For NACHA, the year 2015 will be defined by a solution that will go into effect in September of 2016.
That solution, of course, is Same Day ACH, which was adopted by NACHA's membership in a nearly unanimous vote in May.
Same Day ACH will offer banks three same-day settlement windows. Any originating institution can offer products that clear on the same day, knowing that all receiving institutions will be required, per the rule change, to process the transactions that same day. This effort is a move that can help businesses and consumers move money faster.
With 2015 coming to a close, MPD CEO Karen Webster caught up with Jan Estep, President and CEO of NACHA – The Electronic Payments Association, to get her perspective on what this new capability means in the context of the march toward “faster payments” here in the U.S. and worldwide.
"I think the most important thing to call out is that the ACH Network, in particular, has great clarity relative to faster payments at this time. The ACH Network is definitively moving to three settlement windows, every 24 hours for both debits and credits. And as we move into 2016, it is great to say that we will see ACH credits move three times a day by September. Debits will be arriving a year later," Estep said. "And this opportunity will be truly ubiquitous, meaning that you can absolutely be assured that your payment will get to absolutely every financial institution in the United States, regardless of size because everyone is required to participate."
What else has happened, but "with a little less clarity, but certainly the same level of visibility," Estep explained, is the momentum of the conversations that have come as a result of the Fed's faster payments discussions.
Faster Vs. Real-Time Payments
Faster payments seems to be one of those concepts that is all in the eye of the beholder. For some it means real-time. For others it means instant or immediate payments. For others same day or next day is fast enough. But what Estep believes has happened as a result of NACHA’s initiatives is that there is more precise definition around the faster payments terminology.
"Faster payments is a pretty big bucket," Estep said. "The solutions encompass Same Day ACH and as we define that, it is very definitive settlements between financial institutions where the funds actually move, and they will do that three times a day. It requires everyone to metaphorically speaking open up their catcher's mitt and be able to accept payments. But it also means that we reduce counter-party risk. We actually officially move the funds, and that is different than real-time payments. Based on the Federal Reserve Faster Payments Task Force work, the criteria around real-time payments has an exact definition, not only for the underpinning of a settlement, but also around authorization around clearing and around when funds will be made available to the end user."
The clarity for settlement and funds availability times — both from the sender, the FI and the end user — is key for NACHA's faster payments push. And it's having that precise terminology, Estep said, that enables her organization to establish and explain the distinct characteristics. What that does, she noted, is "help everybody move forward knowing the value that they can receive and the part that they can play based on what exactly is going to move faster."
While there has been multiple paths toward making payments faster and more efficient in the U.S., the initiatives of today will certainly show their impact next fall when they go into full effect.
Same Day ACH Details
Same Day ACH will be rolled out in a three-phase process starting Sept. 23. At that time, 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. Following that, 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. The last phase involves the 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.
Estep believes that this will deliver clarity, ubiquity and peace of mind for consumers and businesses knowing payments are going to arrive the same day they were initiated.
"There is absolute certainty around being able to move payments three times, everyday, between financial institutions by 2016. We really know that's going to happen in 2016," said Estep, providing a little teaser into what she expects next year will bring. "I think the really interesting thing that we will see as we move into 2016 is that various players will take advantage of this faster ACH infrastructure that we have — as well as they will continue to make announcements and hopefully deliver solutions that move messaging and authorization and the availability of funds in real-time, which is very different than the three times a day settlement with ACH."
But that doesn't mean there still won't be some gaps in the real-time payments market. In the U.S., when it comes to real-time, there still isn't ubiquity. That's what Estep called the "wild card" moving into 2016.
"What can be done and what will be done in our very diverse ecosystem to bring us to something that is different than what we have today is the unknown, and determining which one of the systems can deliver ubiquity is still undetermined. Currently, none really gives us that widespread surety of being able to send payments to everyone," Estep explained.
Is Faster Payments A Catalyst For Innovation?
Beyond that gap, the results of the faster payments initiatives are also bound to spur new use cases and innovation for more to take advantage of these new capabilities in the financial market. In terms of what that means for the ACH Network, Estep said the industry will gain a better appreciation of its evolution over the past four decades.
"Today, it is clearly the most versatile ACH Network across the globe. We have found a way to bring diverse parties together to continually adapt to technology, to opportunities, to regulations. So as we move to even faster settlement, it is one more change in this underlining ecosystem that is supporting everyone," Estep said. "When I say that, it means that we will support innovation that is evolutionary, not necessarily revolutionary, because people understand how they can build layers on top of this kind of thin ACH Network architecture in unique ways because they have the surety of reaching all bank accounts."
What's more, she added, is that the ACH Network serves as a foundation that can bring different offerings to new players, as well as enable traditional ACH payments to move faster. "Today, the ACH Network can carry voluminous information with the payment,” Estep said. “This can be done in a way that probably is not easily supported by real-time payment. Use cases will vary based on the architecture of the payment.”
And NACHA's role in moving forward with its new Same Day ACH solution under its belt will be to continue to serve as the organization that enables dialogue and conversations in the industry.
That also plays into more of her projections for what 2016 may bring on the faster payments side. Which for now, she said, is about discovering more precise use cases for faster payments and developing more ubiquitous-like real-time payment systems. And of course, that will mean continuing the discussions about faster payments versus real-time payments — and the defining characteristics of each.