The past 12 months have been busy for faster payments. And it’s only getting started.
Phase One of the Same Day ACH rollout that made credit transfers a reality was completed last year. Phase Two, which will allow debit transactions on the same day, is planned for September 2017. The third phase, which will usher in faster ACH credit funds availability, is on track to occur in March 2018. Each phase has brought or will bring with it a new way for financial institutions to exchange money between customers and their partners and is promising to put financial institutions in the fast lane to addressing their customers’ evolving financial needs.
While these new ACH offerings are promising to quicken the pace of monetary transactions, the changes are also bringing new rules and regulations that directly impact how banks and other financial players operate. But how to abide by these new practices are not always clear to financial institutions. As new rules about ACH credits and debits are introduced, some institutions can benefit from guidance to make sure their products and operations are up-to-date.
There are several Regional Payments Associations that work to assist these banks and credit unions with navigating the changing world of faster payments. These organizations are focused on understanding and communicating what the new ACH capabilities mean for financial institutions and providing members with educational resources to help them stay compliant.
To discuss the status of how financial institutions are adjusting to new payment capabilities, PYMNTS recently caught up with Joe Casali, senior vice president for operations and IT of the New England Automated Clearing House (NEACH) association. For the most part, Casali painted a rosy picture about how the Same Day ACH rollout has progressed so far for NEACH’s members. But as the rollout dates for the next phases of Same Day ACH get closer, he anticipates plenty of questions from members about what the changes mean for their operations and how to handle them.
What’s so Scary about Faster Payments?
NEACH helps roughly 500 financial institutions and companies throughout New England with questions, opportunities and concerns about staying in step with the latest ACH changes. The association’s membership includes banks, savings institutions and credit unions, and its services include training around using ACH, regulations, risk management and cybersecurity, among other services. NEACH also offers test preparation assistance to help members get certified as an Accredited ACH Professional (AAP) or a National Check Professional.
In addition to helping member financial organizations stay on top of changes to ACH, Casali said NEACH also helps them stay compliant with local laws and serves as a resource for members to gain a clear understanding about what the rules mean for their particular businesses. Without these resources, Casali said, many financial institutions could be navigating a sea of complex payment procedures without the help of a compass.
“The ACH rules are complicated, so we do find situations where there’s a certain understanding of the rules, but it’s not comprehensive,” he said.
For example, he said some NEACH members were surprised when some Same Day ACH entries did not post by 5 p.m. local time after Same Day ACH Phase One rolled out in September 2016. But Casali explained to NEACH members that they were misinformed, that this feature will not be mandated for all until the completion of Phase Three in March 2018. Fortunately, no serious problems occurred as a result of the confusion, he said.
Casali said organizations like NEACH must work to address these misunderstandings and address the questions banks and other institutions might have whenever a new rule is introduced. When changes are introduced, it’s understandable that these organizations will have questions, but he encourages them to turn to associations like NEACH for guidance, especially because failing to understand the rules can be expensive. He said originating and receiving banks that misunderstand and violate the rules could be subject to fines that range from $1,000 to $500,000.
Today, Casali said many financial institutions have questions about how the rollout of the next two phases of Same Day ACH will impact their operations. But he noted these concerns tend to arise whenever institutions are faced with big changes to their practices. He pointed to the late 1990s, when many players in the financial industry were anxious about the then-unknown effects of Y2K and noted similarities to how Phase One of Same Day ACH rollout progressed last year.
“The entire banking system geared up around Y2K and how much of a problem it was going to be and panicked that the computers were going to blow up and was asking, ‘What do we do if there’s a crisis situation?’” he said.
As we know now, Y2K hoopla turned out to be much ado about nothing. As clocks around the world struck midnight on Jan. 1, 2000, good preparation meant that a hyped-up disaster scenario failed to materialize. The fear at the time, however, was real for many.
“It ended up being a whole lot of nothing,” he said.
Recently, as financial institutions faced the prospect of a new set of rule changes as a result of Phase One of the Same Day ACH rollout, Casali said he saw a similar sense of confusion. But in the end, just like with Y2K, working to get these institutions educated about how changes will impact their businesses paid off in the long run.
“Same Day ACH Phase One was the same thing [as Y2K],” Casali said. “There was a lot of work, there was a lot of effort, there was a lot of training and the industry had to catch up to what the rule really meant to them.”
And when Phase One of Same Day ACH rolled out in September 2016, that training and education paid off, he said. On the day the change was implemented, Casali said he waited (and waited) for members to call him with questions about the changes.
Calls received: zero.
“I was waiting for the phone lines to blow up, but there was nothing,” he said.
New Challenges on the Same-Day Horizon
Casali said the next phase of the Same Day ACH rollout will bring additional challenges, and more educational efforts will be needed to help financial institutions understand and abide by the new procedures.
Casali is concerned that Phase Two of the Same Day ACH rollout could be a headache for some institutions and their customers when the new rule goes into effect in September. This new rule will make same-day debits available, which could come as a rude awakening for originating parties. When the change goes into effect, Casali said, parties initiating a debit payment will need to ensure they utilize the specific date authorized for the payment, or funds may be inappropriately debited. All originators will need to be diligent by properly using the effective entry date for payment settlement.
“If you send me a credit early, I’m not going to complain,” Casali said of a typical anticipated member reaction scenario. “When you send me a debit earlier than I expect … that causes problems that I may not have prepared for.”
The rollout of Phase Two will once again require banks and financial institutions to communicate to stay on top of the latest compliance regulations. When same-day debiting becomes a reality, Casali said these institutions will also have to communicate what the changes mean for their customers’ payment habits.
“People have gotten so used to ACH that they know if they go online today and make a bill payment, that’s not going to come out of their account until tomorrow or perhaps at a date that they specify in the future,” he said. They will now be able to authorize a payment due today, and it will come out of their bank account today so that the bill is paid on time.
Casali said institutions should focus on the advantages the new rules could provide.
“It gives folks the ability to make that last-minute payment where they wouldn’t have been able to do that before,” he said. Faster posting of authorized debits will also mean that customers have a more accurate view of their bank account balance.
NEACH intends to keep working with members to help these institutions stay informed about the changes brought on by the Same Day ACH rule changes. In May, the company will host its 2017 Payments Management Conference, which is focused on updating and educating members about how their operations will change as a result of new and upcoming ACH rules.
At the end of the day, he encourages NEACH’s financial institution members to invest and adapt to changes in the industry. Doing so will help them stay competitive with newer FinTech innovators, he said.
“Companies like Venmo and Zelle are competing with financial institutions in an industry that financial institutions should own,” Casali said. “My hope is banks look at the new options available to them and embrace them.”
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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.