ACH Same-Day Changes Show It’s Better To Receive Than Give

When it comes to payment rails, ACH is so big it’s almost taken for granted, like electricity. Work is underway to keep it from becoming the third rail.

 
 

When it comes to same-day settlement and the new ACH rules coming from NACHA, it may well be better to receive than to give.

That’s because the ODFI (originating depository financial institution) is expected to take on more of the burden and added cost than the RDFI (receiving depository financial institution) in what some at the NACHA Payments conference in New Orleans this week call the biggest change in basic money movement in 30 years.

Same-day is a relative term, here, of course. The rule — yet to be finalized — is expected to add a third daily settlement window.

More files more often means more interaction and that means more human and technology resources needed. Several speakers noted that smaller credit unions especially will have to rely on their vendors even more, but credit unions of all sizes will need to step up in their own way.

For Regina Nascibenne at IBM Southeast Employees Credit Union ($853M, Boca Raton, FL), a particular challenge will be working exceptions, especially if the last day of the month is say, a Friday, and she gets her typical flow of 150,000 ACH items. “Only a small percentage will be exceptions but we won’t have the window we used to to clear them up,” the credit union’s electronic services director says. “Things just don’t happen fast with those.”

Managers from several other credit unions at the conference say they may well have to add staff, too, to handle the additional ACH files. And it will be costly. A senior manager from a very large credit union says he expects adding one more settlement a day to cost his organization $4.5 million a year in additional operating expenses, in addition to processing system upgrades.

And one of the speakers from a big correspondence bank with lots of credit union and community bank clients says his smaller FIs right now already spend twice as much per capita on ACH staff work as do big FIs, because of scale and automation.

He said the smaller community banks and “all those credit unions that close Wednesday afternoons” are going to have to adjust.

The payments manager of a $345 million Virginia credit union told me he doesn’t close on Wednesday afternoons but does know what the speaker meant. He says he has one person who handles the ACH file in the morning and then does other things. The additional payment window will take that flexibility away.

This is a big topic. When it comes to payment rails, ACH is so big it’s almost taken for granted, like electricity. Work is underway to keep it from becoming the third rail. 

And the ACH manager from a similarly sized Alabama credit union told me she’s a solo act at her organization and isn’t sure yet how they’ll handle that third ACH file there.

But the deal is hardly done. The final rules haven’t been written for the phase-in expected to begin next year and the market has not yet had its say, either. For instance, a major driver for increased origination may come from consumers making bill pay transactions that need settled fast.

“We don’t really know what the business cases will be until they happen,” Tim Thorson, the vice president in charge of ACH at Alabama-based Regions Bank, said during the panel discussion with correspondence banks. “The guys who can figure out new ways of using same-day ACH aren’t the ones taking surveys right now.”

The threat to interchange income was one case tossed around. Another question that popped up around the conference was whether more ACH settlements — which currently cost 8.25 cents a transaction — would cannibalize wire transfers and the dollars per play they generate.

The consensus seemed to be that the proposed $25,000 cap per ACH transaction would preclude that from happening. Prepaid cards that don’t take wire loads also could become more attractive with an additional ACH settlement during the day.

This is a big topic. When it comes to payment rails, ACH is so big it’s almost taken for granted, like electricity. Work is underway to keep it from becoming the third rail.

Want to do some quick reading on where things stand now? Just search these: “The Clearinghouse Initiative for Secure Real-Time Payment Systems” or “NACHA Proposal for Same Day ACH.” 

 
 

April 23, 2015


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