Fremont Bank Gains Clarity Into ACH Risk

Like many banks, as automated clearing house (ACH) transactions gained momentum, Fremont Bank ($2 billion in assets) found itself facing increased risks from originating payments and receiving deposits. "We were doing manual processes, which is very time-consuming," relates Patti Greenup, director of deposit operations at the Fremont, Calif.-based bank. If bank officials wanted to look at ACH risk exposure over a 60-day period, for example, they had to pull 60 days' worth of records individually by day and by client.

"We were unable to very quickly respond to originators sending out transactions outside the parameters they were approved for," Greenup adds. "I am sure that we were missing things."

Automated Reports

To reduce its risk exposure, Fremont Bank needed technology that would quickly generate automated reports explaining what had been processed via ACH, what had been returned and what steps the bank needed to take to correct the situation. Simplicity was a key requirement of any solution, Greenup notes. "We wanted anyone to be able to sit down and use the software," she says. "And we wanted the reports to come out in a way that is very easily read."

Around that time, at a symposium, Greenup and her colleagues met Laru Corp. CEO Ben Waidhofer and CTO Carl Daniel, who described the El Dorado Hills, Calif.-based vendor's upcoming beta version of ACH Clarity, which would track incoming and outgoing ACH traffic between participating financial institutions. According to Greenup, Fremont officials were impressed enough with the platform's potential that they made plans in early 2006 to purchase the software, even before it was generally available and without seriously considering other vendor offerings.

Fremont began beta testing in February 2007 after Laru staffers came on site to install the software, which took about a day. "We would experiment with [the software] and say, 'Gee, it would be nice if it did this,' and Laru would go back and upgrade it," relates Naomi Bonfield, product manager at Fremont Bank. For instance, Greenup wanted return-reason codes automatically included in reports. As a result, of the request, Laru built the feature into the solution.

The bank went live with the new setup in August 2007. According to Greenup, the software runs as a complementary platform to Fremont's core ACH processing system on a stand-alone Dell (Round Rock, Texas) server that Fremont purchased for the implementation. ACH Clarity monitors incoming and outgoing ACH traffic among participating financial institutions without requiring integration with the core processing system.

"The application is extremely user-friendly," Greenup says. "If somebody clearly understands ACH, the training only takes a day."

The product provides Fremont Bank's deposit-operations staff with alerts and daily custom reports on anomalies that surface, enabling staffers to investigate potentially troublesome transactions almost immediately. As a result, the bank saved an estimated $33,400 in 2007 on originator violations, Greenup reports, adding, "We have got some risk-management tools that we did not have before. That gives us the opportunity to grow our ACH department with the comfort that we have the right tools and information available to us."

Now, Greenup and her colleagues are working on an initiative to share some summary data generated by the system with the bank's directors and executives. "It is providing information that they do not currently have access to," she says. "They will now have a clear picture of our temporal risk exposure."