Same-Day ACH, the financial instution impact
In the last post, “Same-Day ACH, the basics,” I talked about the history of NACHA (The Electronic Payments Association) and their current same-day electronic payment reconciliation proposal. The speedy, three-times-a-day reconciliation would allow the United States to catch up to other countries electronic payment agility, would provide consumers and businesses efficient payment options and bring prepare electronic payments for the future.
Despite the perceived benefits of Same-Day ACH, there are opponents. The ubiquitous need for institutions to ‘buy-in’ concerns some; and in this Same-Day ACH plan, financial institutions could lose substantial revenue from their lucrative wire-service. Going from a conservative profit of 4% to 15% on transfers within the U.S. to 8.2 cents or less per transfer is a dramatic cut.
Speaking of fee concerns, the Federal Reserve, which is supporting the new Same-Day ACH proposal, has outlined in a letter to NACHA that they “have concerns about several aspects of the proposed interbank fee paid by originating depository financial institutions (ODFIs).” Those concerns include:
- The perspectives of sSame-Day ACH originators should weigh heavily in the determination of the interbank fee as the proposal is refined prior to being brought to a vote.
- The definition and determination of allowable costs for the proposed interbank fee.
- The proposed interbank fee will likely inhibit the usage of the Same-Day ACH service, and therefore inhibit payments-system efficiency.
Additionally, backers of a faster ACH network also suspect that some big banks opposed the measure because they want to build their own proprietary electronic payment systems, which could give them a leg up over smaller banks. Bank of America, JPMorgan and Wells Fargo have indeed built one such system, known as clearXchange. 1
Some other concerns have also been raised. One concerning scenario is the case of a fraudulent or erroneous transfer. A typical ACH is reversible within 48 hours. The same-day process isn’t and would be processed during one of the daily three cycles.
Still, despite the negatives, same-day ACH is moving forward.
“This is a very positive announcement, and especially encouraging is the warm reception it has received from banks and associations,” said Magnus Carlsson, AFP’s manager of treasury and payments. “We haven’t heard much from treasurers yet, but perhaps now that the full proposal and RFC is out there, they will have a chance to provide their perspective to the issue. Faster settlements certainly carry a number of benefits. Apart from the obvious quicker availability of funds, Same-Day ACH will also facilitate more timely reconciliations which is important when fighting payments fraud.”
Look next week for part three of this ACH series where I will start showing the practical steps that would be necessary to set up your SAP system for Same-Day ACH.