A lot of consumers and businesses love Automated Clearing House (ACH) payments. Workers have embraced direct depositing of payroll checks for years, and businesses that can direct debit a customer’s account have seen working capital improve when they go electronic.
For those reasons, use of the ACH network continues to grow. ACH volume grew to 23 billion electronic payments in 2014, equaling transactions of $40 trillion, an increase of 3% over 2013, according to NACHA (The Electronic Payments Association). Business-to-business payments increased by 7%.
But while ACH has made transactions happen faster, as a batch system through which depository institutions send each other electronic credit and debit transfers it has a slight flaw: its next-day settlement is not quite fast enough anymore.
In a recent Federal Reserve study, 75% of business payers said they want to use the ACH network for immediate payment or paying in less than one hour.
Enter Same Day ACH, a 2012 proposal from NACHA (The Electronic Payments Association) known as “Expedited Processing and Settlement,” which would offer “multiple same-day and next-day settlement options for virtually any ACH network transaction,” according to a report by Linda Coven of Aite Group.
Coven said there are several consumer and business use cases, such as same-day payrolls, “for late and emergency payrolls and [to] accommodate hourly workers as well as mid-cycle payments and terminations”; faster invoice payments settlement between businesses, “including remittance information with the payments for more efficient reconciliation and advancement of credit”; and faster bank account to bank account transfers between financial institutions, “which can enable better liquidity management, including same-day investments.”
Initially, the same-day ACH proposal ruffled the feathers of some bankers and vendors. As a result, in late 2014 NACHA revised the proposal. The second version was greeted more favorably. Another revision by the NACHA rules and operations committee is expected this quarter.
In particular, commenters to the proposal are calling for a phased implementation; limiting same-day ACH to $25,000 per transaction; excluding international payments to reduce risk of fraud; and allowing the receiving financial institution to charge a fee to the originating financial institution to help cover the costs of implementing same-day ACH, in part “to ensure ubiquity of receipt.”
These provisions are likely to be adopted by the NACHA rules committee.
But banks will still have to invest in and upgrade systems to enable same-day ACH. Will that cost be passed on to businesses and consumers? According to Aite Group, “When asked if they are considering charging a premium price for [same-day payroll], most [large banks] said they are definitely considering the possibility, but none had set a pricing strategy at this time.”
Bankers in certain quarters, however, still have doubts about same day ACH. In particular, they worry implementation will conflict with efforts to develop a payments system that’s even better — and faster — than the ACH network.
“While most agree that there is a need to develop a same-day settlement system that is ubiquitous, scalable, and low-cost, some bankers have reservations about building this on top of the ACH network (an aging batch processing system),” Coven wrote.
Still, according to Coven, “same-day ACH is clearly on the way,” and may serve as a good interim solution that will, according to bankers, “stave off some of the pent-up demand for faster payments.”