In an era of increasing demand for instant gratification, the slowness of the ACH system has become especially pointed.
So it was a long time coming when last month, NACHA, the organization that oversees the Automated Clearing House network, implemented Phase 1 of its Same Day ACH rule, part of a three-phase process that will allow ACH payments to be settled on the same day. When all three phases are complete, all ACH payments, including paychecks, bills, insurance payments, P2P payments, and other transactions, will all be able to be settled the day they’re sent—which currently take between one and four days.
The stakes can’t be understated: Currently, more than 24 billion transactions are made annually through the ACH network, according to NACHA. This amounts to more than $41 trillion in payments, and that number continues to grow, making faster payment processing increasingly necessary. So the moves made by NACHA are critical to either ensuring the network’s further adoption—or retrenchment.
Already, though, NACHA faces questions around whether same-day is even fast enough.
After all, Same Day ACH doesn't move money itself faster. Instead, it’s a sleight of hand: The rule simply increases the number of times that receiving depository financial institutions (RDFIs) batch-process files. This, after all, is one of the major things slowing ACH down. ACH is based on a batch processing system, which essentially means transactions are held and bundled into a single file before they can be processed, something that happens just once a day.
Now, however, with Phase 1, credit requests submitted to a bank by the 10:30 a.m. ET deadline can be settled by 1:00 p.m. Similarly, requests received by 2:45 p.m. will settle by 5:00 p.m. Previously, these transactions would have settled the next business day—at the earliest.
This solves certain clear problems. For instance, if an employee expects to get paid on a Friday, and hopes to use those funds to pay an overdue bill, his paycheck sent via Same Day ACH is guaranteed to appear in his bank account that day. In the past, he might have waited several days for that paycheck, delaying his bill even further.
According to NACHA, payroll and B2B transactions are the top uses for the same-day credit option made available by Phase 1. And more than 95 percent of top financial institutions in the U.S. expect to originate same-day transactions this year—but there are some caveats.
Namely, only domestic credit transactions smaller than $25,000 are eligible within this first phase. Phase 2 will introduce the faster processing of debit transactions, which is expected to be widely advantageous for customers’ bill, mortgage, and loan and credit card payments. Under Phase 1, any debit entries or credits larger than $25,000 submitted with a same-day batch will be settled on the next business day.
Currently, the originating bank pays a 5.2-cent transaction fee to the receiving bank per same-day transaction. As with many transaction fees, this one is expected to get passed on to the consumers—plus a premium—which may play a significant role in how same-day ACH is adopted, especially among large companies who send many ACH payments.
Despite the overwhelming enthusiasm about Same Day ACH from the banks NACHA surveyed, it’s unclear whether the system will be universally adopted. (Or if same-day ACH volume will only stem from existing ACH volume; NACHA research found that existing ACH would only account for 60 percent of projected same-day volume.)
Currently, opting in to Same Day ACH is optional, and though the fee may deter some users, there are certain circumstances under which it would make a lot of sense. For instance, the fee to receive a paycheck on the same day it’s issued is likely smaller than what one would pay for a payday loan. In another example, if someone’s rent is due today and she forgot to submit her payment, she may elect to pay the transaction fee and have the payment processed on the same day in order to avoid a late fee.
So while Same Day ACH may not bring wholesale change to the system, the flexibility it finally affords may prove meaningful to the millions who rely on it for these important payments. As with so much related to ACH, only time will tell.