Page 25 - GS190501

Views

requires additional intra-day batches. The general rule per
subsection 3.3.1.1 of NACHA – The Electronic Payments
Association' operating rules is: "For a credit same day Just in case you didn't catch
entry, an RDFI must make the amount of the credit entry it, the 25 largest banks are
available to the Receiver for withdrawal no later than 5
pm in the RDFI's local time on the Settlement Date of the arguing that there is really
Entry."
no need for the Federal
Think about this for a minute. If the funds are not available
before 5 p.m. your local time, you cannot really use them Reserve to get involved in
today, can you? Your only alternative would be to use them
the next business day. Is this really a same-day payment? faster payments because they
already have it covered.
NACHA rules have three same-day windows (the third
one is temporarily on hold for six months). The first
window says that the RDFI has to receive the posting file
by noon EST. The second window states that the RDFI time payment platforms that perform settlement could
must receive the posting file by 4 p.m. EST. That would be cause fragmentation, forcing payment solution providers
9 a.m. and 1 p.m., respectively, California time. to choose between different platforms, or increase costs
for such providers because of the need for redundant
From a practical standpoint, who is ready to calculate their interconnectivity thus depriving users – for all use cases-
cash position at the start of the day or even a few hours the ability to make payments to counterparties that would
later? Most people I know calculate their cash position by no longer be on the same payments platform."
noon or 1 p.m. It appears that same-day ACH would work
if the sender was a West Coast financial institution and the Just in case you didn't catch it, the 25 largest banks are
payment was made before noon, otherwise, not so much. arguing that there is really no need for the Federal Reserve
to get involved in faster payments because they already
Payments in the United States can be cleared by the have it covered. I will refrain from further comment on
Federal Reserve or by a private organization called The this approach.
Clearinghouse (TCH). Both are developing their own
version of real time payments (RTP). In November 2017, Competing concepts
TCH launched its RTP system, with 24/7 real-time clearing There are many different players in the payments
and settlement capabilities. Banks can connect directly or ecosystem. They all seem to have a different definition
via their core processor. of what constitutes real-time payments, but none of them
Dubious claims meet the definition provided at the beginning of this
column. Obviously, insofar as the banks are concerned, the
TCH is a private organization owned by 25 of the largest Federal Reserve writes the rules. NACHA, also controlled
banks in the world. They have their own rules for clearing by the very largest banks that have the most DDA accounts
payments between member banks and are separate and and thus send and receive the most ACH transactions, has
distinct from the Federal Reserve and NACHA. Here its own rules. TCH has its own rules.
is a quote from an article by S. Heller and R. Hunter at
TCH, written for the Bank Policy Institute, which argues There are many private-sector companies, such as Dwolla,
that there is really no need for the Fed to develop a faster Mobile Money, Wingcash, Zelle, Popmoney, Visa and
payments platform, because TCH has already done so, Mastercard's OCT system, and other platforms such as
and for the Fed to compete with TCH would introduce Venmo, PayPal, and Square. All those companies want you
interoperability issues that would make it difficult to get to believe they are offering you real-time payments, but
ubiquity. I am not making this up. Here is the quote: you should continue to ask if they meet the real definition
here, and if not now, when and how will they?
"The U.S. payments system is complex, involving myriad
participants with many different, often interrelated Brandes Elitch, director of partner acquisition for CrossCheck Inc., has
and interconnected market segments … Systems have been a cash management practitioner for several Fortune 500 compa-
already well-established formats, unique payment and
messaging characteristics, established legal structures nies, sold cash management services for major banks and served as a
(that can vary significantly between systems) and the consultant to bankcard acquirers. A certified cash manager and accred-
real-time nature of the payment introduces enormous ited ACH professional, Brandes has a Master's in Business Administration
operational and other complexity that would be difficult from New York University and a Juris Doctor from Santa Clara University.
to overcome…a multiplicity of core infrastructure real- He can be reached at brandese@cross-check.com.

25
25