek Inc; eFunds Corp.; 3Pea Technologies; Triton Group; VeriFone Inc.; ECCHO; National Association of Convenience Stores; and the Food Marketing Institute are all members.

The Fed and the U.S. Treasury Dept. are active participants. Even NACHA and ABA contribute information and opinion to X9's committees.

X9 is charged with developing, establishing, maintaining and promoting standards for the financial services industry to facilitate delivery of services and products. X9 standards have been adopted and incorporated across the industry, in solutions, products and systems.

Cynthia Fuller, Executive Director, said X9 is involved in administering and contributing to more than 150 standards dealing with issues including encryption, compliance, biometrics, security and privacy.

Checks, credit and debit cards, POS terminals, ATMs and electronic payments have all been affected by X9 standards. Fuller said X9 was responsible for writing personal identification number (PIN) standards; it also contributes to assigning merchant category codes.

X9 is not a rule-making agency. The organization's work is consensus-based; its committee members and technical advisors research issues and try to forecast upcoming hot topics, discuss them and make recommendations.

Where other rule-setting organizations are focused on a single group of issues or one specific area, X9 is "interest driven. We're more inclusive, working toward interoperability," Fuller said.

Five main committees, Transactions, Checks, Credit, Securities, and Data and Information, each have working groups within them that serve to make recommendations on specific issues. For example, there are 12 sub-groups under X9B, the check subcommittee. X9B writes and promotes technical standards to support Check 21 and all other standards related to checks, including the endorsement area and MICR font.

X9 sells the standards it develops to businesses, corporations and associations for adoption; compliance with the standards is not mandatory, but does indicate a quantifiable level of performance in operations. When companies and organizations employ the standards, it shows they've agreed on a specific methodology; it shows there's one best way to do something. Fuller said that along with membership fees, this is how X9 makes its operating costs.

X9 standards also serve international purposes. X9 members contribute their standards for global consideration through ISO; most standards adopted by X9 become ISO standards. Nearly 40% of the standards listed under ISO Technical Committee 68 on Financial Services began as American National Standards created by X9.

For more information on these organizations, visit:

• www.nacha.org
• www.aba.com
• www.x9.org
• www.ansi.org
• www.tc68.org
• www.iso.org