When it comes to faster B2B payments, NACHA — the organization that oversees payment-clearing between banks — is caught between an irresistible force and an immovable object. The irresistible force: business customers. “A recent Federal Reserve study found that 69 percent of consumer payers and 75 percent of business payees prefer instant or one-hour payment speed,” NACHA CEO Jan Estep wrote in a commentary for American Banker on Tuesday (Oct. 14).
The immovable object: Large banks, who in 2012 torpedoed a NACHA proposal just to move from the current next-business-day process to settling some payments on the same day.
But with a Fed report now calling for a near real-time payments system linking all U.S. banks and credit unions by 2023, NACHA is now trying to build consensus for making payments at least somewhat faster through twice-a-day settlements.
“NACHA has methodically collected and analyzed feedback on this approach from financial institutions, businesses, and payments service providers in an effort to identify a workable path forward in advance of formal rulemaking on same-day ACH,” Estep wrote this week. “This step will help all parties to think carefully about the rules, tools and technology that can help create a bridge from today’s payments to those of the future.”
The problem isn’t technology, Estep noted — NACHA implemented what it calls Secure Vault Payments six years ago, which offers real-time transfers 24 hours a day, seven days a week. But she said not all banks and credit unions have adopted SVP, and it’s not used for the vast majority of the 80 million ACH payments a day in the U.S., ranging from direct deposits and payments to ATM and payment-card transactions. “We have seen time and again that ubiquity is critical for any change in our vast ecosystem,” Estep wrote.
But that’s reportedly not what’s keeping banks from getting on board for a shift to faster payments. Community banks — the ones most likely not to be using SVP — support same-day ACH. But big banks say they’re concerned about the costs and complexity of the change, along with the potential for fraud. Large banks are also reportedly worried about losing revenue from wire transfers by large clients.
Meanwhile, some large banks who bemoan same-day ACH challenges are doing it themselves anyway. At the end of September, Bank of America Merrill Lynch launched its Digital Disbursements, which uses a proprietary electronic payment system called clearXchange developed by B of A, JPMorgan Chase and Wells Fargo. Some analysts question whether the big banks are dragging their heels on speeding up NACHA to get advantages from their own efforts.
While the Fed appears to be in no hurry to push faster payments with its decade-long timeline, other potential competitors to NACHA may feel a lot more urgency. Current P2P payment startups — and projects by larger non-bank platforms such as Twitter — could move into the low end of the B2B same-day-payments space, stripping payments out of the NACHA system.
And waiting in the wings is potentially an even bigger threat to NACHA if big banks don’t relent in their opposition to faster payments. Walmart, which already handles $474 billion in retail payments every year, has been blocked by big banks for more than a decade from getting approval to directly provide banking services. But the world’s largest retailer has been working since 2012 on an alternative to bank payment cards that it is testing this year under the name CurrentC. And in April, Walmart launched an in-store payments service dubbed Walmart-2-Walmart, and this month the retailer will begin to offer mobile checking accounts for its customers through Green Dot Bank. That could position Walmart for its own real-time B2B payments service.