Endpoint: Why We Need to Get Beyond the ACH

The card payment system was built on top of a network that was great for its day but no longer suits a modern economy, says Ben Milne, who argues it’s time for something faster and better.

When the bottom of the technology stack is 40 years old, it can stand to see an update. We don’t use the same computers, phones, or printers we did 40 years ago.

Ben Milne is the founder and chief executive of Dwolla Corp., Des Moines, Iowa.

A while ago, some really smart people created and re-created a faux-real-time market, first when the structure now beneath it, the automated clearing house network, didn’t exist and then when it couldn’t keep up. These smart people built a big market with guarantees and promises. It was dominated by the folks at Visa, MasterCard, AmEx, and Discover, and it filled a very real and simple need on top of the ACH: Consumers wanted to quickly and electronically acquire the things they desired.

The result was powerful. We could pay for things quicker and we could buy more stuff easier.

But as we layered more and more innovations on top of these systems, trying to make life easier, we complicated the hell out of it. We made it bulkier while we kept its fraud and added to its cost. Now, 40 or 50 years later, the ACH/credit/debit card industry is running out of room to innovate.

When the bottom of the technology stack is 40 years old, it, can stand to see an update. After all, we don’t use the same computers, phones, or printers we did 40 years ago.

$30 Trillion Unleashed

Make no mistake. The ACH system that was created in the 1970s, before I was born, has been powering the U.S. economy with tireless consistency and reliability. When you charge a card, mail a check, or hit “send” on a bank-funded transaction, it all settles over ACH.

Without this core functionality, our financial system wouldn’t function. Money wouldn’t move. People wouldn’t get paid. We couldn’t acquire things. Companies couldn’t do much of anything and we’d be trading wood chips in no time. The bank couldn’t even give you physical cash because the ACH is how they move the money around to turn your electronic asset into a physical asset.

But the ACH was built for a different time to solve different needs. Unfortunately,  decades of progress and consumer expectations have created unique problems in the 21st century. Honestly, the fact that it remained intact and relevant while the Internet emerged, phones lost their wires, and light bulbs were re-engineered has been as fascinating as it has been frustrating for many.

For example, in a world where I can capture video, compress it, encode it, and send it in an instant on my mobile phone, it still takes two to three business days for my payment to clear using the system that drives our economy.

Then there’s the fact that anyone with a little knowhow and access can unload a bank account in the United States with less complex information than a Facebook login, and the system has less logging attached to it than your LinkedIn account.

All I’m saying is that the evolution here is obvious. Create a tool that modernizes the bottom part of the technology stack (bank transfers) and make it openly available. Google “Federal Reserve Bank IFT” (Immediate Funds Transfer) and you’ll see I’m not the only one who thinks so.

I think we can all agree that the guarantee systems (card-based networks) that were built on top of the ACH have had an inarguably positive effect on the U.S. economy. Their systems freed up $7 trillion in transactions in a way that accelerated the speed by which we all exchange money. That has had a pretty profound ripple effect on the economy and in the new technologies that were then built around plastic cards. Fraud systems, hardware, APIs, gateways, platforms, and more were spawned from the opportunities created by these systems that allowed us to get what we wanted faster.

I wonder, however, what happens when you unleash into the marketplace another $30 trillion without the infrastructure and legacy costs of a forgotten style of transacting? What happens to a financial institution’s P&L when you offer a network that can increase consumer spending, create faster decision-making processes, protect users more intelligently, and give industries the tools to create new technologies? What happens when you give the traditional players the code to innovate on top of a simpler way to move money from point A to point B?

In other words, what happens when you stop building on top of the ACH and start building on top of something better?

Filling the Gap

It’s our belief that you don’t destroy industries. You help to create new ones. You create bigger opportunities. You get a bigger bottom line for everyone and the products evolve to create even more value. To get an idea of how this works, consider the recent histories of Kodak and Apple.

Whether we’d like to admit it or not, the world doesn’t simply stop evolving. People are wanting and asking for things that the current system isn’t able to provide.

So we’ve created this real-time architecture for financial institutions. It’s up and working, and it’s called FiSync.

If the bottom of the technology stack gets faster and more secure, it benefits everyone. That’s why we created FiSync, a standardized real-time bank transfer network to fill the gap between yesterday and today. As icing on the cake, we’re giving away the API access for free. FiSync is no more expensive than the current ACH system, and offers a lot of new speed.

I understand that “killing credit cards” gets clicks, and I really like a lot of our friends in the media, but we know that the companies that have built brands on distributing plastic cards aren’t going to go away any time soon. However, it’s my belief that there is a great deal of opportunity for financial institutions and guarantee systems to adopt a faster settlement mechanism to reduce their costs just the same, but without giving up their profit margin.