Digital Transactions Authoritative, insightful and timely information for payments professionals
By John Stewart
@DTPaymentNews
Companies that have been planning for months for the arrival Friday of same-day automated clearing house payments are getting ready to pounce, and one of the first opportunities lies in platform payouts. Des Moines, Iowa-based Dwolla Inc., for example, on Wednesday is announcing a new feature that marketplaces, gig economies, and payroll services can integrate to make same-day payouts en masse to service providers like drivers and care-givers.
On Friday, banks will begin clearing ACH credits on the same day they’re received, rather than next day. Processors like Dwolla see this as a big chance not only to speed up payments for platform clients but also to compete with rivals like Stripe Inc., which revealed Monday it has for months been using the Visa Inc. and MasterCard Inc. debit card systems to handle payouts for Lyft, Postmates, iCracked, Care.com and other services.
“Payouts are huge right now,” Jordan Lampe, who handles communications and policy affairs at Dwolla, tells Digital Transactions News.
The new feature is part of an application programing interface for payments that Dwolla already makes available to clients on a white-label basis. The company says it is piloting same-day ACH for now but will roll it out during the fourth quarter. “We can now see two distinct real-time network models emerging, those based on debit cards and those based on ACH,” says independent payments analyst Aaron McPherson in an email message.
While debit card settlement is close to real time, Dwolla figures its same-day API will deliver fast enough results given the cost advantages of ACH settlement. Same-day service will carry a pricing premium over standard clearing, but will be far less expensive than the card networks, Lampe promises. “It’s going to be a market decision,” he says. “We’ll have the same-day option but still expect a large majority [of clients] will be less concerned with speed of transaction and more concerned with a robust application.”
Stripe is charging 1.5% for its Instant Payouts service, with a minimum fee of 50 cents. Dwolla will not reveal its transaction pricing for the API, but sources close to the company say same-day payouts will probably come in at a quarter each or less.
That pricing difference may give Dwolla an edge with marketplaces, but receiving banks may want to favor faster-payment services based on debit cards, which offer more lucrative fees, observers warn. “I think the banks will prefer the 1% or so that they get from MasterCard and Visa to the 5.2 cents they will get from ACH,” notes McPherson. ACH rules call for originating financial institutions to pay receiving banks 5.2 cents per same-day transaction. Originating institutions can then pass on the fee to clients or mark it up.
Dwolla has been following the faster-payments trend in the U.S. for some time, and began looking closely at the possible markets for faster ACH when NACHA, the network’s governing body, first proposed same-day settlement in 2012. That effort was voted down by the network’s membership, but the proposal was revived later and approved last year. “We’ve always been keeping an eye on this process,” says Lampe. “This has been on our calendar for awhile.”
ACH credits allow users to push payments from their own account to one or many accounts held by sellers or service providers. In September next year, NACHA will introduce same-day debits, which will allow suppliers to pull funds from client accounts with the same speed of settlement. Dwolla is planning for that, as well, Lampe says. “We’re eagerly looking forward to [same-day] ACH debits,” he says.
Current debit applications include gym memberships and homeowners’ fees, but with the arrival of same-day payments, Dwolla sees the possibility of applying artificial intelligence within an API to automate the process for users to pull funds, say at regular intervals, from one account to a savings account at a different institution, Lampe says.
Even before same-day debits come on stream, the scramble for market share among players like Dwolla and Stripe, exponents of contrasting models for faster payments, is likely to become intense. “Competition will be fierce, and I expect to see a lot more deals being struck in the months ahead as the players jockey for position,” says McPherson.
