While the financial industry debates the pros and cons of making transactions happen in real time throughout the system, BBVA Compass has taken a significant step in this direction.
On Thursday, the Birmingham, Ala., unit of Spain's BBVA announced a partnership with Dwolla, which runs a real-time money movement network. The $76 billion-asset BBVA Compass is the largest bank to partner with Dwolla, a startup based in Des Moines.
"This provides us with an innovative way for our customers to move money in real time," said Jeff Dennes, head of the business development and digital transformation division at BBVA Compass. "You can't really do that in ACH or any other networks."
The partnership comes as the Federal Reserve nudges the industry to speed payments and as even some who initially resisted calls for quicker settlement, such as megabank trade group the Clearing House, start to embrace the goal.
Customers already expect their transactions to take place instantaneously, Dennes said.
"They don't understand the banking system and why it takes 24 to 48 hours to move money," he said. "Some people complain and some people don't. But I think the expectation is becoming more and more that things should happen in a real-time manner. We built a real-time platform ourselves at BBVA Compass, so this is just an extension of that platform."
The platform Dennes refers to is a modern core system, Accenture's Alnova, that the bank began deploying in 2011. The project cost has been estimated at more than $360 million and it's one of the few core transformations happening in the U.S.
When the Dwolla integration is completed in the first quarter of next year, BBVA Compass will be able to offer new services to consumers and small businesses.
Any business or individual with a U.S. bank account will be able to move money at a flat fee of 25 cents for transactions that are more than $10; anything less is free.
Small-business customers will be able to use the service as an alternative to checks to disburse money to several people or companies at once, for instance to meet payroll.
"This is a much cleaner and better way to deliver the money versus printing their own checks," said Dennes.
Ben Milne, Dwolla's founder and chief executive, said his company has been seeing a large and growing business in building one-to-many payment processes for businesses. Some have a strong need to get money from point A to point B really quickly, Milne said.
"The people they're paying might be other businesses or consumers either way, they want to get that money to a receiver as fast as humanly possible," he said. "But the only way to get instantaneous payment to the receiver is to preload the account" a separate account used just to make payments, that is. This is common in payroll, Milne said.
"Real time means you don't have to preload the account anymore," he said. "The money is where it should be when it's supposed to be there."
But Janet Estep, president and CEO of Nacha, the association that makes the rules for ACH, said its business members are not interested in real-time payroll processing.
"Do you need real-time payroll? I think everybody would say no," she said in an interview last week. "You don't need to issue payroll to all your employees in real time. Would you like to do it same day? To that, we get a resounding yes."
The Federal Reserve's settlement window makes real-time settlement of funds virtually impossible, she said. Because the Fed's system shuts down at the end of the day, banks can't officially move funds via a Fed settlement account after 5:00 or 6:00 p.m. Eastern time.
Nacha has proposed moving the ACH system to three settlements batch exchanges among all the banks that allow for the surety of the movement of funds per day. Those three settlement windows, combined with real-time messaging about the payments, would satisfy the needs of most consumers and businesses, Estep said. Many other countries that claim to have real-time payments, she said, are doing the same real-time messaging with multiple settlement windows.
The restrictions of the ACH system have shaped payroll practices in the U.S., said Dennes at BBVA Compass.
"Companies have had to gear their payroll processes around that," he said. "You're supposed to be paid on the first and the 15th [of the month] or every Thursday or whatever. Companies have to go set that money up days in advance and trigger all those transactions to happen, versus doing them the day when they need to cut payroll."
The partnership with Dwolla, Dennes hopes, will help BBVA Compass fulfill a long-held objective.
"I've always said I want our money movement to look like this," he said. "I just need to move money from one place to another. I don't need to know about the intricacies of how it's done. I do know I need it today, tomorrow, or next week."