Phase One of Same Day ACH will officially launch in the U.S. on Sept. 23, but the initiative has been a top priority of Steve Kenneally, Vice President of the American Bankers Association, since 2014. It was then that NACHA proposed the shift to settling three times a day, five days per week, to give consumers and businesses access to more efficient transactions.
While the concept of Same Day ACH seemed somewhat futuristic when it was first introduced, Kenneally explained in an interview with PYMNTS, the industry quickly got on board with the idea of speeding up the nation’s digital financial ecosystem.
“I think that when it was proposed a few years ago, the concept of real-time payments was out there, but it wasn’t as real,” Kenneally said. “But technology moved very fast, and people realized that real-time payments were coming, whether they were internet-based or speeding up the legacy system. I think the whole industry perspective shifted over the past couple of years to realizing, ‘hey, we need to get something done on faster payments.’”
And get something done they did. In just a few weeks, all U.S. banks will be required to accept Same Day ACH payments, with the option to originate them as well. PYMNTS caught up with Kenneally on the cusp of this landmark shift to discuss what it means for financial institutions, customers and the future of digital payments.
Final steps toward Faster Payments
With mere weeks to go until the kickoff of the first phase of Same Day ACH, banks are wrapping up their preparations. According to Kenneally, the majority of work being done at this point is related to software upgrades and network testing. Most financial institutions, he expects, are aiming to be set up as soon as possible.
“You don’t want to be ready Sept. 22, you really want to be ready Sept. 1,” he explained.
While most institutions are closing out their Same Day launch strategies, there are still a few eleventh-hour decisions that need to be made.
One of the biggest choices most financial institutions have yet to make is whether or not they want to originate payments in addition to accepting them. Kenneally explained that the cost of originating Same Day payments may not be in the budget of some smaller banks just yet, while some bigger institutions may choose to offset the investment by offering the service for an additional fee. Although it’s up to individual institutions to decide whether they have the resources to originate, Kenneally expects most small and midsize operations to hold off for the time being.
“I think primarily you’ll be seeing the larger banks that see originating these as a pro t center moving forward faster to be able to originate these, and that’s got to mean they’re going to have to do more software development in a shorter period of time, but they’re doing it because they see a business case there,” Kenneally explained. “They’re looking at offering Faster Payments as an enhanced value product to their customers. We’re going to be settling now, eventually, three times a day Monday through Friday, and there’s a value for commercial and consumer customers.”
According to Kenneally, the main incentive behind offering origination is interbank competition. After all, customers seeking the most faster payments features, whether for business or personal use, may gravitate toward banks that offer origination services. He expects most financial institutions to charge extra for Same Day origination, though rates have yet to be determined.
“The banks are going to decide how much they think it’s worth, and the customers are going to decide indirectly for the banks what fees they think it’s worth,” Kenneally said.
Leveraging a legacy system
One central reason Kenneally expects Sept. 23 to go smoothly is that the ACH network is already being used by banks and consumers.
“It’s providing an enhanced service that everybody is already familiar with, it’s not a brand new payments system where people have to figure out, ‘How do I use this?’ ‘Do I know if the person I’m sending it to is going to accept it?’” Kenneally explained. “The cool thing about that is that the infrastructure was already in place, we didn’t have to introduce a lot of new rules for any new connectivity, because all the banks were already connected. That’s the value of using a legacy system.”
Because Faster Payments is being implemented on an existing ecosystem, the first phase of Same Day’s launch won’t feel like a major dive into the unknown, but rather a natural next step toward ubiquitous digital financial efficiency, Kenneally said.
“This will raise the threshold for a legacy payment system. This is a step forward, but it’s not a leap from what they’re offering now. I think this would be a complementary system to any real-time payments system that comes into effect,” he explained.
Because Same Day service is a straightforward expansion of the current ACH payment process, Kenneally said, “it’s evolutionary, not revolutionary.”
“It’s a small step – but an important step – in improving the payments system in the U.S.,” he said.
Looking beyond September
Down the line, Kenneally expects competition between financial institutions to be a major force behind the evolution of Faster Payments, especially when it comes to originating transactions.
“If the adoption is fast for the banks that are offering origination, I think you’ll see a lot more banks jump in and start offering it as a product. Just from a comparative point of view, they’re going to have to offer it,” he said. “So I think it’ll be interesting to see how quick consumer and commercial customer adoption is, and see if it meets NACHA’s predictions.”
Kenneally noted that NACHA expects just less than 10 percent of their ACH volume to be Same Day after the rollout of all implementation phases, with most consumers continuing to utilize traditional overnight ACH service.
“That’s really interesting because that’s showing that there’s not a super demand for faster – really fast – payments in the ACH world,” he said.
Because of this, Kenneally expects Same Day ACH to be the most prominent faster payments technology for the foreseeable future. Other solutions, like the blockchain, could become a priority further in a few years, he said.
“I think blockchain technology and money transfers are very, very interesting right now, but they’re not going to happen right now on a broad scale for banks in the U.S. – it’s something that’s going to happen down the road,” he explained.
For now, Same Day ACH represents the first tangible step toward the future of faster payments, and its reception will undoubtedly inform the industry’s next moves.
“That’s kind of the neat thing about Same Day ACH. It’s not a tremendous leap forward in the world of faster payments, it’s not a real-time payment, but it is something that’s definitely going to happen, and it definitely is going to have ubiquity of all the financial institutions,” Kenneally said.
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About The Tracker
The PYMNTS Faster Payments Tracker™, powered by NACHA, is your go-to resource for staying up to date on a month-by-month basis. The Tracker highlights the contribution of different stakeholders, including institutions and technology coming together to make this happen.