‘Same Day ACH’ may be the Future of Electronic Payments

I’m hearing more and more about ‘Same Day ACHs’ and the idea might be a reality in the next year or so, therefore I thought I would explain the basics of the concept.

Generally U.S. companies have two basic options to execute electronic payments on a regular basis, wire transfer and ACH.  Wire transfers are executed directly between two banks on behalf of their clients. They can be costly ($15 to $35 per transaction) but are considered secure and settle almost in real time.  Wire transfers are effective for one-off payments or high-dollar transactions but are not something you want to use for recurring payments as the costs will most certainly outweigh the benefits of electronic payments in the first place.

ACH (Automated Clearing House) payments on the other hand, are much cheaper and are not executed directly between banks but are settled through the Federal Reserve. This is very efficient for financial institutions as there are roughly 80 million ACHs executed daily according to the article “Same-Day ACH and the Future of Faster Payments” from americanbanker.com and these payments can be aggregated by financial institutions with money transferred to and from institutions once per day rather than by transaction. While this is efficient for banks (and therefore cheaper for companies and individuals) it also comes with one byproduct, funds are settled and available on the next business day.

Here is where the new Same Day ACH comes in. NACHA (National Automated Clearinghouse Association) which is the institution that administers ACH, has proposed enhancing the ACH system to now have the option of settling funds the same day as origination. With Same Day ACHs, funds would be available at the end of the business day of origination, 5pm ET. This change would have a significant impact on the way companies process payroll, handle regular or last minute payment requests or even correct payment mistakes. For example, the entire payroll process of a company could be moved back (or extended) by one day if the one day ACH delay no longer existed. On the other hand, a company could move up payday one full day for all their employees! What if a traditionally ACH paid vendor needs a payment immediately? A company would not have to change its procedure for that vendor in order to get a payment out quickly. There would no longer be this big disparity between next day ACH and same day wire.

NACHA is planning a three phase implementation of Same Day ACH starting in September 2016. The enhancement would be fully implemented by March of 2018. Some other details of the proposal include:

1) Same day settlement would require origination by either 10am or 3pm ET (in phase three their will be a 12pm ET settlement time along with the regular 5pm ET to accommodate the earlier originations.

2) A per transaction interbank fee of approximately 8.2 cents per transaction to be paid by the originating bank to the receiving bank (this fee is intended to , in part, offset the investment cost of upgrading receiving bank’s systems to become a receiving institution of Same Day ACH.)

3) A $25,000 per transaction limit for funds transferred. This seems like it could be a sticking point to me because most large companies are transferring funds at an amount well above $25k on a regular basis.

4) Only ACH credits will be available in phase 1. According to the current proposal, ACH debits will become available in September 2017.

If NACHA’s plan continues to move ahead as proposed, it looks like we could be seeing Same Day ACH in practice in the next 18 months. Do you think Same Day ACH adds value to the electronic payments industry? Do you think there are any drawbacks to this proposal? Please leave a comment with your questions or thoughts. There is also a wealth of information on the subject at nacha.org.