Go ahead and mark your calendars for Sept. 23, 2016. That’s the day the first phase of thrice-daily settlement windows will be implemented by NACHA.
Members of the Electronic Payments Association — the trustee of the ACH Network — have approved Same-Day ACH, the first major step in three decades toward speeding up payments on the rail that connects all 12,000 financial institutions in the country through one settlement window a day.
Phase 1 calls for ACH credit transactions to be eligible for same-day processing, supporting “use cases” that include hourly payroll, person-to-person (P2P) payments, and same-day bill pay, NACHA says.
In Phase 2, same-day ACH debits will be added, the new network rule says, allowing for consumer bill payments such as utilities, mortgages, loans, and credit cards.
Phase 3 adds faster ACH credit funds availability requirements for RDFIs; funds from Same-Day ACH credit transactions will need to be available to customers by 5 p.m. RDFI local time.
RDFI, of course, is the receiving depository financial institution. ODFI is the originator. Phase 1 is scheduled to begin Sept. 23, 2016, phase 3 on March 16, 2018. Phase 2, somewhere in between.
Under the new rule, the ODFI sender pays the RDFI receiver 5.2 cents per transaction, ideally offsetting the costs of building and staffing the infrastructure to handle three settlement windows a day instead of one.
“The rule enables a ubiquitous same-day capability for virtually any ACH transaction, creating options for the businesses, governments, and consumers who want to move their money faster,” NACHA said Tuesday in its announcement.
About time, some would say. “My view is that it’s ridiculous that it has taken this long to get even to this,” says Jay Johnson, executive vice president at Callahan & Associates. “This is all very good for consumers. If you’ve forgotten a bill is due, for instance, you don’t have to wait a couple days for the ACH to be settled to get credited. It also makes it easier for P2P payments.”
And pretty much any other payment that’s fed into a traditional savings or checking account. While it’s not real-time settlement — something the Fed has encouraged the ACH system to work on next — the new rule should make it easier for banks and credit unions to compete with non-financial institution interlopers.
And again, about time, says another industry veteran. “Same-day settlement will help us keep pace with disruptor companies in our space,” says Butch Leonardson, the recently retired BECU senior vice president and CIO who’s now with Cornerstone Advisors.
“We need to become our own ‘disruptors’ with innovative, digital services. The move to same-day settlement is a small note in the symphony that is playing out before us.”
Everything, Everywhere, Right Now
Robert Reh also sees the need for speed. “Faster transactions means greater access to deposits for our members, faster payments on loans, and faster payments to merchants,” says the chief information officer at Nassau Financial Federal Credit Union ($394M, Westbury, NY).
“This is in line with our ever-more mobile economy where people expect everything, everywhere, and immediately,” Reh says, adding that he’s not sure yet how adding the settlement windows will affect his IT processes but doesn’t expect it to be dramatic.
Meanwhile, Regina Nascibenne, electronic services director at IBM Southeast Employees Credit Union ($884M, Boca Raton, FL) says she expects some impact in her shop as they go from one settlement window to three.
“We’ll certainly have to change schedules and procedures accordingly,” says Nascibenne, who got a head start on planning for Same Day ACH by attending NACHA’s Payments conference last month in New Orleans. “We also might have to extend working hours and improve contingency planning.”
NACHA members had voted down a 2012 proposal that would have set that fee at an estimated 8.2 cents, a level which drew objections from some stakeholders, notably the Fed, as being too high.
Nascibenne at IBM Southeast, like others, says her credit union will not be an originator at first. She also says that while it’s too early to really know, the 5.2-cent same-day entry fee for ODFIs ”will not cover the costs for enabling and supporting the mandatory receipt of same-day ACH transactions, due to a possible low volume during the first years.”
But that’s the cost of doing business, says a senior executive at the nation’s second-largest credit union. “The benefit to our membership far outweighs any additional cost through the added opportunities it provides to offer additional services,” says Rick Rhodes, SVP for electronic services at State Employees’ Credit Union ($30.5B, Raleigh, NC.)
Rhodes adds that he expects minimal impact operationally, too. “SECU already runs multiple windows per day,” he says, “and we memo-post credit transactions with an effective date of current, so we really expect few issues.”
Synchronizing The Ecosystem
Leonardson, however, isn’t quite so optimistic for the system as a whole. “The implications operationally could be a bit of a tangle,” the longtime technology operations executive says. “The payments ecosystem includes many partners whose solutions will need to comply with this new expectation. Then you need to factor in the security implications. There will be work to do in this case.”
The reaction was mixed on the trade group front. The Independent Community Bankers of America applauded NACHA for the new rule. “Same-day ACH supported by an interbank fee will help level the playing field between community banks and larger competitors, including non-bank providers,” says ICBA president and CEO Camden Fine.
"It also will enable the faster flow of funds and support mobile and other emerging payments — all of which are positive developments for community banks and their customers,” Fine says in a statement.
Fine’s statement also notes that the interbank fee, while covering “some of the costs” of the transaction, "is vital to facilitating the adoption of same-day ACH.”
CUNA, meanwhile, has some concerns. "Although CUNA supports faster payments, we remain concerned that this rule will adversely impact many credit unions,” says Lance Noogle, the big trade group’s senior director of advocacy and counsel. He did note that CUNA was among those urging NACHA to make some changes in the 2012 proposal that ended up being approved this time, including adding two clearing windows and paying an originators fee.
"CUNA supports ODFIs paying a fee, since it will help credit unions and other small RDFIs that will incur increased costs, while likely only receiving a limited number of same-day ACH transactions,” Noogle says.
Another industry veteran, Jim Morrell at Peninsula Community Federal Credit Union ($157.9M, Shelton, WA), takes this balanced view: “It will have some operational impact, but it’ll generate some non-interest income we don’t get right now.
“That said, we’re just now beginning the process of evaluating what the impact will be and how we will manage the change.”