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As the sweeping plan to update the U.S. automated clearing house network and other parts of the country’s payments system—an initiative known as faster payments—draws nearer, the first hints of what it could mean for merchants are being discussed.
The faster-payments project, under the aegis of the Federal Reserve, will usher in a new infrastructure for making ACH transactions, Javier Guerrero, manager of the San Francisco office of consultancy Edgar, Dunn & Co., told attendees Thursday at the Merchant Risk Council’s annual conference in Las Vegas. Unlike the existing ACH system, which was designed in the 1970s, faster payments will enable account-to-account, business-to-business, and business-to-consumer payments in real time.
Guerrero told merchants at the MRC event that among the benefits of faster payments is the potential to lower acceptance costs, though he stressed that credit and debit card payments will continue. “I say potential because the pricing is up to banks,” Guerrero said. Generally, ACH transactions are cheaper for merchants to accept than payment card transactions.
Pricing, of course, is unknown, given the embryonic stage of faster payments. Broad faster-payments use isn’t expected for a few years, as the Fed is reviewing 19 proposals. The banking regulator isn’t going to declare a payments champion, but instead wants to showcase the best ideas and leave it to the marketplace to decide which ones are worth implementing.
Guerrero said one proponent of faster payments, The Clearing House Payments Co. LLC, a bank-owned payments network based in New York City, is testing its faster-payments setup now. The Clearing House has already been working with processor Fidelity National Information Services Inc. since the project’s early days, and is recruiting more payment processors to extend its reach. TCH operates one of two national switches for the ACH network (the Fed itself runs the other one).
On the consumer side, faster payments will be enabled for immediate bill payments, consumer-to-small-business payments, retail payments, person-to-person, and account-to-account, Guerrero said. The business side will be enabled for business-to-business, immediate payroll, and non-payroll business payments.
When commercial availability does arrive, merchants should be ready for the unique features it will have, Guerrero said. The payment-instrument issuer will not be the originator of loyalty points, unless the bank or merchant establishes such a program, he said. He added it also will not be a cash-management tool or based on the blockchain, a distributed-ledger technology commonly used with digital currencies.
While the payments industry prepares for faster payments, so too should merchants, Guerrero said. At this stage, however, that means monitoring developments and preparing a strategy for incorporating the payment method, including possibly real-time funds availability. “The main challenge is going to be on the business case,” he said.
