Interagency Supervisory Statement
on EFT Switches and Network Services

The purpose of this supervisory issuance is to alert the board of directors and senior management of financial institutions to the risks associated with switch and network services in retail electronic funds transfer (EFT) systems. This statement does not address wholesale or large-dollar funds transfer systems such as FEDWIRE and CHIPS.

A switch is a computer system that facilitates the transfer of electronic messages between terminal devices and the appropriate network participants. For example, it transmits an inquiry or transaction from an automated teller machine (ATM) or point-of-sale (POS) terminal to the depository institution that holds the customer’s account. EFT terminals, processors, and switches can be configured in many different ways, depending on the participants’ needs. The combination of interconnected terminals and computers is a network. Networks are sometimes operated by independent third-party servicers.

Financial institutions have increased the use of switch and network services to lower costs and improve competitive position. Many financial institutions are sharing resources or using outside servicers, including nonfinancial companies, to provide EFT services. Such services include POS, ATM, and bill payment. Industry marketing efforts are promoting additional shared retail services, such as automated clearinghouses (ACH), stored value cards, and credit card authorization.

EFT switches and network processing systems have expanded traditional methods of consumer banking, e.g., deposit, withdrawal, and obtaining credit. These systems provide customers with regional or nationwide access to their funds.

Some financial institutions are required by state law to share these services. Others voluntarily share them on a regional, national, or international basis.

Examples of shared EFT switch and network services include—

Regardless of the types of services offered or systems being used, there are inherent risks in switch and network services.

The increasing use of switches and networks raises certain concerns for participants:

The board of directors and senior management of financial institutions are responsible for:

The appendix to this statement provides controls that should be in place in an EFT switch or network services environment.

Control for a safe and sound EFT network switching environment should address the following items. These objectives apply to all EFT switches and network servicers regardless of ownership.