By Patti Murphy
The automated clearing house (ACH) system may finally be reaching its stride. In April 2017, NACHA – The Electronic Payments Association released ACH transaction tallies, revealing that for the first time, the ACH network moved more than 5 billion payments per quarter last year. In all, 25.6 billion transactions totaling $43.7 trillion in value were sent via the ACH in 2016, representing a 5.3 percent increase in volume and 5.1 percent growth in total value when compared with 2015.
Janet O. Estep, NACHA's President and CEO, credited the start of same-day ACH with actions that spurred 2016 growth. A transition to same-day ACH settlement options, announced in 2014, began in September 2016 with ACH credits. "The volume figures show strong use of same-day ACH in its first few months of activity, and broad use," Estep said. "When same-day ACH debits become available in September of this year, we expect to see the same trend continue, and anticipate even stronger and more variety in the use of same-day ACH."
In reality, same-day transactions contributed little to the annual tally, which is not surprising since they only started flowing through the network during the final quarter. According to NACHA's data, the same-day ACH option was used for slightly over 13 million credit payments totaling just under $17 billion. Direct deposit payments made up 52 percent of those transactions, NACHA said. Business-to-business (B2B) transactions accounted for 32 percent of same-day traffic; person-to-person payments (P2P) were 13.5 percent of the total; consumer bill payments represented just 2 percent of same-day ACH items.
The ACH can be used to clear both credits and debits. But historically, due to NACHA rules and ACH processing schedules, these transactions have required two to three days to complete ‒ from initiation to final settlement. ACH debits, which will become eligible for same-day settlement this September, accounted for 58 percent of all transactions that were cleared through the ACH in 2016.
Consumer payments are a dominant contributor to ACH growth. Direct deposit transactions accounted for 30 percent of all payments that went through the ACH last year. P2P payments saw the largest growth spurt with a 38.5 percent increase over 2015. Online debits grew by 12.7 percent over 2015 to total 4.6 billion, NACHA said.
NACHA stated that B2B payments are growing, but not with equal gusto. Traditional B2B credit formats saw volume increase more than 5 percent over 2015 totals. And it's not just simple credit payments going over the ACH; more businesses are sending payments and remittance information together, NACHA said. For example, healthcare payments via the ACH grew by 15.6 percent last year to nearly 242 million transactions. In all, more than 2.1 billion addenda records accompanied payments through the ACH network in 2016.
NACHA held its annual Payments conference in April, where it heralded a new certification program for third parties that act as go-betweens for businesses and banks. The association noted that TeleCheck, a unit of First Data Corp. that provides ACH and check services, was the first such third-party service provider to be awarded the designation, "NACHA Certified."
"NACHA Certified organizations demonstrate that they are vetted and validated with sound core practices in place and that they have met guidelines governing financial stability and commitment to quality," Estep said in describing the new program in remarks delivered at the conference. She also said NACHA was launching a new accreditation program for risk professionals.
The move to same-day ACH is part of a larger, international movement toward faster payment schemes. In addition to the United States, more than 20 countries are now running or plan to establish faster payment systems, according to the Fed. In a nod to the trend, NACHA renamed its annual event the Faster Payments Conference.
Many of the nation's largest banks and leading financial technology companies have been working on faster payments schemes, with encouragement from the Federal Reserve. One of those, the Zelle Network, recently stated it had processed 170 million P2P payments totaling $55 billion in 2016. Zelle, created by Early Warning Services LLC (owned by seven of the largest U.S. banks), now includes 20 banks and credit unions.
Consumers can access the network using their institutions' mobile banking apps to send and receive payments with registered mobile phone numbers or email addresses. The network said it is poised to reach 85 million consumers through participating institutions' mobile banking apps. "With Zelle, we'll collectively reach more U.S. bank consumers than any other person-to-person payments network and deliver a faster, safer and easier payments experience," said Thong Nguyen, President of Retail Banking and Co-head of Consumer Banking at Bank of America, a Zelle owner bank.
Many banks that own Early Warning are also working through The Clearing House to advance faster payment schemes. TCH is the oldest payments association in the country, and is owned by the nation's largest banks. It has been working with several leading banking technology firms to create a real-time payment platform.
In April, TCH stated it was readying a pilot focusing on real-time bill payments with financial technology firm Fidelity National Information Services Inc. TCH and FIS also revealed an incubator program for real-time payment initiatives that leverages FIS payment technologies and a real-time platform built by TCH. The incubator service offers centralized processing of payments in real time, with standard interfaces to bank applications and continuous management of new releases and functionality.
"For real-time payments to truly take off, banks of all sizes need to have easy, affordable access," said Russ Waterhouse, Executive Vice President for Product Development and Strategy at TCH.
In addition, more than a dozen other U.S. organizations are working on faster payments schemes.
ACI Worldwide Inc., which provides technology support for faster payments in the United Kingdom, has been ramping up for a similar role in the United States. In April, ACI released its immediate payments platform, known as UP, as a cloud-hosted solution, a move it said should make it possible for banks and credit unions of all sizes to share connectivity to real-time networks, like Zelle and TCH.
ACI already has a deal with banking technology giant Jack Henry & Associates Inc., which is using UP to link its 10,000 financial institution clients and their customers to real-time payment networks.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at email@example.com.
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