Same-day Electronic Payments Are Coming to Rock Your World
You know that sinking feeling when you just remember to pay your utility bill the day before it’s due, then realize that it won’t be credited until two days later and are left praying that the lights and heat stay on in the meantime? Well, that sorry situation is soon to be a thing of the past as 2016 is the year that Same-Day ACH becomes a reality, paving the way for near-real-time payments, direct deposits, and peer-to-peer funds transfers.
The members of NACHA, the Electronic Payments Association, approved same-day ACH settlement in a nearly unanimous vote by its members in 2015. NACHA manages the development, administration, and governance of the ACH network, one of the United States’ backbone payments systems used by consumers, business, and government alike. Same Day ACH will roll out beginning fall 2016 and culminating spring 2018.
The possible use cases of same-day ACH abound, since payroll direct deposit, business and utility billing, transactions between financial institutions, and peer-to-peer transfers are all conducted over the ACH network. The current guaranteed settlement time is a whopping 48 hours, which is a sloth-like pace compared to wire transfers, which are more expensive, and emerging payments networks such as the blockchain distributed public ledger. Some current ACH payments settle in 24 hours, but this can still be a seeming eternity for consumers paying urgent bills or banks sending crucial funds.
A previous plan for same-day settlement was rejected in 2012 by NACHA’s members. While the 2012 plan garnered the support of a majority of the member body, it failed to attain the supermajority necessary for passage. NACHA overhauled the more contentious points and introduced the new plan in 2014, which was approved the following May.
There are three phases to the coming rollout, the first of which begins September 23rd of this year. During phase one ACH credit transactions will be eligible for same-day processing through the Federal Reserve, supporting uses such as hourly payroll, person-to-person payments and same-day bill pay.
Phase two begins September 15, 2017, when same-day ACH debits will be added, allowing for a wide variety of consumer bill payment possibilities like utility, mortgage, loan and credit card payments.
Phase three starts March 16, 2018 and concludes the introduction of the new paradigm. Funds from Same Day ACH credit transactions must be available to customers by 5:00 p.m. at the receiving financial institution’s local time after this date.
The plan calls for two new settlement windows per weekday, morning and afternoon. Morning submissions must be made by 10:30 a.m. Eastern Time, with settlement occurring at 1 p.m. Afternoon submissions must be made by 2:45 p.m. ET with settlement occurring at 5 p.m. There will still be no weekend or holiday settlements under the new plan.
Each of the approximately 12,000 or so banks and credit unions in the United States would be required to accept the same-day payments on behalf of their customers. Generally speaking, if the sender participates, the receiving bank must participate as well.
One of the major changes to the same-day ACH proposal was a reduction in the cost per transaction for the initiating bank, which is estimated to be approximately 5.2 cents. The original proposal suggested a cost of 8.2 cents per transaction, which some NACHA members and the Federal Reserve Board felt to be prohibitively expensive. The price incurred by the customer will vary by financial institution, but it’s safe to say that the cost will be a fraction of the charge for a wire transfer and no incur charge to the recipient.
Essentially every type of ACH payment, including both credits and debits, will be eligible for same-day processing. Only international transactions and high-value transactions above $25,000 will not be eligible. The type of transactions that will be eligible for same-day settlement currently account for approximately 99 percent of current ACH Network volume.
Some critics of the approved proposal argue that even with the new implementation the ACH system, while faster, is too slow. Because it operates in batches, there will necessarily be some settlement delay. Several near-real-time settlement systems are being developed in the U.S. by, among others, the Fed themselves and The Clearing House, an industry group owned by many of the country’s largest banks. Many forward-thinking nations, such as the United Kingdom and Sweden, already have near-real-time payments systems in regular use. While same-day ACH settlement may be an evolutionary rather than revolutionary step, it will certainly have a wide-reaching and welcome effect when it becomes available this September.