Faster Train on ACH Rails
This is bonus coverage from “Analyze Your Payments Positioning” from the January 2017 issue of CUES’ Credit Union Management magazine.
Some payments breakthroughs are still hypothetical, but running faster trains on old rails is real and imminent with the coming of same-day ACH. Credit unions are now in a three-year phase-in, explains Ron Mazursky, director of strategic initiatives at Jack Henry & Associates, Monett, Mo.
In Phase I, which started Sept. 23, 2016, originating financial institutions are now able to pass ACH credit files through three windows: the traditional overnight one that supports next-day settlement, a new morning submission with a deadline of 10:30 a.m. Eastern time, and an afternoon submission with a deadline of 2:45 p.m. The two new submissions will both be settled that same day, he explains.
A faster-moving ACH may not be member facing and may not be as sexy as a real-time mobile payments app, but it has two big advantages, notes Jan Estep, president/CEO of NACHA The Electronic Payments Association, Herndon, Va.: certainty and ubiquity. The rules have been written and published; CU planners know exactly what to expect. And 100 percent of the accounts at 100 percent of all banks and CUs will be included. It’s mandatory.
Since September, every CU had to be able to receive ACH credits and post them to the payees’ accounts that same day, she explains. What’s sent in the morning must settle by 2 p.m., and what’s sent in the afternoon must settle by 5 p.m., she says. In the first full month (October), 4 million payments worth $5 billion were sent and posted the same day. By September 2017, financial institutions will also be able to support sending and receiving ACH debits on the same day, she adds.
Files can be sent any time through a CU’s ACH gateway. Same-day payments don’t have to be flagged; the settlement effective date field will trigger whether a payment is same-day or next-day, Estep notes. “We didn’t add a new field for participants to deal with,” she points out. CUs will route ACH payments by the settlement effective date their systems feed into their ACH payment files.
The implementation includes credits only, with funds availability at the end of the receiving depository financial institutions’ processing day, Mazursky reports. With Phase II, beginning Sept. 15, 2017, same-day ACH will be available for both credits and debits, with funds availability at the end of RDFI’s processing day, enabling the same-day processing of virtually any ACH payment, according to finalized rules, he adds. Finally, with Phase III, beginning March 16, 2018, RDFI’s will be mandated to make funds available from same-day ACH credits (such as payroll direct deposits) to their depositors by 5 p.m. at the RDFI’s local time. “It won’t be real-time, but it can be faster than today’s ACH transactions,” he points out.
The marketing potential for same-day ACH is largely unknown at this stage and something CUs will have to decide how to promote, says Nick Lane, contracts consultant at CUES Supplier member and strategic provider Cornerstone Advisors, Scottsdale, Ariz. It may have real value for B2B transactions. It may be important to consumers wanting to pay a utility bill quickly to avoid a shutoff. The product is uniform across all banks and CUs, so there isn’t a lot of room for differentiation, he notes, but how CUs can be creative in how they market it and what they charge for it.
Nevertheless, the advent of same-day ACH brings a yawn from CUES member Tommy Cobb, CEO of $77 million Tuscaloosa Credit Union in Alabama. So far, anyway, same-day ACH is a “non-event,” he says. “All that happens now are credits, so I don’t see opportunities for emerging services. I’ll wait for the bleeding-edge technology types to figure it out and decide then whether there’s value there. I’m not going to poke a bear with a stick if he’s sleeping.”
For $400 million Nutmeg State Financial Credit Union, Rocky Hill, Conn., same-day ACH is another tool but not a game-changer, says CUES member Jeff Levesque, EVP/chief operations officer. “We’ll be fully capable to participate when it serves our members, but we’re happy enough to wait a little to see how the security/verification around electronic payments and other electronically originated ACH plays out,” he explains, noting that tighter timeframes around movement of funds allows less time for members and the credit union to verify the authenticity of the transactions.
If the goal is to get to real-time payments, same-day ACH doesn’t quite make it. But most consumers may not care as long as the front end is mobile, convenient and quick to use, Estep insists. “What counts is the end-user’s perception,” she points out. “They’re not interested in what happens behind the scenes. If they like the experience and it gets the job done (they don’t miss a due date), whether it happens in two hours or two seconds may not matter.”
Lane agrees. When it comes to real-time payments, real-time messaging may matter a lot more than real-time settlement, he argues. It’s now possible for a group of colleagues to go out to lunch, for one of them to pay the bill and then for the group to figure out each person’s share, tap out payment instructions on their smart phones and for all parties to get alerts that the funds have moved before they even leave the restaurant, he illustrates.
“The people see the transaction as having occurred,” he observes. “To them, it’s real-time and they are satisfied. The actual settlement could be overnight by ACH, but they’re not likely to know or care.”
Real-time settlement may still matter in rare cases like closing a real estate deal, Lane notes. There, wires will probably continue to be the payment mechanism of choice, although same-day ACH might eventually take on some of that business, he suggests.
By the end of the phase-in, all participating financial institutions will have to support all three windows. Most senders will still use next-day files for transactions like payroll that can be prepared in advance, and they are likely to use same-day for time-sensitive person-to-person payments, Mazursky speculates. While members won’t pay a surcharge for same-day processing at first, it’s likely to come, he suggests, as it evolves into an accepted premium service. (There will be incremental revenues or costs depending upon the CU’s role in the transaction, he notes). While most CUs will continue to use their current ACH gateway, they will have work to do to get ready for the rest of the changes, depending on whether they are an ODFI or an RDFI, he concludes.
Richard H. Gamble is a freelance writer based in Colorado.