Same-Day ACH, the basics
In the United Kingdom, you can send money to someone else’s bank account within a couple of hours. In Mexico, the process takes no more than a minute or two. In Sweden, it happens even faster, via mobile phones. Here in the United States, electronic payments move at a snail’s pace by comparison. Times vary by bank, but it’s common for three, four or five days to elapse before the cash arrives in the recipient’s account. 1
Why, the stateside lag? Queue Barbra Streisand singing “The Way We Were,” because the explanation begins in 1974 with a not-for-profit, electronic payments association called NACHA (National Automated Clearing House Association). It was created to facilitate electronic exchanges of money and data throughout the U.S. So if the very purpose of electronic exchange is speed, and they’ve had 40-plus years to perfect it, why is it still so slow?
NACHA attempted, in 2010 (with their effort failing in 2012), to accelerate efforts but the major players weren’t in the mood to listen. The concept was slow to gain popularity and even scoffed at by some bank executives saying that they had no plans to offer the services.
But NACHA continued listening to its members and, with their feedback in consideration, has now proposed new, Same-Day ACH reconciliation options. The proposal breakdown:
- All electronic transactions, including debit and credit, would be settled in one of three daily settlement options: morning, mid-day or end-of-day.
- Same-day settlement is not available if your transaction is international or over $25,000.
- All receiving institutions (RDFIs; receiving depository financial institutions) would need to update their systems.
- Because these updates will be expensive, the originating institution (ODFIs; originating depository financial institutions) will be charged a predicted fee of 8.2 cents per transaction. The fee will be inversely based on the number of transactions and will decrease as the number of transactions grow.
“By moving forward with Same-Day ACH, we can act now to provide important choices for consumers and businesses who want to efficiently move money more rapidly directly between bank accounts,” said Janet O. Estep, president and CEO of NACHA. “It can serve as an important step in meeting the needs of today and providing a building block for the innovations of tomorrow.”
Terrific, right? Well, not so fast. There are still opponents to this faster reconciliation option.
The buzzword surrounding Same-Day ACH is “ubiquitous.” The ability to find the same-day service everywhere is what many expect as a basic requirement for Same-Day ACH to thrive. And getting many people — or institutions — to get on board witha single universal system isn’t easy.
According to Bob Meara, a senior banking practice analyst at Celent, unless a significant number of banks choose to participate, users will have few trading partners to which they can send and receive payments. “That opt-in nature is the Achilles’ heel to this service that will result in very, very sparse activity,” Meara told AmericanBanker.com.
Tune in next week to read more about the potential effects of Same-Day ACH on financial institutions.