You may recall our blog post in December – ‘Speeding Up B2B Payments: NACHA Vs. Big Banks’ – where we reported on the importance of NACHA’s (National Automated Clearing House Association) role in speeding up B2B payments throughout the ACH (automated clearing house) Network. Well, after the 20 years and countless debates between NACHA, the Fed, banks, and other players, on May 19th it was announced that Same Day Automated Clearing House has been approved by the NACHA voting membership.
A Long Road
There has been talk of this for a long time, and same-day settlement has been one of NACHA’s key milestones it has been trying to reach along the longer road to instant, real-time settlements right throughout the network. In the past, certain moves have been made to stall the process – in 2012 the big banks made a big play to successfully shoot down the move away from next-business-day settlements to same-day settlements. But now it’s set that the ACH Network will finally enable multiple, same-day clearing and settlement options that will be available for practically any ACH Network transaction.
While this is definitely a good move forward and quickens the flow of money, the initiative nonetheless only governs settlement – i.e., the movement of funds between two financial institutions – and leaves nothing for the rest of the payments chain, including authorization, transaction approval, and the crediting of funds to a recipient’s account.
What NACHA Says
Here’s how NACHA describes the move on its website, and below is a short explanatory video of how Same Day ACH will work:
“The phased implementation approach proposes increased functionality and certainty around availability of funds that will provide greater value to end users. In addition to the current early morning settlement, this functionality would include two new Same Day ACH clearing and settlement windows at mid-day and the end of the business day, and be available for virtually any ACH transaction.
“Today’s work on Same Day ACH can provide a bridge to tomorrow, as the industry works to make payments faster. With Same Day ACH, we can act now and provide important choices for consumers and businesses who want to move money more quickly.”
While the arrival of same day ACH is undoubtedly a positive step forward, the fact still remains that this is only a partial solution for B2B payments. The prompt movement of the money is one thing – and it will be a great day for payments when, on September 23, 2016, funds will start moving around the ACH network three times every day, rather than just once as they do now – but speed is not the only thing that matters in B2B financial transactions, and indeed is only one part of the process.
Causes for delay on both the back- and front-ends of B2B payments mean that simply providing more frequent occasions for the transferal of funds isn’t enough on its own. Massive volume, complex procurement processes, significant and ever-changing business conditions – and accompanying data – are among the other issues that B2B companies struggle with. Achieving same day ACH is a good thing, but it is just one step in a much longer process.
Same Day ACH Will Mean Quicker Settlement Of Electronic Payments
Although there is some concern that the move to implement same-day settlements will unnecessarily impede on what many believe to be the more important goal of achieving real-time settlements (see table below from Aite Group’s report, ‘Same Day ACH: It’s About Time’), Same Day ACH will make payments happen faster – three times a day, every day, and that is progress.
Key Support From Banks
The Consumer Bankers Association and The Clearing House jointly filed a comment letter on February 6th in support of ubiquitous, Same Day ACH processing and settlement as proposed by NACHA initially in 2012, and then revised in 2014 following rejection. This will surely prove to be the significant move that will go down as being instrumental in NACHA’s endeavors to realize real-time settlements.
NACHA’s proposal professes to balance the needs of ODFIs (Originating Depositary Financial Institutions) and RDFIs (Receiving Depository Financial Institutions) by taking into full account the costs and benefits of Same Day ACH. As such, some commenters to the proposal called for the allowance of the RDFI to charge a fee to the ODFI to help cover the expenditure of implementing Same Day ACH, as it will primarily be RDFIs who would bare such costs.
NACHA Membership Approves Same Day ACH
On May 19th, NACHA announced that its voting membership had approved Same Day ACH, in which it is stated that:
“The rule […] requires that all Receiving Depository Financial Institutions (RDFIs) receive same day transactions and provide faster funds availability to customers. Additionally, the rule establishes the methodology for a Same Day Entry fee as a mechanism for RDFIs to recover some of their costs for enabling and supporting mandatory receipt of same-day ACH transactions.”
Janet O. Estep, CEO and President of NACHA, made the following comments in the press release:
“Same Day ACH serves as an immediate action the industry has undertaken to modernize the payments system, and creates a building block for a variety of products and services. Same Day ACH creates value for end users through the certainty of its reach to all bank accounts in the United States.”
“Through dialogue, input, and outreach, NACHA was able to balance differing perspectives and incorporate industry feedback from many types of organizations. The result of this dialogue is a final rule that will benefit consumers and businesses that need to quickly pay bills and receive funds faster.”
The announcement indicates that there will be a phased implementation of Same Day ACH, the first of which – where “ACH credit transactions will be eligible for same day processing, supporting use cases such as hourly payroll, person-to-person (P2P) payments, and same-day bill pay” – is scheduled to commence on September 23, 2016. The initiative may improve the speed of funds transferal on the face of things, but there is still a great deal of work to be done in speeding up the B2B transaction process as a whole. It’s a step in the right direction, but it’s one step at a time for significant changes to be made for B2B.