A Modern Open-Source Technology That Conquers ACH Batch Processing

By Malakondaiah Nallapu

Banks are facing challenges to make profits in today’s environment where technology development costs and interest rates are rising. These increasing operating costs are impacting banks and financial services’ profitability. So every bank/financial institution is trying to reduce costs. One way to do this is by changing from proprietary tools driven software development to open-source technology and automation, which eliminates licensing fees.

Using open-source technology is a good idea when dealing with Automated Clearing House (ACH) batch processing, the primary system that agencies use for electronic funds transfer (EFT). Because the structure of an ACH file is very rarely modified by the Federal Reserve, once the technology is developed, very little maintenance is required. With open-source software handling of ACH file, companies can save hundreds of thousands of dollars.

In the past, handling these transfers required the use of using proprietary tools to transform it to a compatible file format to process. But today’s open-source technologies are more mature and developed on the concept of plug and play mechanism. One such technology is Spring Batch that is part of the Spring framework. The Spring framework provides a comprehensive model for Java-based enterprise applications, focusing on application-level business logic, without unnecessary ties to specific deployment environments. This further simplifies development, providing stand-alone, production-grade applications.

Spring Batch is a proven and stable solution for ACH batch processing and its automation capabilities and robust error handling mechanism, making it an ideal framework for banking and financial services. Keep in mind that Spring Batch is designed with the following major technical objectives:

• Enable batch developers to use the Spring programming model: Concentrate on business logic and let the framework take care of the infrastructure.

• Ensure clear separation of concerns: between the infrastructure, the batch execution environment, and the batch application.

• Provide common, core execution services as interfaces.

• Offer simple and default implementations of core execution interfaces that can be used “out of the box”.

• Facilitate easy to configure, customize, and extend services, by using Spring framework in all layers.

• Enable replacement or extension of existing core services without impacting the infrastructure layer.

• Provide a straightforward deployment model, architecture JARs completely separate from the application, built by using Maven.

Before we get into how Spring Batch works, let’s look at a standard ACH File Structure:

• File Header Record

• Company/Batch Header Record(s)

• Entry Detail Record(s)

• Addenda Record(s)

• Company/Batch Control Record(s)

• File Control Record

Source: https://files.nc.gov/ncosc/documents/eCommerce/bank_of_america_nacha_file_specs.pdf

Here are the current steps required to process ACH files:

1. User/ Bank places ACH transfer requests.

2. Transfers are stored into database.

3. Batch job collects transfers at a specific cutoff time.

4. Generate ACH Originating file in Federal Reserve (FED)- specified NACHA format

5. Maintains a backup before sending to FED for processing.

6. Send file to FED for processing.

7. Receives ACH (RDFI) receiving depository financial institutions file for any returns or failures from FED.

8. Updates the status in a database.

Typical batch programs generally read a large number of records from a database, file, or queue, processes data in some fashion, and writes back data in a modified form. Let’s examine how Spring Batch’s solution works.

How does Spring Batch work?

Source: https://docs.spring.io/spring-batch/docs/current/reference/html/domain.html#domainLanguageOfBatch

First, the JobLauncher is invoked, then the Spring Batch framework progresses through one or more steps, executes each step by reading source using ItemReader, process using ItemProcessor and write to destination using ItemWriter. The running job progress storing in Spring Batch framework defined tables using JobRepository, these are independent of business tables. it supports a majority of relational database management systems (RDBMS). This provided framework’s rich reusable functions, easy configurable and extensible features drastically reducing development time. Another benefit of the Spring batch framework is that it leverages spring programming model that allows the framework facilitates the infrastructure and developers concentrate on business logic.

Other suggestions when using Spring Batch:

• Generate ACH files generation and retention locally with a proper naming convention before transferring to the destination to avoid data lose, especially in cloud-based environments. Also, consider a separate job for file transfer across the organization, when special care is deemed necessary, especially in a cloud-based environment.

• Consider data retention policies by looking at the type of data being retained and its short/long term use. Define the data retention period based on the type of transaction processed, ensuring compliance with Service Level Agreements.

• Use the JUnit testing framework to identify and fix defects early in development, and automate the test suite to run during the build through deployment. This ensures deployment only occurs if all test cases are successful.

Conclusion

In a challenging environment where proprietary tool licenses are soaring and profits in the banking and financial services sector are declining, a strategic shift toward open-source development proves to be the most cost effective and efficient solution.