I get a lot of questions asking for advice on how to do this or how to do that and while that wasn’t the original direction of this blog, I decided to branch out a bit and do some ‘How To’ writing.
I thought the best first question to go with, relates to deciding whether to use an ODFI or a Third Party Processor (TPP).
The question comes in many different forms, but the bottom line is that there is no easy answer. Here’s the deal; every Originator is different. Their needs are different, their goals are different, their level of ACH/Legal/Technical knowledge is different and of course, their budget is different.
So, while I cannot give you an answer as to which is better (well, I could, but some might argue that I’m biased – after all, I work for a Third Party Processor – I’ll try to be objective), I can give you some food for thought. Here are some things to consider that I hope will make your decisioning process easier;
Existing Relationship:
There is something to be said for an existing relationship – assuming you’re happy. Chances are, you already have a relationship with a Financial Institution (FI). If your FI operates as an ODFI, it could be simple enough to leverage and expand that existing relationship by simply adding ACH processing. If your FI does not offer ACH services (or they don’t process the type of transactions you need) then you need to do a search. At this point, if you have to weigh the difference between searching for a new banking relationship vs. a TPP, go for the new TPP.
This might also be a search by design – meaning your upper management/executives/board of directors might require you to select a number of vendors and go through a sort of bidding process. If you go this route, I highly recommend expanding your options to include both ODFIs and TPPs.
Underwriting:
Whether using an existing relationship or a new one, you will likely have to go through an underwriting process – kinda like the last time you got a car loan. This is what the ODFI or TPP uses to determine whether they want to process for you. There is a ton of information that go into making this decision. Everything from your company (and perhaps personal) credit score, financial stability, type of business, number of years in business, type of transactions you’re planning to process and much, much more.
This is where that existing relationship can come in handy. An ODFI that has known you for 10 years might be a little more forgiving when looking at a low credit score vs. a TPP. On the flip side, the TPP might be willing to accept some transactions that a typical ODFI might not – based on risk.
If you find yourself being turned down by an ODFI or TPP, be sure to ask if you can get a referral to another that might be willing to work with you regardless of whatever kept them from working with you.
Reporting:
I used to think this was a no brainer, but I cannot tell you how many Originators I have spoken with over the years that didn’t think about reporting or thought about it, as an afterthought vs. part of the process. I don’t know what information you need to do your job, but you do – or you should. Whatever information that is, that’s what you should be looking for.
Get sample copies of reports everything the candidates offer. Understand the difference between standard reports vs. ‘we can do that’ reports. Also, reporting should be an easy download or upload into your existing software – accounting or CRM compatibility is a good thing.
It’s important to get input from every department that might be using these reports and be sure you have everyone covered. Your co-workers will appreciate the opportunity to provide their 2 cents.
Pricing:
Decisions of all sorts eventually come down to the almighty dollar. This is where a TPP might have an advantage over an ODFI. When you process with an ODFI, you are getting pricing based solely on the volume you are processing. When you process with a TPP, you are getting pricing based in part on the total volume they are processing (that’s you + all the other Originators they process for). If the TPP is processing a greater volume than the ODFI, then they will likely have a lower base price.
That being said, there is also a thing called ‘market price’ or pricing to what the market will bear. With that in mind, think about this…just because your business is located in Anywhere City, Missouri, doesn’t mean you have to select an ODFI or TPP based in Anywhere City. Just like everything else, there is competition and in larger markets you tend to find more competition. Of course you also tend to find higher prices.
Be aware of hidden costs too; per transaction fees, batch fees, file fees, monthly processing fees, hard copy invoice fees, return fees, charge back fees, ‘you weren’t looking so we charged you an extra $5.00 fee’ fee, and who knows what else.
The most expensive option is not always the best and conversely the least expensive is not always the cheapest. When it comes to bidding processes, I have a former boss who advocated tossing out the highest and lowest bidders and selecting from vendors in the middle – there’s a lesson in there somewhere.
Customer Service:
Let’s face it, we all have examples of companies that have provided awesome customer service to us and we also all have examples of companies that have provided horrible customer service. Be sure you understand what days and times Customer Service is available and find out what their turnaround time is…whether it be a simple question or a problem, if you have to leave a message, when will they get back to you.
If you don’t know the answer, you won’t know what question to ask. What education do the Customer Service folks receive? Do they get regular update training – like booster shots; monthly, quarterly, annually, ever?
A good customer service experience is worth its weight in gold. If you have more than 1 not-so-great experiences, consider moving on to the next candidate.
Some last pearls and tidbits:
Don’t Be Afraid to Ask Questions – lots of questions. The only stupid question is the one not asked.
Shop Around – don’t limit yourself geographically – there’s a whole country out there.
Due Diligence – I cannot stress this enough – include others (if possible) in your decisioning process.
Peer Reviews – talk to your peers – who are they using – who do they recommend – have they heard of or used XYZ Company.
Trust Your Gut – if something doesn’t feel right, it probably isn’t.
Those are just my thoughts on this process. I’m sure there are other things to take into consideration and if you’d like to share with the rest of the class, drop me a line. I’ll gladly include your 2 cents and of course, give you credit.
ACHGuy
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