First of two parts.
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.
Remarkably, it's often speedier to pay someone by scribbling out a paper check than it is by transferring funds electronically, thanks to check imaging technology.
"The check system can clear items same-day. So we're a little bit behind the check world even," says Norman Robinson, president of EastPay, an organization that represents Southeast U.S. banks on payments issues.
If checks, a payment method that's hundreds of years old, can be updated for the Internet age, why can't America's four-decade-old electronic payments system? Blame the big banks.
More than two years ago, the staff of Nacha, the industry-owned group that sets the rules for the automated clearing house network, decided it was time to modernize the system. The group's proposal was far more modest than the near-real-time systems that now exist in numerous other countries. If a U.S. bank submitted a payment before 2 p.m. Eastern time on a weekday, it would be settled around 5 p.m., rather than waiting until the following weekday, or perhaps the day after that.
The plan, known as Expedited Processing and Settlement, may not have been a step into 21st Century, but at least it would remodel a system built in the 1970s and 1980s.
But even this incremental move was too much change for a bloc of big banks that played a decisive role in torpedoing the proposal in a vote in August of last year.
The episode, which happened mostly outside of public view, demonstrated the enormous power that a small number of large commercial banks wield over the U.S. payments system. Their interests prevailed over the wishes of many smaller banks, corporations, and consumers, all of whom would benefit from a faster, broadly accessible way to make electronic payments. And because Nacha's balloting process is shrouded in secrecy, these large banks didn't leave any fingerprints.
"In this space, a relatively small number of banks decide whether progress happens," says Jason Marshall, a former payments executive at Wal-Mart who now works at the payments technology firm InComm. "And with a lack of transparency, the small number of banks that hold back the payments system don't even have to show their face."
A Bid to Stay Relevant
A faster ACH network would unquestionably be a boon for many consumers and for businesses that rely on the payments system.
Families on the verge of missing the deadline for a utility bill payment would benefit. So would companies that must pay vendors right away. In a situation where a worker fails to submit a timesheet on time, the employer could make a speedier direct deposit.
"I think there is a definitely a need in the business community," says Anita Patterson, director of treasury services at Cox Enterprises, one of the country's largest privately held companies.
"I've never met a knowledgeable corporate finance professional who's against it," adds Marshall, the former Wal-Mart executive.
In all, the individuals and businesses involved in about 25% of all ACH payments would benefit from same-day settlement, estimates Steven Cordray, project director at the Federal Reserve Bank of Atlanta's Retail Payments Office.
Community banks also have a powerful incentive to support the faster movement of payments within the ACH network — because small banks can't build proprietary payments systems like some of their bigger competitors can.
"I feel that about 70% of the banks in the United States are very supportive of it," says the Atlanta Fed's Cordray.
In April, the Independent Community Bankers of America went on the record in favor of same-day ACH, after earlier voicing reservations with some aspects of Nacha's proposal.
"From a community bank standpoint, we absolutely feel that same-day needs to happen," says Cary Whaley, ICBA's vice president of payments and technology policy.
The biggest advantage that the ACH network has over other payment systems is its ubiquity. Every one of the country's 6,940 banks and 6,681 credit unions is connected.
"Unless you have the surety of reaching all end points, the value for anyone is diminished," says Jan Estep, president of Nacha. "So we're really trying to maintain ubiquity."
But some observers worry the network's value is eroding as faster payment technologies emerge.
"There are initiatives that could compete and establish a more dominant role," says Beth Robertson, a payments industry analyst. "If existing networks want to play, as things evolve, they have to be willing to innovate."
Setting the Bar High
When the vote was held last summer, Nacha had 48 members, including 31 financial institutions. That list includes many of the nation's largest banks: JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (NYSE: C), Wells Fargo (WFC), and Bank of New York Mellon (BK), among others.