Same-Day ACH Idea Could Stage a Comeback, Despite Big-Bank Opposition

A proposal to change the rules of the automated clearing house network to allow faster clearing times, which last Friday fell short of the votes needed to be enacted, is likely to be resurrected in some form, experts polled by Digital Transactions say. “I don’t think it’s dead, but it’s probably dead for another year or two,” notes Nancy Atkinson, a senior analyst at Aite Group LLC who follows the ACH. “It can’t be brought up again this year. You have to move on.”

But any new effort behind the proposal could face entrenched opposition from the nation’s largest banks.

The proposal, which would have moved up clearing and settlement times for both credits and debits on the ACH from next day to same day, is necessary for the ACH to remain a competitive payments network, these observers say. Consumer expectations, particularly with the advent of mobile payments, increasingly lean toward near-immediate effect for payments, they say. And some similar systems overseas, including the Faster Payments initiative in the U.K., already offer same-day funds availability.

The proposed rule change was drafted by NACHA, the Herndon, Va.-based organization that oversees the ACH on behalf of banks. NACHA had worked on the measure, which it called Expedited Processing and Settlement (EPS), for about two years. Now, some observers expect the organization to revive the effort. They point to the fact that, while the EPS proposal failed, it won a majority of yes votes from members. It didn’t win enough votes, however, to exceed the 75% level necessary to effect a rules change.

“I don’t see how NACHA can let this linger for too long,” says David T. Bellinger, director for payments at the Association for Financial Professionals, a Bethesda, Md.-based trade group that represents corporate finance officers. The AFP had favored the proposed change. “Banks need to think about staying competitive. Whatever the issues were that were holding them back, they need to work through that. I can’t see the future, but that is a risk for them,” Bellinger says.

NACHA may be thinking along the same lines. In a statement it sent to Digital Transactions News on Monday regarding the vote, it said, in part: “NACHA will continue to explore solutions for faster processing and settlement. In balloting EPS, NACHA was responsive to industry requests for faster processing and settlement, and we will continue to be supportive of user needs.”

In the balloting, the country’s largest banks opposed the measure, while the more numerous regional and smaller institutions were split. Larger institutions don’t see enough revenue potential in same-day service to compensate for the costs the service would create, says Bob Meara, a senior analyst at Celent LLC. Banks that may have thought about charging premium pricing for the service may have been stymied by fierce merchant opposition to increased pricing for other forms of electronic payment, including card interchange. “Why would you be quick to do this” if you can’t charge premium prices for it, Meara asks.

Some banks also feared the service could cannibalize their more lucrative wire-transfer business. While wires are typically used for large transfers, such as down payments on homes, Atkinson says banks want to preserve wires as an exclusive option when immediate payments are necessary. “As long as they can’t do same-day ACH, they can convert [the transaction] to a wire transfer if it has to be same day and make more money off it,” she says. Expected increases in the cost of wires, though, will likely cause businesses to put more pressure on banks to support same-day ACH, she cautions.

Ultimately, the federal government may have to step in to make same-day ACH a reality, these observers say. “I wouldn’t be surprised to see the [Federal Reserve] put something forward if banks don’t take action,” says Bellinger. The Fed has a similar service, which it introduced two years ago, but it applies only to certain ACH debits and leaves bank participation voluntary.

Atkinson would like to see the payments industry create an electronic transfer service combining ACH and wire. “That will take government backing to some extent,” she observes. “The government has to take a stand or it doesn’t happen.”