One of the most significant changes affecting many payment processing services in the US this year will be the introduction of same-day settlements for automated clearing house (ACH) processes.
Currently, most ACH payments are settled on the next working day. But as of September 23rd 2016, NACHA will introduce a new rule that will allow originators of ACH payments to request settlement on the same day at any receiving financial institution.
How the change will work?
When the system is implemented, originating institutions will be able to submit files for same-day payments through one of two new clearing windows. A morning deadline of 10:30am ET will see settlements confirmed at 1:00pm ET, while a second deadline of 2:45pm ET guarantees settlements at 5:00pm.
Almost all types of ACH payments will be eligible for same-day processing, providing the originating organisation pays an additional fee to cover the cost of enabling and supporting the service. Only international transactions and those worth over $25,000 will not be eligible, meaning 99 per cent of current ACH volumes will be available for same-day settlement.
NACHA notes there will be several key scenarios where same-day processing could be invaluable. It highlights same-day payrolls as one such example, as this will better support businesses needing to pay hourly workers, as well as providing flexibility for late and emergency payrolls and missed deadline and enabling employees to have faster access to their pay.
Expedited bill payments that will help consumers make on-time payments on due dates, and business-to-business payments that enable faster settlement of invoice payments between trading partners, were also listed as key use cases for the service.
A modest start
But will the implementation of same-day ACH processing have a major impact on the US payments sector? Perhaps not initially, at least according to the Federal Reserve Bank of Atlanta. In a recent article outlining its predictions for 2016, it stated that the service will not initially have high adoption rates.
There will be several reasons for this. The piece explained that corporate originators will have to update internal systems in order to support same-day ACH, while the dollar cap of $25,000 per payment and the imposition of the interbank fee will both act as limiting factors for take-up. Consumer payment applications will also have modest uptake due to competing payment alternatives.
In order to be successful, acceptance of the service must be widespread, which Payment Week suggests could initially pose challenges for smaller banks or credit unions. This is because they may not have the technical capability or resource bandwidth to take advantage of same-day processing.
Prospects for the future
However, once the right systems to take advantage of same-day ACH are in place, and initial hurdles have been overcome, the long-term prospects for the service are likely to be much brighter – particularly once phase 2 of the rollout gets underway in 2017.
While the first stages of the service will focus on payroll, person-to-person payments and expedited bill payments, phase 2 will see attention turn to consumer payments, which NACHA believes will increase adoption. Merchants would then be able to use the system to get payments from customers on a same day basis providing an alternative to card schemes or other payment methods.
But with the Fed’s work on Faster Payments and several initiatives underway from players like Early Warning is this move from NACHA too little too late? If customers can get instant payments why use the same day service? Of course there are other factors like pricing to take into account but ACH is likely to end up focused on bulk predictable transactions like payroll, pension payments or dividend distribution.