When the Federal Reserve signed off on a private industry group’s guidelines for faster ACH transactions, it set into motion the wheels of a “faster payments” machine that it’s been trying to build for years. But smaller financial institutions may run into a few snags.
The same-day ACH rule is pretty much what it sounds like: the National Automated Clearinghouse Association’s (NACHA) new initiative to propel the financial services industry toward same-day clearing and settlement of payments built upon the existing automated clearinghouse network. While some banks (mostly very large banks) do already process ACH transactions on the same business day they are originated, most process ACH transactions the next business day. Same-day ACH would ostensibly speed up such transactions as payroll deposits, bill payments and person-to-person transfers.
Now, the Federal Reserve has green-lighted NACHA’s rule for all participating banks. Same-day ACH is to be rolled out in three phases of implementation, with the first phase beginning toward the end of September next year and the final phase winding down in March 2018.
“I think the notion of faster payments generically is sort of in the wind right now,” said Michael Herd, NACHA’s senior managing director of ACH Network Rules. “There seems to be a consensus within the financial services industry that we ought to be making moves in the U.S. to make payments faster and modernize our payments system.”
NACHA’s rule – and the Fed’s subsequent approval of said rule – is just the latest development in the Fed’s broader directive to modernize the U.S. payment system. Early this year, the governing body published a paper, “Strategies for Improving the U.S. Payments System,” that laid out its vision for an American payments utopia. Payments in the U.S. should be faster and safer, more efficient and seamless. Consumers would have better options for sending payments across borders, and industry players would better collaborate to make that happen.
Toward that end, the Fed also assembled two payments-related task forces to undergird its lofty initiatives: one to address speed in the payments system and one to address security. Rather than moving at the speed of government and potentially stepping on the private sector’s toes in the process, the Fed positioned itself more as a “catalyst for collaboration,” and its approval last month of NACHA’s same-day ACH rule is the latest cap on that public-private collaboration.
But change doesn’t come easily – especially not for the banking industry. While faster payments, on the whole, have been heralded by the financial services field as long overdue, same-day ACH won’t come free of a few pain points.
No Pain, No Gain
Comparatively speaking, it can be difficult to build consensus in the U.S. financial services field simply because of the breadth and number of financial institutions headquartered on American soil. The U.S. is home to around 12,000 banks and credit unions of all shapes and sizes, and it’s easier to reach an agreement among 10 banks than it is among 12,000, Herd said.
While NACHA’s final rule, approved in May, achieved nearly unanimous consensus, Herd did concede the industry group heard a few points of concern, too. Specifically, a handful of credit unions and credit union associations also expressed concern that mandatory receipt of same-day ACH transactions would be overly burdensome for small institutions.
Herd said cost has been another point of concern, but the fee paid from originating to receiving financial institutions (5.2 cents per same-day ACH transaction) should also incentivize banks and credit unions to receive those transactions.
“The purpose of that is to partially offset the receiving financial institution’s cost of implementing and operating same-day ACH,” he said.
After all, same-day ACH won’t achieve ubiquity work unless every bank and credit union in America signs on.
“I think the biggest challenge right now is for the processors,” said Sue McKinnon, senior vice president of deposit operations at Dedham Savings Bank. “Whether that’s in-house or outsourced, your processor has to be able to identify those transactions and process them according to that timeframe.”
On the whole, McKinnon said that same-day ACH represented a welcome opportunity to offer new services and products – particularly to the bank’s business customers, whom she anticipates preferring same-day ACH to wire transfers, presently their only option for same-day payments.
Depending on how banks choose to use same-day ACH, it may also present new opportunities for fee income – and customers would likely see a value in that fee, to boot.
While Dedham Savings has not yet heard what its customers think about same-day ACH, McKinnon said she thinks the word simply hasn’t reached them yet.
She added, “I think it’s going to be a welcomed, positive change.”
