Same-Day ACH Is ‘On Track,’ Says Fed, But Response Is Mixed

A plan by the Federal Reserve to speed up certain automated clearing house transactions so they will clear on the same day they are initiated is “attracting interest” from financial institutions that use the Fed to handle their ACH traffic, says Richard Oliver, an executive vice president at the Federal Reserve Bank of Atlanta. The plan, which the Fed announced in March, is expected to take effect in the second quarter. The Fed has not yet determined a more definite date, says Oliver. “We are continuing to track for second-quarter implementation, and are starting to tell customers about it,” he says, adding that “many” client institutions are interested in the plan and are in the process of learning more about it so they can begin reviewing software requirements and building a business case for implementation. The earlier settlement, which applies only to ACH debits stemming from check conversions and from consumer transactions originating on the phone and on the Internet, represents the first change in the ACH network's settlement windows in 35 years. Under the plan, deposits made by 2 p.m. will be settled by the close of business that day, following a routine that already exists for returned transactions, rather than the next day. The new window is voluntary, allowing financial institutions to opt in to use it. But since the Fed hasn't yet formally offered the service, Oliver says he “can't say” whether there have been any opt-ins yet. With a slew of alternative-payments players now relying on the ACH as the underlying network to move funds, a number of payments players have argued for same-day clearing to meet customer expectations and help identify questionable items sooner. But not all processors are reporting strong interest among banks. “The Clearing House [Payments Co. LLC] continues to evaluate same-day ACH with our Electronic Payments Network customers. To date, the concept has received a lukewarm response,” says Alex Romeo, vice president and product manager at the Electronic Payments Network, in an e-mail message to Digital Transactions News. EPN, operated by The Clearing House, a New York City-based company, is the only other ACH operator, or switch, besides the Fed, and is the only private-sector operator. While the Fed plan would speed up funds transfers, potentially making both online and mobile payments services that rely on the ACH more attractive to users, it would also cause banks holding consumer accounts to forfeit up to a day's worth of interest income on funds they would now have to transfer earlier. That complication has sparked a competing proposal that would allow banks to post ACH debits on the same day if received by 8 p.m., but would call for actual settlement by 10 a.m. the next day (Digital Transactions News, April 14). NACHA, the Herndon, Va.-based organization that regulates the ACH, is reviewing both the Fed's new service and the rival proposal, which was advanced this spring by Danne Buchanan, chief executive of NetDeposit Inc., a Salt Lake City-based payments-software vendor and unit of Zions Bancorporation. NACHA “continues to discuss” both plans “with others in the industry,” and sees them as “potentially complementary services,” says Ian W. Macoy, managing director for network strategy and outreach at NACHA, in an e-mail message. He would not comment further on the matter. Not much is likely to change until the new year, as both banks and merchants are loath to make major changes to payments processes in December. “We're entering the black hole of Christmas,” says Oliver, who stepped down last month as product manager for retail payments at the Atlanta Fed.