How a Direct ODFI Relationship Benefits Money Service Businesses for ACH Processing
Today’s financial ecosystem has a crucial player in Money Service Businesses (MSBs). These firms offer customers a variety of services—such as making money transfers, exchanging currencies, and paying bills—that keep the world of electronic payments moving. For MSBs, efficient payment processing is nonnegotiable, and many of them rely on a network of ACH (Automated Clearing House) to keep their electronic transactions flowing smoothly. While some MSBs still use third-party processors and serve as direct intermediaries to their customers, establishing a direct relationship with an ODFI (Originating Depository Financial Institution) can serve an MSB well.
1. Enhanced Control and Customization
A direct relationship with an ODFI lets MSBs have more control over their ACH transactions. Rather than going through a third-party processor, MSBs can work directly with the ODFI to customize their ACH processing schedules, transaction types, and reporting structures. This freedom to personalize their processing is essential for the operational success of businesses with atypical or high-volume transaction requirements.
2. Cost Savings
Markup fees on ACH transactions can get pretty steep, and third-party processors are notorious for charging them. By establishing a direct relationship with an ODFI, MSBs can cut out these intermediaries and the costs that come with them. And this is not a situation where intermediaries just add some nice wrapping paper to a transaction. These people clearly are “making money” on this arrangement. So, eliminating them and their fees is a good and sensible move. MSBs then can—and indeed, must—pass on these savings to their customers.
3. Faster Processing Times
MSBs can enjoy expedited processing because of their direct relationship with an ODFI. They can closely avoid the intermediary-caused delays and go direct to the processing needed for quicker settlements. In turn, this kind of direct relationship and fast processing benefit cash flow management. We know that ACH is the workhorse of batch processing, and that faster ACH processing is very much of interest to Money Service Businesses that are managing high-frequency transactions or businesses that require real-time payments.
4. Improved Risk Management
Having direct relationships with ODFIs lets MSBs implement risk management strategies that are more attuned to their businesses. ODFIs are able to provide tools that are more sophisticated for the kinds of uses you would want an ODFI to be engaged in—”advanced” is the word. And when you think of “advanced,” you have to think of a lot of sophistication, and that helps the MSB with risk management, which is really the tail end of the whole operation.
5. Stronger Banking Partnerships
Establishing a direct relationship with an ODFI engenders trust and collaboration. ODFIs gain an understanding of the MSB’s business model that is much deeper than that of an ordinary federal or state regulator. This understanding leads to tailored ODFI advice and support. It also enables the ODFI to serve as a financial industry ambassador for the MSB and to advocate on behalf of the MSB for access to additional banking services that might be useful to the MSB.
6. Regulatory Compliance
MSBs have strict obligations to follow when it comes to compliance, and they are required to implement common kinds of control processes, such as anti-money laundering (AML) and know-your-customer (KYC) programs. Our MSB clients benefit from the direct relationship we have with them and from the assistance we are able to provide in navigating a complex and sometimes contradictory regulatory landscape that is not always easy to understand.
Conclusion
For MSBs, a direct ODFI relationship is more than just a logistical upgrade; it’s a strategic advantage. The business model allows for cost savings and faster transactions, not to mention far better control and regulatory support. Oddly, in a changing financial landscape, direct ODFI partnerships offer more opportunities for MSBs to meet customer demands and achieve long-term success than ever before.
