The financial industry is working to make payments better, more efficient, simpler — and faster. Many Americans are particularly invested in efforts to achieve this last improvement. A recent Federal Reserve study found that 69% of consumer payers and 75% of business payees prefer instant or one-hour payment speed. The key question for all users is what functionality will be required to meet Americans’ needs: validation of good funds, settlement of funds, or actual funds availability in a user’s bank account?
The automated clearinghouse network sits at the epicenter of this dialogue. As the backbone for electronic payments, it supports over 80 million ACH payments each day, including direct deposits and direct payments. It also enables settlements for credit and debit card transactions and ATM transactions. By speeding up processes within this ubiquitous foundational system, we can better meet the needs of the industry.
Nacha, which serves as the administrator of the ACH network, identified the need for faster payments six years ago when it implemented Secure Vault Payments. SVP is an online and mobile payment system that leverages the ACH Network and offers a real-time guarantee of good funds, 24 hours a day and seven days a week. Although the technology already exists to meet the demand for faster payments, not all financial institutions have adopted it. We have seen time and again that ubiquity is critical for any change in our vast ecosystem. So when the Federal Reserve cited the lack of a real-time payments system as an issue in their September 2013 paper, Nacha agreed.
But real-time payments are only one part of the solution. While there are some unmet consumer and corporate needs that would benefit from real-time payments, there are many other needs that can be met by same-day payments. Expedited bill payments, payroll applications and many ad-hoc business payments, for example, would benefit greatly from same-day ACH. Same-day ACH would allow the network to move payments faster and provide additional functionality that meets the industry’s needs for faster payments.
To that end, Nacha is working toward a phased implementation approach that will move the ACH network from next-day settlement to same-day payment processing during three different windows. This would be available for virtually any transaction and provide greater certainty about fund availability, thereby improving the efficiency of hourly payroll disbursements and last-day tax or bill payments. All of this provides a solid foundation on which to build other innovative services.
Nacha’s work as a rulemaker for many types of payments and standards has demonstrated the benefit of continually working to bring parties together to identify solutions that balance the needs of various entities. Today’s work on same-day ACH is an industry effort that will serve as a first step to moving payments faster.
Over the past several months, Nacha has methodically collected and analyzed feedback on this approach from financial institutions, businesses, and payments service providers in an effort to identify a workable path forward in advance of formal rulemaking on same-day ACH. This step will help all parties to think carefully about the rules, tools, and technology that can help create a bridge from today’s payments to those of the future.
Jan Estep is president and chief executive officer of Nacha — The Electronic Payments Association in Herndon, Va.