NACHA Positions the ACH Network To Be a P2P Payments Player

With electronic person-to-person payments volumes booming thanks to an ever-growing list of services from transaction processors, banks and companies such as PayPal, the automated clearing house network is trying to position itself as a P2P player. ACH governing body NACHA on Tuesday introduced bankers to a new rule it expects will bring some clarity and guidance to what had been a void of information about how banks and processors should handle ACH P2P payments.

Herndon, Va.-based NACHA last August submitted an ACH P2P payments proposal for for comment last August and gave it final approval March 7. Its centerpiece is a credit version of the previously debit-only WEB standard entry class (SEC) code that mainly was for Internet bill payments. In contrast to an ACH debit in which a bank or biller “pulls” funds from an account, an ACH credit “pushes” funds out of an account at the direction of the transaction originator. That process virtually guarantees that the receiver will have good funds.

A considerable volume of P2P payments had been flowing through the ACH well before March, though its exact amount is unknown. Speaking Tuesday during a session at NACHA’s annual payments conference in San Diego, Christopher Huppert, a senior vice president at Wells Fargo & Co. and chairperson of NACHA’s Council for Electronic Billing and Payment, cited figures from First Annapolis Consulting Inc. that estimated online and ACH P2P payments account for only 12% of all P2P payments. But First Annapolis predicted that online and ACH P2P payments could more than double by 2017 from their recent range of $80 billion to $120 billion annually, he said.

Another research firm, Novantas Inc., estimated that 2.8 billion check payments and 7.8 billion cash transactions are for person-to-person payments, Huppert said. That’s the market NACHA is targeting. “This is not a trivial set of transactions that we’re talking about,” he said.

With no ACH code just for P2P payments, originators simply assigned other codes to them. Nor were there P2P-specific operational guidelines for what transaction messages should contain and how they should be processed. This somewhat unruly situation was the result of consumers in effect becoming ACH transaction originators in a network that previously had only corporate and government originators.

“It [the network] is being used for broader purposes to effect consumer-originated payments, yet we really haven’t had a good set of rules to support that use case or application in the network,” said Huppert.

Another speaker, Kathy Levin, senior director of ACH network rules at NACHA, noted that while the rule is now official, it doesn’t actually take effect until March 21, 2014, and use of ACH credits by originators for P2P transactions isn’t mandatory until March 20, 2015. That should give banks and processors plenty of time to prepare since the rule will require the use of formatting protocols that are somewhat different from existing codes, she said.

For example, the rule allows for an addenda record, or field, in the transaction message that can hold up to 80 characters of text. Its purpose is to mimic the memo line on a check, where the check writer can make a brief notation of what the check is for. Receiving depository financial institutions (RDFIs) don’t have to pass on the message to the P2P transaction receiver, but Huppert said he hopes they will in order to minimize customer questions.

“It is optional, and you don’t have to do it, but [it’s] certainly something you’d want to consider,” he said.

The current lack of mandate for the addenda field should give banks and processors time to work out any bugs. The optional feature may be temporary—Huppert said “there is a lot of discussion” in the ACH network about making the addenda record mandatory. But one woman at the session worried that a message using the full 80 characters might crowd out other transaction data.