For Many Players, Same-Day Clearing May Be ‘Just Good Enough,’ Analyst Argues

By John Stewart
@DTPaymentNews

When it comes to faster payments, most of the U.S. payments industry’s focus lately has been on the glamorous option of real-time settlement, but sentiment is beginning to emerge that says same-day payments may just be fast enough.

Those who make that argument point out that the 42-year-old automated clearing house network, which is scheduled to begin converting to same-day settlement next month, offers several key advantages compared to new efforts now under way to create real-time systems. Notable among these efforts are initiatives at The Clearing House Payments Co. LLC, a payments processor controlled by many of the nation’s biggest banks, and at Early Warning Services LLC, whose clearXchange network has been steadily rolling out real-time capabilities. Also, the Federal Reserve is shepherding a massive industrywide effort to plan and build real-time networks.

But same-day ACH could end up stealing business from all of these initiatives as financial institutions, billers, and merchants trade off speed against such factors as cost and ubiquity of endpoints. “Same-day ACH might be one of those solutions that are just good enough,” Sarah Grotta, director of the debit advisory service at Mercator Advisory Group Inc., Maynard, Mass., tells Digital Transactions News.

Mercator released a report this week about the advantages of same-day ACH settlement, which kicks off Sept. 23 with ACH credits, typically used in hourly payroll, person-to-person payments, and bill pay. ACH debits will be added in a later phase. Ultimately, the plan will add two clearing windows for ACH transactions, one that provides for a 1 p.m. Eastern Time settlement and one that results in a 5 p.m. Eastern Time settlement. Up to now, ACH transactions have cleared next day at best.

Grotta points out that this timing will give same-day ACH a head start on proposed real-time systems and allow it to compete head-on with systems just now coming on stream. Also, the ACH offers ubiquity in that nearly every financial institution in the country is linked to the network.

And the ACH may enjoy a pricing advantage. When the voting members of NACHA, the rules-setting body for the ACH, in May last year approved same-day settlement, the plan included a so-called interbank fee of 5.2 cents per transaction, payable to receiving institutions by originating institutions. The fee, plus any markup, will ultimately flow to merchants and other originators. While Grotta says that fee will be “significant” for larger organizations that may care more about expense than about speed, mid-size and smaller organizations will respond favorably. “That kind of an upcharge might be easier [for them] to incorporate,” she says, in return for faster settlement that isn’t real-time but is still same-day. “They may think same-day is just fine.”

Pricing for real-time service hasn’t been established yet across the board, but Grotta argues it will likely reflect a premium next to same-day settlement. Real-time promoters “may need to prove that the additional hours are worth it,” she says.

As a result of these advantages, the same-day option may capture more transaction volume than even NACHA is expecting, Grotta says. NACHA’s estimate is that the option will account for 4% of total volume, excluding on-us and international transactions, by 2027. That comes to just shy of 1.5 billion same-day transactions by that year, according to figures compiled by Mercator. All things considered, “I think that might be light,” says Grotta.