The Green Sheet Online Edition
May 14, 2018 • Issue 18:05:01
Gauging gains in ACH, faster payments
The volume of payments processed through the automated clearing house (ACH) system rose by 5.7 percent last year, while the total value of transactions rose 6.9 percent, according to NACHA – The Electronic Payments Association. NACHA noted that the pace of change continued into the first quarter of 2018, when the total of ACH credit and debit transactions registered a 5.9 percent increase over the first quarter of 2016 – this against the backdrop of widely available same-day ACH options.
Same-day ACH dramatically reduces the clearing and settlement of ACH payments from a few days to a few hours. It was ushered in by a set of rule changes NACHA began implementing in 2016. The final phase of that implementation, authorizing same-day settlement options for ACH debits, kicked in last fall. ACH debits are commonly used by businesses collecting consumer bill payments. (Think utilities, insurance companies and lenders.)
"2017 marks another significant achievement in the evolution of the ACH network, as transaction volume was exceptionally strong and same-day ACH was made fully available," said NACHA Chief Operating Officer and General Counsel Jane Larimer. In all, 21.5 billion transactions worth a combined total of $46.8 trillion were sent through the ACH last year. That's double U.S. gross domestic product for the year, NACHA boasted in an April 2018 statement.
Adding on-us transactions brings the ACH transaction tally to 23.7 billion, NACHA said. Putting those numbers into perspective, NACHA noted that the volume tally translates to more than 66 transactions for each individual in the United States.
"The ACH network is a vital part of the U.S. economy," Larimer said. "The robust growth demonstrates that the ACH Network provides substantial value to consumers, businesses and financial institutions that need to make payments."
A breakdown of ACH transactions suggests the largest gains last year were with same-day payments, which NACHA said grew by 478 percent over 2016. But that's a bit misleading, since 2016 was the first year the same-day option was available, and then only for ACH credits.
NACHA said the ACH was used for 75 million same-day payments in 2017. If the Q1 same-day ACH total (42.6 million) is an indication, that 75 million should be dwarfed by this year's final numbers. Almost all types of ACH payments – 99 percent of current volume – qualify for same-day processing. Only international transactions and payments exceeding $25,000 are ineligible under current NACHA rules.
Internet transactions cleared through the ACH, often associated with consumer online purchases, rose 13.1 percent to 5.2 billion in 2017; person-to-person payments rose 23.3 percent to 97 million; business-to-business (B2B) transactions grew 5.6 percent to total 3.3 billion; and payroll transactions grew by 5.8 percent to total 6.5 billion.
The ACH is used to clear both credits (like direct deposit and B2B payments) and debits. Debits accounted for the largest number of transactions processed through the ACH last year (12.5 billion); ACH credits totaled 9 billion. Credits, however, accounted for the largest share of dollars sent through the ACH at $30.2 trillion. The combined value of ACH debits was $16.2 trillion.
Same-day, not real time
With faster, same-day ACH now a reality for credit and debit transactions, NACHA expects ACH tallies will reach new heights. To ensure that eventuality, the ACH rules group is working on enhancements that expand access to same-day processing. These include:
- A new, later processing window. Today banks must submit same-day ACH files by 10:30 a.m. ET for settlement at 1 p.m., and by 2:45 p.m. for 5 p.m. settlement.
- Raising the permissible dollar threshold for qualifying transactions to $100,000.
Exploring the feasibility of ACH processing on weekends and banking holidays.
"The ACH network moves tens of billions of payments across more than 10,000 banks and credit unions," Larimer said in a statement. "The advent and implementation of same-day ACH allows banks and credit unions to provide businesses and consumers with a faster electronic payment network without compromising reliability or security."
Of the enhancements under consideration, weekend and holiday processing schedules are most critical to achieving faster payments. Interbank payment systems – the ACH, check and wire transfer systems – operate on what once were known as "bankers' hours"— 9 a.m. to 2 p.m. ET. While most now have deposit cutoffs later than 2 p.m., none operate on weekends or holidays.
In my mind, there's a disconnect between this reality and the stated objective of faster payments initiatives that promote real-time transactions. Unless and until networks like the ACH start processing payments 24 hours a day seven days a week, real-time payments will remain an elusive goal for the United States.
Next phase in faster payments quest
The Federal Reserve has been a vocal champion of faster payments. Yet it's the Fed that sets the schedules that the ACH and other interbank processing networks hold to. (The Fed provides ACH, check and wire processing services to banks and is sole provider of interbank net settlement services.)
The Fed is well aware of this dichotomy. The need for daily, around-the-clock processing capability, including weekends and holidays, was a key recommendation made by the its Faster Payments Task Force, and the Fed has been making strides toward change. It's been working with NACHA, for example, to support same-day ACH initiatives like later deposit cut offs and same-day customer funds availability.
The Faster Payments Task Force was active for three years, wrapping up its work last summer with a call for real-time or near-real-time payments to be widely available by 2020. This would seem a lofty goal, however, considering the Fed's settlement service still operates on bankers' hours.
Although the Fed's task force was short lived, it put in place an action plan for continuing work on faster payments. The next phase of that plan calls for creation of a Faster Payments Council and an operating vision. The Fed gave several examples of issues the FPC will seek to tackle, including infrastructure gaps, safety and security practices, end-user awareness, and legal and regulatory uncertainties.
"The goal is a ubiquitous, world-class payment system in 2020 where Americans can safely and securely pay anyone, anywhere, at any time and with immediate funds availability," the Fed explained in a request for industry feedback on the planned FPC. "From the outset, the FPC will focus on pragmatic, private-sector approaches to solving problems and removing barriers to achieving ubiquity."
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. Email her at firstname.lastname@example.org.
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