The Gimlet Eye: Speeding up the ACH

 

Last month marked the one-year anniversary of a service from the Federal Reserve that allows certain debits processed through the automated clearing house network to be settled the same day they’re initiated, instead of the next day. Introduced Aug. 2, 2010, the Fed service brings the concept of immediate payment to a system that serves as the backbone of many online and mobile-payments products at a time when consumers, especially younger ones, expect faster payments.

 

But more than a year after its launch as an opt-in service, FedACH SameDay is struggling. Fewer than 30 financial institutions are participating, and hence volumes are dismal. The reasons for this are manifold, but the good news is that some of them are starting to be solved, as we document in a story starting on page 48. A major problem has been an absence of software. With few transactions, vendors have been reluctant to innovate. But this summer, new systems from Fiserv Inc. and Aptys Solutions have come to the fore to let both large and small banks account for faster debits.

 

Other issues abound. The Fed service is opt-in, leaving most of the banking industry on the sidelines. It doesn’t allow ACH credits, even though many corporate customers would like to see these included. Interest rates are ultra-low, robbing financial institutions of any motivation to clear transactions a day sooner. Also, while the Fed handles 57% of all ACH traffic, it is only one of two so-called ACH operators, or switches. The other one, the Electronic Payments Network, part of The Clearing House Payments Co. LLC, has not offered a same-day service.

 

But solutions for most of these issues are also in the offing (the Fed itself could do something about interest rates, but it’s inclination lately has been to go lower). The argument against credits, for example, rests on banks’ fears of undermining their rich wire-service revenues. But a similar service in the U.K., available since May 2008, allows credits and has had no such impact on wires, which after all are typically used for much higher-ticket transactions.

 

Still, the biggest solution—a rule requiring banks to participate and outlining standards for that participation—could come from NACHA, the ACH’s regulator. Right now, the organization is in the early stages of investigating the issue, so any sort of rule is likely some time off.

 

But probably sooner rather than later, speeding up the ACH will prove critical. With image exchange, even paper checks most often clear on the same day. How long can a next-day ACH remain competitive?

 

 

 

John Stewart, Editor

 

john@digitaltransactions.net