Coming Soon: Same Day ACH Phase 2 – Debits

A common problem with Hollywood movie sequels is they usually do not quite live up to the impact of their predecessors. Apologies to any Iron Man 3 devotees reading this, but follow-ups just typically don’t have the Jaws of, well, the original. And, come on — four Chipmunks movies?

Hollywood metaphor (almost) aside, there’s another industry near and dear to the Faster Payments Tracker’s heart, and it’s also producing sequels these days. The U.S. payment system has embarked on the financial equivalent of a film trilogy with its Same Day ACH initiative, an initiative which will bring big changes to the ACH Network.

The first of three Phases launched last year, requiring financial institutions to receive ACH credits in two new same-day settlement windows (for a total of three daily). By some accounts, the anticipated change to the system in 2016 was comparable to the hysteria that preceded the then-unknown effects of the Y2K bug. But, despite numerous questions from the industry, the Phase 1 rollout went down without a hitch.

One of reasons the rollout was so successful involved education efforts made by NACHA and the  Regional Payments Associations which ensured member financial institutions understood what Same Day ACH changes would mean for their organizations, and for all of their customers. Those same organizations are now working to make sure the next stage unfolds smoothly as well.

The Phase 2 rollout will occur September 15, 2017, and, once it goes live, financial institutions will need to accept same-day debits. But this time, much like a movie sequel, some payment associations are seeing less buzz around the changes the Phase 2 rollout will bring to the market.

In a recent interview with PYMNTS, Laura Steele, president and CEO of Regional Payments Association ePayResources, said while last year’s rollout of Phase 1 was successful, the financial community should not assume things will go just as smoothly this time around. PYMNTS recently spoke with both Steele and Ross McKay, senior vice president of corporate products and services for TD Bank, about how the availability of Same Day ACH debit services will impact organizations’ bottom lines, and why financial institutions need to pay attention to the coming changes — even if they think they’ve already seen this show.

Y2K all over again

In anticipation of the rollout of Same Day ACH Phase 1, Steele said the financial services industry treated the change as a “Y2K-type” event.

“It was the biggest thing to happen to the ACH Network in 40 years,” Steele said.

Steele said the industry went to great lengths to prepare for the potential impact by raising awareness among financial institutions and educating the industry about how the implementation would affect their operations.

In the end, the training efforts paid off, Steele said. By treating the rollout of Same Day ACH Phase 1 as an education-worthy event, the Phase 1 implementation went smoothly. In the end, like the Y2K frenzy that preceded it years earlier, preparation efforts paid off and no major problems were reported.

Fighting financial institution complacency for Same Day ACH debits

While the first implementation was smooth, Steele is urging ePayResource’s member institutions to be vigilant on the eve of the Phase 2 rollout and to fully understand what changes it could bring. Compared to last year’s Phase 1 trepidation and caution, Steele said members appear to be demonstrating a more laid back attitude toward the Phase 2 rollout.

“[The Same Day ACH Phase 1 rollout] was kind of a non-event because not a lot of things went wrong,” Steele said.

Steele also reminds member institutions that just because things went smoothly the first time doesn’t mean they can get complacent.

“The message we’ve been sending to our members is [this]: Do not assume because you’ve prepared and tested and found no issues with Phase 1 that you are done and ready for Phase 2,” she warned.

In fact, the stakes are slightly different for Phase 2 than they were for Phase 1. Unlike Phase 1, which authorized faster credits, Phase 2 will mean debits can be made faster. If all goes as expected, once Phase 2 is live, receiving parties could find money has moved out of their accounts  faster than they are accustomed. Also, if there is an issue with the entry date of a transaction and debits post early to accounts, Steele said, customers will be very upset with the institutions. It’s important for banks to understand what the changes mean and convey those changes to their business and consumer customers, she added.

“People aren’t going to complain if you put money into their account too early, but you can rest assured people will complain — and probably complain pretty loudly — if you take money out of their [accounts] before you’re authorized to do so,” Steele advised.

For banks, Same Day ACH debits mean incremental change

McKay said TD Bank is ready for the Phase 2 rollout and has been educating its customers about the impacts of the change.

To ensure that originating customers are intending to process same-day transactions, McKay said the bank will not automatically enroll its business customers in Same Day ACH debits. Instead, businesses interested in offering it can ask to subscribe to the service through their bank representatives.

While Same Day ACH debits may allow more businesses and consumers to deliver money faster, McKay sees most businesses and customers using scheduling tools to plan their finances accordingly. This means they are less likely to get caught off guard by funds that move too early. “Classic ACH” remains available to everyone in the industry who benefits from the convenience of scheduling their payments ahead of time vs. waiting until the last minute to authorize a payment.

“For the most part, businesses and consumers schedule payments,” said McKay, comparing Same Day ACH debits to an enhanced version of the bill pay feature.

Once Phase 2 is rolled out, McKay said, it will represent a measured change to the ACH Network. “I don’t think it will be revolutionary, but I think it will be another incremental improvement to the [payments] ecosystem,” he said.

Risky debit business

Steele said financial institutions should be taking steps to ensure that debit payments are made only on the date when they are authorized to be debited.  All financial institutions and businesses are encouraged to ensure that the effective entry date represents the  date the debit should be posted.

So far, she said, ePayResource’s members are saying they are prepared. Steele noted that receiving bank members are taking steps to mitigate the potential impact of any unintended Same Day ACH debits. Some member institutions have stated they will post debits but will waive any non-sufficient funds (NSF) fees associated with debits posted earlier than anticipated, at least in the early stages after the Same Day ACH debit rollout, she said.

Based on what she has heard from member organizations so far, Steele believes the number of unintended debits will be minimal once Same Day ACH debits is available. Still, she’s preparing to hear from members who will inevitably wind up dealing with these unplanned transactions.

“You’ll hear some people say, ‘It’s not a matter of if, but when it happens,’” Steele said. “My hope is that those are fewer than [we think].”

In a short time, the financial world will get a taste of Same Day ACH debits. How the new service is utilized and if the number of unintended debits can be kept to a minimum could determine whether this sequel lives up to the success of its predecessor.

Coming Soon: ‘S.D. ACH III – The Final Chapter’

And, of course, there’s more to come. The third and final phase of Same Day ACH is scheduled to roll out in March 2018, and will require RDFIs to make funds available for Same Day ACH credits by 5 p.m. How the Same Day ACH Phase 2 rollout performs could determine whether the financial services community reaches for the popcorn in anticipation of the final entry in the Same Day ACH trilogy.

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