Credit unions have until July 2 to comment on the Federal Reserve’s plan to change the way it settles ACH payments.
With most of the credit union industry ACH volume riding its rails, the Fed has a considerable voice in the matter and it plans to adopt the thrice-daily system about to be deployed by NACHA.
NACHA announced earlier this month that members of its governing Electronic Payments Association approved the plan to go from one settlement window a day to three. The three-phase process of implementation is expected to begin on Sept. 23, 2016, and conclude on March 16, 2018.
So, should credit unions that use the Fed go for it? “It’s a no brainer,” says Bob Roth, managing director at the Cornerstone Advisors consultancy in Scottsdale, Ariz. “They should not only ask the Fed to pursue it, but to fund it, too.”
Have A Comment?
Click here to go to the Fed’s comment form for “Enhancements to Federal Reserve Bank Same-Day ACH Service, Request for Comments [OP-1515].”
Another fan of the change is Ken Myhra, director of payments at BECU ($13.6B, Seattle, WA). “It’s much-needed good news for business and consumer members,” Myhra says, adding, “The fact that it’s a catalyst for re-evaluating how we help our members move money — and breaking down the product and channel silos that exist today — is a good thing.”
While same-day settlement is expected to make ACH more competitive with the growing field of payments competitors, including non-financial institutions, there’s work ahead. Roth says that’ll fall primarily on vendors and possibly on the Fed itself, and that leaves him somewhat skeptical.
The Cornerstone Advisor consultant notes that about 10 years ago, the Fed released a report that recommended tokenization and that it would be the provider. “Fast forward 10 years, and who are the token providers? Visa and MasterCard,” Roth observes. “So whether same-day ACH is a good idea or not, the question becomes, are we capable of it?”
“I have to question whether the Fed is capable of big things right now, period,” he says. “Could we build another Hoover Dam tomorrow? Could we build another ACH system tomorrow?”
As for the core vendors, Roth notes that big players like Jack Henry & Associates, FIS and Fiserv all have skin in the P2P and bill pay game, which he says typically generate fees 10 times larger than the 5.2 cents a transaction that ACH will pay under the new system.
“The vendors will have to make a large effort to respond to accommodate same-day settlement, while at the same time there’s this tension in the marketplace,” Roth observes. “I really don’t see it changing back-office operations that much at banks and credit unions.”
On that point, it depends on how much the financial institution wants to take on. Some have said they don’t see much change at all, while others say it’ll take more staff and time.
You might use the analogy of this being a very large pill to swallow, but, the pill — faster payments — is going to help make us and the services we provide to our members better.
At BECU, Myhra sees both effort and opportunity in opening more settlement windows. “We’re using this opportunity to holistically look at payments processing and how it’s handled at BECU,” the payments director says. The credit union’s ACH Task Force is starting with the business units that lead the payments strategy, the operational side of processing, compliance, enterprise risk, and security.
“There’ll be impact to BECU and its membership on all these fronts, so it was critical to bring these groups in early on as we are under a tight timeline to comply with the mandated deadline for Phase 1,” Myhra says.
“You might use the analogy of this being a very large pill to swallow, but, the pill — faster payments — is going to help make us and the services we provide to our members better.”
Here’s the link to the Fed’s comment form for “Enhancements to Federal Reserve Bank Same-Day ACH Service, Request for Comments [OP-1515].”