Same-Day ACH Payments Move Closer to Reality
The world of ACH payments is about to face a seismic shift with the recent approval of Same Day ACH.
On May 19, the voting membership of the Electronic Payment Association approved new operating rules for NACHA that lay the foundation for same-day capability for virtually any ACH transaction – opening up tremendous opportunities for anyone who needs to move money faster.
How will same-day ACH payments work?
Under the new NACHA operating rules, same-day payments will be implemented in three phases to give financial institutions and businesses time to acclimate to the faster processing.
In Phase 1, which is proposed to begin September 23, 2016, only ACH credits will be processed same day. The focus will be on payroll, person-to-person payments and expedited bill payments. Two processing windows will spread the volume throughout the day and lessen the strain on resources at the end of the day.
Morning settlements will be submitted by 10:30 a.m. and settled by 1:00 p.m. Eastern Time, and afternoon settlements will be submitted by 3:00 p.m. and settled by 5:00 p.m. Eastern Time, with funds available at the end of the processing day for the Receiving Depository Financial Institution (RDFI).
Phase 2 is proposed to begin in September 15, 2017, when same-day ACH debits will be introduced. The focus here will be on consumer bill payments. The structure of the same-day debit payments will be the same as the credit payments in Phase 1: two processing windows at 10:30 a.m. and 3:00 p.m. Eastern Time and settlement taking place at 1:00 p.m. and 5:00 p.m.
In Phase 3, proposed to begin March 16, 2018, will require RDFIs to provide funds availability at 5:00 p.m. local time for same day credit entries.
Under the proposed system, virtually all ACH transactions will be eligible, excluding only international transactions and large dollar transactions over $25,000. Originating Depository Financial Institutions (ODFIs) will be able to develop same-day ACH products and services enabled by the new ACH network functionality, and NACHA estimates these institutions will be able to earn a positive margin as a result.
What will be the impact of same-day ACH payments?
NACHA is confident that quicker processing will benefit nearly everyone involved. With faster fund availability, game-changers such as same-day bill payments will create more options for consumers and businesses alike.
Merchant acceptance of same-day ACH transactions on e-commerce payments could mean earlier shipping of goods, and same-day ACH collection of checks may decrease the merchant’s risk of Non-sufficient funds (NSF) returns. Similarly, consumers who return goods will have quicker access to returned funds. Same-day payroll – particularly for off-cycle payments such as bonuses, advances or errors – would give employees access to their funds almost immediately.
What might hold back same-day ACH payments?
Certainly, for any payment solution to work, the solution must be ubiquitous. Smaller banks or credit unions might not have the technical capacity or resource bandwidth to be able to post their payments that quickly. Indeed, a similar NACHA initiative for same-day payments was voted down in 2012; one of the key arguments against the initiative was that NACHA had not provided enough business rationale to support the required investments.
This time around, though, NACHA has done several things differently. They’ve clarified ten distinct major business cases in support of same-day payments. The initiative provides more functionality for ODFIs to earn a positive return on the investment. And with nearly all ACH payments eligible for same-day processing, the solution would de facto become ubiquitous.
One key concern is how NACHA’s new rules fit with changes being considered in the Federal Reserve.
The Fed has also expressed interest in “faster payments,” but they are still sorting out what “faster payments” will actually look like. Their current plan is to convene a taskforce of banks, merchants and acquirers to research and identify potential approaches, with findings to be presented by the end of 2016 and presumably implemented in 2017 or later. Interestingly, the Fed seems to be focused not on all payments, as NACHA is, but primarily on business-to-person, person-to-person, person-to-business, and business-to-business.
Clearly, though, the industry is boldly moving forward to modernize the payment system and create a platform for the creation of new products and services. It’s an exciting time for moving money!
Jeff Thorness is CEO of Forte, a technology company that provides innovative electronic payment solutions for banks, financial institutions and merchants of all sizes.