An Appetite for Faster Payments Grows as the ACH Payment Limit Expands to $1 Million

While the payments industry reckons with the arrival of real-time settlement capability, an appetite among financial institutions for faster payments in general has clearly emerged. Dollar volume on the automated clearing house network for transactions settled on the same day grew 53% in March compared to February, following the introduction March 18 of a $1-million limit on same-day processing, according to Nacha, the network’s governing body.

At the same time, the average ticket for a same-day transaction increased 26%, Nacha said last week in a presentation given at its annual conference, held in Nashville, Tenn.

With the tenfold increase in the transaction cap, more than 99% of ACH payments “are now eligible” for same-day clearing, said Mike Herd, senior vice president at Nacha and a speaker at the presentation. Only transactions exceeding the cap and international payments are excluded, he added.

Five years after the initial rollout of same-day processing, payroll has emerged as a popular application for faster clearing, but merchant funding for card transactions, bill payments, and even cryptocurrency-wallet credits and debits are also top uses, according to a study conducted by Nacha and the Center for Payments, an organization made up of regional and national payments companies and associations. The study looked at 246,000 sample transactions handled in September through 174 participating financial institutions. The organizations fielded the survey between mid-February and mid-March.

Financial institutions differ in how they plan to handle the new $1-millon transaction limit, according to the survey. Some 17% indicated any entity that has had access to same-day service can adopt the new cap, but the majority—60%–indicated they would continue credit-rating candidates and set limits according to prior ratings. Some 77% of these respondents said they would set the same limits they have used for traditional ACH. Another 17% said they now have “no plans” for implementing the new limit.

As might be expected, emergency payments—particularly payroll—rank at the top of use cases for institutions of all sizes. Returns, reversals, and account-to-account payments for consumers make the top five for smaller institutions.

Adoption of same-day clearing depends crucially on the size of the institution. Slightly less than half of institutions with assets of $1 billion or less are offering same-day ACH. But 76.5% of banks with more than $1 billion in assets offer the service. The second most popular faster-payment service is Zelle’s real-time network, followed by The Clearing House Payments Co. LLC’s RTP real-time payment service. Some 45% of the big banks have adopted Zelle, while just over 18% are using RTP, according to the survey.

Faster payments on the ACH still face challenges, as Herd pointed out during the presentation. While Nacha set a later daily clearing window, it is still earlier than the end of the business day on the West Coast. “That is a time gap,” Herd said. Also, the Federal Reserve is closed for settlement on weekends and holidays. That “is not a crisis today, but in the future” will take on more importance, Herd added. Some 36% of the respondents in the study indicated they plan to adopt the Fed’s FedNow real-time service at its expected debut next year or in following months.