Fiserv Sees An Opportunity in Filters for the ACH’s New IAT Code

As financial institutions find themselves processing more and more international transactions through a new application on the automated clearing house, the burden of sorting out payments that match various watch lists is mounting fast. That's creating an opportunity for processors and software vendors. One of the first to act is Fiserv Inc., which on Monday unveiled a product that filters transactions coded with the ACH's International ACH Transaction (IAT) application. Introduced in September by NACHA, the governing body for the ACH, IAT covers transactions transmitted into or out of the United States. While IAT volumes are still low relative to other ACH applications, they're growing quickly. Volume in December totaled 591,413, up 66% over November, according to NACHA. Dollar value was $2.7 billion, up from $2 billion. “This is something that is going to grow over time,” says Nancy Atkinson, a senior analyst at Aite Group LLC, a Boston-based research firm. The IAT code is meant to make it easier for banks to sort out international payments whose payees or other data line up with terrorist and criminal watch lists compiled by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) and other organizations. But the rapidly rising volume makes automated sorting more and more of a necessity, says Atkinson. “It would be very difficult to do this manually,” she says. “The potential risk is so high if you miss someone you shouldn't.” Letting transaction through that should be stopped, she says, can bring down severe penalties on a bank, including temporary closure, she notes. Banks also face a rising problem of so-called false positives, or cases where transactions appear to match OFAC data or internal lists but turn out to be innocuous. “That's an issue for institutions,” says Janae Sasman, director of compliance product management for Brookfield, Wis.-based Fiserv, which now has more than 100 clients running its IAT Watch List Filtering product. The challenge for banks is that IAT transaction formats contain more fields of data than is typical of wire transfers or even other ACH applications, says Sasman. While this improves tracking capability, it complicates the process of matching transactions with information on government or internal watch lists. These fields include not just originator and receiver but also the originating and receiving banks, relevant country codes, physical addresses, and sometimes a correspondent bank. At the same time, there are three OFAC lists, and they change frequently. “We've seen the OFAC SDN [Specially Designated National] list change multiple times in a month,” Sasman says. Sasman says these factors, coupled with rising IAT volumes, will only create more pressure for banks to install filters. “The volume is going to increase significantly,” she notes, making it harder for even small banks to manage filtering manually. Fiserv's IAT filter is available through a Web-based model or as an in-house product. Sasman won't discuss pricing, but says the ASP version carries a monthly fee, while the in-house product incurs an annual licensing charge. In either case, the costs are fixed, so the per-transaction cost declines as volume builds. While banks could try to adapt existing filters built for wire transfers, Atkinson says these would be less suited for IAT transactions and would carry separate integration costs. Still, she says, checking IAT payments against watch lists is only gaining in urgency. “National security tends to apply here,” she says.