We may all know that NACHA members, in a near unanimous vote, approved the amendments to the operating rules to implement Same Day ACH, but the real question is why all 12,000 financial institutions said yes today when they said no just three years ago.
Well, they had a better proposal, to react to, to start, NACHA CEO Jan Estep told MPD CEO Karen Webster in an interview the day after the news first broke (May 19).
Feedback from the industry over the last several years gave NACHA what it needed to create a solution that could “add enough value to the end users.” So what won the day, and ultimately 12,000 banks, was a proposition that did exactly that.
“The big change this time is enhanced functionality,” Estep explained. “What users, consumers and businesses alike will be able to anticipate a year from now is the ability to take advantage of three settlement windows every 24 hours. So there will be the existing overnight, plus the mid-day settlement, and an end of day settlement,” Estep explained.
“The rules this time will also be giving certainty about what will be happening over the next few years. There is a phase one, a phase two and a phase three, again, so the financial institutions, solution providers [and] businesses alike can all plan what changes need to be made,” Estep said.
Changes that build upon, refine and enhance the existing ACH system, rather than starting from scratch to build something entirely new – taking years and billions to accomplish. The Same Day ACH rules not only provide more clarity for the receiver of the funds as to when the funds will be available, Estep said, but also lay the groundwork for years to come, allowing institutions to adapt to the change overtime.
The benefit for NACHA for already having the ACH network in place is that it provided a transition to Same Day ACH in a way that enhanced the process, rather than forced the payments network to create a new system from scratch.
“We have effectively built upon it and changed it for the last couple decades to allow for slow revolution,” Estep said.
The new rules also ensure one thing critical to success, at least as NACHA defines it: that 100 percent of receiving financial institutions be ready on exactly the same day to support and receive Same Day ACH transactions. That means that any originating institution can offer products that clear on the same day, knowing that all receiving institutions will have the capability, as required by the rule change, to process the transactions that same day.
“It is very hard in an ecosystem as large and diverse as we have to get 100 percent of the whole industry to agree to do something at the same time. And frankly, that doesn’t occur in most other geographies as they move forward with enhancements,” said Estep, who also spoke about why Same Day ACH was pitched as a need-to-have system, versus a nice-to-have concept to its member institutions.
“We view it as kind of a requirement to the U.S. because of the diversity. What gives this proposal tremendously increased value for those that want to send the payment is that they know for sure that the payment can reach the other side,” Estep said. “And it also makes it simpler by eliminating some of the complexities of trying to figure out who is on the other end trying to accept. So we view ubiquity as critically important and [that is] why we spent the time to ensure the rule could provide for that.”
Estep also told Webster that she believes that Same Day ACH will lay the foundation for innovation for how people, businesses and government agencies move money – faster.
“I think the value is not just for financial institutions, but for consumers, businesses, government agencies that want to move payments faster. It really is an immediate action that financial institutions are able to undertake right now, and by next year, say that we have taken the first step in helping to modernize our payments system,” Estep said. “The payments in and of themselves become better [and] more convenient for traditional applications such as payroll or bill pay. Those two applications alone represent 70 to 80 percent of all ACH transactions today. A portion of those users not only want to value date or send next day, but some of them want to support same day payments with ACH. So it builds on an existing need — a gap in our ecosystem today.”
But beyond what Same Day ACH will do for the financial ecosystem when phase one starts next September, Estep said it should be viewed as a “building block for a variety of other products and services.” And as she described the ACH network as “skinny by design,” it allows for opportunities to build from in terms of how funds are transferred directly from one institution to another — which are enabled by rules like Same Day ACH.
And that’s where the value lies.
“The true value proposition is in the tools that can be built on top of that that allow for more convenience, that allow for more options for end users. And I think financial institutions and others alike that they support will be able to look at Same Day ACH and say ‘How do we build tools around this that really help serve our customers, our consumers, our members more directly?'” Estep said.
Same Day ACH will be rolled out starting Sept. 23, 2016, in the following three-phase process:
- ACH credit transactions will be eligible for same day processing, supporting use cases such as hourly payroll and person-to-person (P2P) payments and same-day bill pay.
- Same-day ACH debits will be added, allowing for a wide variety of same day consumer bill payment use cases like utility, mortgage, loan and credit card payments.
- Introduction of faster ACH credit funds availability requirements for RDFIs; funds from Same Day ACH credit transactions will need to be available to customers by 5 p.m. RDFI local time.