In the past several months, a group of 320 very diverse — some very powerful — stakeholders have come to agreement on how to pave the way for restructuring the way much of America has moved money for decades.
It wasn’t the retailers and banks burying the hatchet over interchange, nor was it Congress agreeing about anything. It was banks big and little, credit unions, payments processors, technology providers, and more who put together the “Faster Payments Effectiveness Criteria” issued a few weeks ago by the Federal Reserve.
The report was the first deliverable of the Faster Payments Task Force, assembled by the Fed last May. It lays out 36 effectiveness criteria around the ubiquity, efficiency, security, and other requirements for speeding up ACH, and comes as preparations are under way for Sept. 23. That’s the date that NACHA adds two more settlement windows to the existing one now recognized by the Automated Clearing House Network. (More on that here: “Is Your Credit Union Ready For Speedier ACH?”
Same-day settlement, a serious speedup of the $40 trillion a year ACH payment rail, will actually be a three-step process, and has been in the works for several years. One of those helping to push it along has been Dwolla, the real-time payments pioneer that launched one of the first P2P services of its kind at Veridian Credit Union ($3.0B, Waterloo, IA) in 2012.
“We were like these crazy wackos in an Iowa field back then, jumping up and down about real-time payments. But now look how far we’ve come,” says Jordan Lampe, Dwolla’s director of communications and policy affairs and a member of the Fed task force.
“The pundits laughed when the task force got started,” Lampe adds. “I mean, what were the odds of 320 stakeholders in one of the most entrenched spaces you can imagine getting together enough to come out with that kind of mandate?”
The criteria focus on ensuring the security and functionality of a system that now handles well more than 20 billion transactions a year, with different rules and fees for each direction the payments go. Long trusted for staples such as direct deposit, ACH now is being ramped up to simultaneously compete with and work alongside new delivery channels, all with the imperative of speed of settlement.
Innovation To Come
NACHA board member Chet Kimmell, president and CEO of Neighborhood Credit Union ($392.8M, Dallas, TX), sees the two new settlement windows as just the beginning of payments innovation to come.
“Same Day ACH will be here next September, and we can plan on using it while we start evolving by either innovating on top of the ACH settlement foundation, or using Same Day ACH as one option and real-time payments as another option sometime in the future,” Kimmell says. “A focus on the end-user interface will help us support new technology such as digital wallets, while the foundation gives us the surety of making the payment and keeping it secure.”
Credit unions also were well represented on the Faster Payments Task Force itself. That includes Tynika Wilson, vice president of debit card and fund services at Navy Federal Credit Union ($73.3B, Merrifield, VA). She says Navy Federal’s participation involved NACHA board and member meetings, conference calls, impact surveys and sessions with NACHA’s Payments Innovation Alliance.
“We also responded to requests for comments from NACHA and the Federal Reserve,” Wilson says. Why the commitment? “Navy Federal is the 15th-largest receiver of ACH transactions in the United States,” Wilson says. “It’s a critical component of our daily transactional operations and the account management and payments services we provide our members.”
Navy Federal is currently updating its ACH systems to meet requirements for each of the three phases of Same Day ACH to come through 2018. Managers at Suncoast Credit Union ($6.9B, Tampa, FL) also are getting ready, including educating themselves with NACHA webinars.
“We’re learning about all the changes to expect and then we’ll try to determine what it will take to support those changes,” says Wanda Chambers, senior vice president of payment services at the big Florida credit union. For instance, handling more settlement windows could be simply operational or they could involve enhancing the core processing system.
Worth The Work
Those are the details. The big picture is all good. Kimmell, the Dallas credit union CEO and NACHA board member, says real time payments and Same Day ACH are both beneficial to the credit union industry, and that ACH can support that speed-up.
“The main challenge will be that of ubiquity,” he says, “to make sure you can reach all receiving accounts when you want to send a real-time payment, and do so without special enrollment or processes.” Kimmell says ACH’s almost universal reach is its primary benefit, and it’s why Same Day ACH will be valuable as a new mandatory rule for all receiving financial institutions.
“Everyone can be absolutely sure that they can send a payment via their credit union, and that payment can get to absolutely any other financial institution in the country,” he says.
Chambers at Suncoast and Lampe at Dwolla both expressed excitement about the new product development to come as old school ACH meets digital and beyond.
“Probably about 80% of our solutions are going to be exactly the same,” Lampe says of the development to come. “But that last 20% is going to have some free market components to it, and working with ACH gives us the backbone to really assess and develop the value of faster payment systems.”
Chambers, meanwhile, concludes of the Fed task force’s new criteria: “We built some very big shoes that may be difficult for any one solution to fill.”
This all going to take work, of course. “But all in all, the changes we have to make are not significant compared to the benefits we’ll receive,” Kimmell says.