Faster Payments

Fourteen Months In, Extra Credit For Faster (ACH) Credit?

In an age where faster is a hallmark of, well, everything, it follows that the same should be true of payments.

It has been 14 months since the first phase of Same Day ACH credits debuted, and in numbers via a joint study by PYMNTS and NACHA, business origination of Same Day ACH credit has been significant, with clear trends in place that show healthy use and demand.

In an interview with PYMNTS’ Karen Webster, Mike Herd, SVP at NACHA, noted that 43 percent of 125 U.S.-based financial institutions (FIs) offer same-day credits. As the survey was primarily administered to small community banks and credit unions, this is a significant finding.

Said Herd, additional findings reveal that there are some institutions that would like to offer Same Day ACH to their customers, but the processors or vendors that they rely on haven’t enabled it yet.

Webster and Herd agreed that the gap leaves some smaller FIs at a competitive disadvantage, as they want to compete against their larger brethren. Herd said that part of the reason for the disparity can be traced to the fact that there are “so many types and flavors of technologies,” along with upgrades and products in payments overall that can be brought to market. For some firms, Same Day ACH remains a matter of prioritization.

But others are pushing forward, particularly with respect to funds availability. Want to assign a grade to the requirement to make Same Day ACH funds available by 5:00 P.M.? Give it an “A” said Herd, as 66 percent of FIs are already making Same Day ACH funds available, well ahead of the March 2018 deadline.

The appeal of Same Day ACH also lies in the certainty that the payee is going to receive funds, and thus, for instance, a payroll manager can rest easy, he said. With Same Day ACH, the arrival of emergency payroll has bubbled to top of mind for FIs and corporate clients alike. Herd said that a year ago, “we always knew it would be a use case … FIs always knew some of their customers missed payroll deadlines, but they never heard from them because they could not help them.” Now they can.

For an FI, the thinking turns to, “How can I promote this to my customers, turning it into a competitive advantage?” The claim, then, can be, if using direct deposit with a given FI, recipients will get their money by a certain time. The urgency is especially transparent with the gig economy, he said, “where people want to get paid by direct deposit”; and so, same-day payroll in that environment makes sense.

As for consumer use cases, Herd said consumers think about their deposit accounts as being central to their banking and payments experiences. Being able to push credits out and complement having a debit card on that account all help cement relationships between FIs and consumers.

While same-day credits are great, debits can be of great value to FI business customers as well. Businesses love (same-day) ACH debit, Herd said. Debits, he added, are about two-thirds of ACH network volume, and businesses can generate “massive numbers” of batched payments efficiently and can control the timing and the origination of those transactions, which helps with cash flow.

Businesses also love ACH, both credits and debits, for the remittance information that can accompany ACH payments, said Herd. A surprise Same Day ACH use case is for faster remittance information for B2B payments. In this use case, “it is the remittance information rather than the payment itself that businesses find value in getting faster.”

No conversation about payments is complete without a discussion of fraud. In this case, the discussion turned to the lack of fraud. Namely, that none of the financial institutions had experienced greater fraud due to Same Day ACH. Impressive, said Herd, and it may seem counterintuitive, but Same Day ACH did not and does not introduce new vectors for fraud.

After all, he said, banking information remains the same. “The zero speaks for itself,” with a nod to proper attention to risk management.

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