This is the first of a two-part series on Same-Day ACH. The first article looks at how the rules will change, and the next article will look more specifically at how the new rules will impact banks.
What a difference a day makes, especially if you’re talking about the movement of money. According to the Eighth Annual Billing Household Survey from Fiserv, more than 80% of people polled say real-time or same-day processing is important when paying bills.
Starting in September money will indeed move faster when Same-day ACH becomes a reality. You’ll be able to initiate payments faster under the new process. If your bank is the originator, you’ll be able to enter a bill pay authorization and have it credited later that same day. For example, if a bill is due on Friday you could initiate a Same-day ACH transaction Friday and still make the payment on time.
“Right now, ACH transactions post by effective date. The NACHA rule provides a two-day lead time for credits and one day for debits. The Same-day rule provides a significant improvement to make funds available quickly,” says Susan Meyer, senior strategy product manager for Fiserv.
There’s little doubt about that. Currently, say you want to pay a bill due Friday via ACH and initiates the payment on Thursday night at 10 p.m., you may have missed your bank’s window for submitting a conventional ACH payment for settlement the next day. “With the intervening weekend, the payment wouldn’t be delivered until Monday,” explains Steve Kenneally, vice president of payments and cybersecurity policy at the American Bankers Association. “Transactions initiated using Same-day ACH in time to be submitted to your bank in time to meet the 10:30 a.m. or 3 p.m. transmission window would be delivered on time on Friday,” he says.
Meyer puts it simply, “Life moves fast, and people want their money to be available when and where they need it. People will benefit from enhanced abilities such as hourly and emergency payrolls, faster bill pay settlement and business to business payments or expedited, business-to-consumer payments.”
Change is coming in September, but it will be a process. The Same-day ACH will first apply to credit transactions only. Debit transactions will be allowed in September of 2017, and six months after that there will be other changes, like the guarantee of availability of funds by 5 p.m. local time, says Rick Burke, head of corporate products and services at TD Bank.
For most people Same-day ACH is a good thing. “They’ll get their money sooner, although it’s not real-time, this will make a difference for people,” says Burke.
Not a panacea
With change comes pain. The NACHA rule establishes a limit of $25,000 per transaction, international transactions are also prohibited, says Kenneally. While many ACH transactions are well below $25,000, it is an issue for some.
Financial institutions in particular will feel some pain. “This is going to increase by two or three times the amount of work they do,” says Burke.
All financial institutions will have to upgrade their system to be able to receive Same-day ACH transaction. “Receiving these transactions is not an option and there will be additional costs to ensure that customers will receive this benefit. Additionally, if a financial institution decides to originate these transactions for its clients, it may have additional technical and procedural upgrades,” says Kenneally.
To be compliant, banks will need to gain greater management and oversight on their same-day activity. “The rule change impacts upstream and downstream systems and operational procedures from the front to back office. Financial institutions will have to train internal employees, as well as customer – especially commercial originators,” says Meyer.
Despite the momentum for Same-day ACH, Kenneally isn’t sure that it will become a standard practice, but it will become a recognized alternative to conventional ACH. He says NACHA predicts the total number of Same-day ACH transactions will increase from 213 million in 2017 to 1.4 billion in 2017. “It’s important to note that total ACH volume in 2014 was 23 billion, so even NACHA isn’t predicting that it will become prevalent.”
The bottom line, says Kenneally, “Same-day ACH may not be a huge leap to faster payments, but it will the first to take a step in that direction and it is using road tested technology that financial institutions trust and that consumers are practiced in.”