Thought Leadership – Faster Payments? Or Same Day ACH?

Thought Leadership – Faster Payments? Or Same Day ACH?
Posted: Sep 15, 2016
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Same Day ACH payments are on the way and are expected to have huge impact.

Same Day ACH payments are on the way and are expected to have huge impact on how payments are made in today’s environment. Same Day ACH is planned to move payments and payment related information quicker to ensure any ACH payment can reach anyone, anywhere across the country regardless of which credit union or bank is used. 

On September 23, 2016, phase one of the Same Day ACH 3-year planned roll-out becomes mandatory for financial institutions in the U.S. This means that credit unions and banks (and other third-party financial institutions) will be required to accept credit transactions that are assigned the current day’s effective date, and settle on the same day. Prior to this change, settlement for credit transactions has been 1 to 2 business days. FIs have until Sept 2017 before being required to support same day debit ACH. A fee of 5.2 cents per same day transaction is assessed by the originating FI and passed through to the receiving FI. It is yet to be seen whether the originating FI will pass on these charges to its customers or absorb them as a cost of doing business.

Largest CU's to offer same day originations by end of the year

While credit unions and banks must be ready to receive same day ACH, not all will be originating. It is believed that the largest credit unions and banks will offer same day originations by the end of the year, primarily those FIs that offer payroll services or have merchant acquiring portfolios that may want to offer their merchants a speedier settlement to help with cash flow. However, it does require extra effort on the part of the receiving institution. They need to understand the schedules for receiving same day ACH and posting the transactions; their vendors need to be prepared to process those transactions in the required windows. And as volume dictates, some level of automation may be needed to meet the requirements.

Same Day ACH has the potential to increase the number of transactions processed compared with today’s environment. In fact, Mercator produced a chart predicting growth of transactions showing that ACH transactions will double from 2014 with a base of 14,239 individual transactions in a little over 10 years. Replacing wire transfers, immediate disaster relief funds, insurance payouts and increased B2B use is expected to drive the growth in transactions.

  Isn’t same day ACH the same as faster payments?

The Federal Reserve launched a initiative in early 2015 called the Faster Payments Task Force and a corollary Secure Payments Task Force, comprised initially of 19 public and private companies to look into “alternative approaches for implementing safe, ubiquitous faster payments capabilities in the United States”. In other words, members of the industry could start with a clean slate not using ACH “rails” and look to incorporate specific criteria such as speed, security, international availability, accessibility and capability to provide value-add services. The current roster of 320 members could come up with a best-in- breed technology for the next generation of payments. The task force created a “capability showcase” or a virtual sandbox that can be used to assess the current state. Both task forces are expected to produce interim reports in 2017, and reviewing proposals is the expected next steps, with working products still years away.

In the meantime, faster payments are being accomplished by the mandatory Same Day ACH requirements. Granted Same Day ACH does not operate at the speed of several commercial payment transfer platforms, such as Visa Direct, clearXchange, PayPal, FIS’ People Pay, Fiserv’s Popmoney, and is much slower than the real-time payments envisioned by members of the Faster Payments Task Force. But it does meet many of the criteria set forth by the Fed.  

  • Accessibility: Same Day ACH, priced at a little over a nickel per transaction, is easily in the reach of most banking participants.
  • Security: Same Day ACH is just an extension of today’s ACH rails, and remains relatively safer than other forms of money movement such as credit cards and ATM transactions.
  • Efficiency: ACH is based on technology laid out 40 years ago to replace checks. It still has that goal as ongoing, but really hit its stride when online bill pay became a popular and free service offered by most banks and credit unions. For these applications, real-time is not necessary.


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    Dave Chojnacki

    Dave ChojnackiDave Chojnacki

    Dave has more than 10 years of relationship management experience and holds a Credit Union Compliance Expert (CUCE) Designation from CUNA. He currently serves as Director of Consulting Services at Trellance.

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