Digital Transactions Authoritative, insightful and timely information for payments professionals
Faster clearing and settlement of automated clearing house transactions, hampered by a host of issues and limitations, could be picking up some momentum, albeit slowly. Software is emerging to allow both large and small financial institutions to take advantage of a nearly 1-year-old Federal Reserve service that clears transactions on the same day they are entered. And NACHA, the regulatory body for the ACH network, is beginning to form work groups whose deliberations could result in a request for comment by fall on possible rules for same-day ACH.
Since the Fed introduced its FedACH SameDay service in August, only a handful of financial institutions have signed up for it, according to Steven Cordray, retail payments project manager for the Fed office in Atlanta. The largest adopter so far is Bank of Oklahoma. While the service, which represents the first significant change to ACH clearing windows in 37 years, moves payments in half the time, a host of limitations have held banks back. These include a lack of supporting software, the Fed’s exclusion of ACH credits, and the fact that bank participation is voluntary, making it harder to sell the service to businesses. Also, low interest rates make it less urgent for banks to move funds faster, says Cordray.
The software problem may be on the way to being solved. Aptys Solutions, a Rockwall, Texas-based software vendor, announced this week a feature for its PayLogics platform that will support same-day ACH. Since PayLogics is aimed at wholesale banks that serve small institutions, the move could ease the way for community banks to offer faster clearing. Meanwhile, Brookfield, Wis.-based Fiserv Inc. is working on a software component for its PEP+ ACH mainframe-based solution for large banks and is expected to have it available later this summer. “PEP+ is a big deal, since it’s software used by the biggest banks,” says Cordray.
Software is critical to determine which banks are participating and which transactions are eligible, experts say. The Fed allows only certain ACH debits, specifically check conversions and Web- and phone-initiated consumer transactions, to be cleared through SameDay. With weak bank participation, many vendors have been reluctant to develop programming to support the service. And few banks have the wherewithal or willingness to develop systems in-house. “It can be pretty costly for those smaller institutions to do that,” says Eric Dotson, executive vice president for sales at Aptys.
By making the same-day clearing component part of PayLogics, the company hopes to bring the service to a wide variety of small institutions that have correspondent-banking relationships with Aptys’s clients. “We’re opening the door for this service to go down to thousands of community banks,” says Dotson. He says Aptys is in talks with a couple of correspondent banks currently and hopes to sign its first customer for PayLogics with the same-day capability within the next three months.
The ACH has traditionally cleared and settled transactions the day after they are initiated. But faster transactions are seen as critical to keeping the ACH competitive in the wake of developing payment technologies, such as mobile devices, with which consumers are coming to expect near real-time payment movement. Quicker clearing also allows banks to identify fraudulent transactions sooner. And the rapid adoption of image exchange has confronted the ACH with a competing check-based clearing mechanism that can process payments the same day.
The Fed’s service is offered on a voluntary basis to banks because a NACHA rule is required to mandate participation. Whether or not the Herndon, Va.-based organization is moving in that direction, it is forming a pair of work groups, one of which is open to non-bank players, to consider a set of rules governing same-day ACH and craft a request for comment. That RFC could go out to the membership by late in the third quarter, a NACHA spokesperson says.
The Fed is one of two operators, or switches, for the ACH network, handling some 57% of the network’s traffic. The other operator is The Clearing House Payments Co. LLC’s Electronic Payments Network, which has so far refrained from offering a same-day service, citing a lack of standardization.
