NACHA’s New Same-Day Settlement Plan Draws Plenty of Questions From a Curious Crowd

You might call it the first stop on a long road show looming for automated clearing house network oversight body NACHA’s new proposal for same-day settlement of ACH transactions. The particular stop was a packed session at NACHA’s annual payments conference on Tuesday, where executives from financial institutions and payments companies peppered a panel for details of the program NACHA unveiled March 18.

The so-called “phased approach” NACHA is trumpeting for the plan’s implementation should help allay concerns about needed changes in back-office processes to accommodate three daily settlement times, according to NACHA president and chief executive Janet O. Estep. The proposal comes just over a year and a half after an earlier, somewhat less ambitious plan for same-day settlement failed to get the supermajority it needed from NACHA’s members. “Perhaps it was too middle of the road,” Estep said before a crowd of 400 at an Orlando, Fla., hotel.

Estep first tried to dispel any misconceptions about just what the term “faster payments”—a loose term applied to many payments niches—specifically means for the ACH network. The new proposal governs only settlement—the movement of funds between financial institutions. It doesn’t cover two other links in the payments chain, authorization, or transaction approval, and posting, which is the crediting of funds to a recipient’s account. “Simply saying ‘faster’ isn’t clear enough,” Estep said.

ACH transactions currently settle once a day on a next-day morning basis. The first of three phases in the new plan would involve only ACH credit transactions, with morning and afternoon transmission times, and would add a 5:00 p.m. Eastern settlement time. The second phase would add ACH debits to those elements. The third phase would add a mid-day settlement time, bringing to three the number of daily settlements.

While the idea of faster settlement received generally positive reviews, several session attendees expressed concerns about how they would handle the greater frequency and new times for settlements, which will require operational changes. Some worried about how to handle unexpected debit transactions late in the day.

Christopher Ward, executive vice president at Pittsburgh-based PNC Bank and a member of the panel that also included Estep, acknowledged those concerns. “The big challenge will be re-working our processes,” Ward said.

Another panelist representing the corporate-payments side, Anita S. Patterson, director of treasury services at Atlanta-based media conglomerate Cox Enterprises Inc., also said “there was a lot of angst on the financial-institution side” about what will and won’t work. But she expressed optimism that gradual implementation would give banks and companies time to adjust their processes. “I’m excited about it, I think the phased approach will work,” said Patterson, who also is vice chair of the Association for Financial Professionals, a corporate-finance trade group.

While session attendees had a bit more knowledge about the program than they did after the March 18 announcement, a long process of input and tweaking lies ahead before NACHA’s staff submits a rule proposal to the association’s membership. “What this is going to look like once we get to rule-making or ballot—we’re not there yet,” said panelist William J. Schoch, president and chief executive of the Western Payments Alliance (WesPay), a San Francisco-based regional ACH association with 1,200 financial-institution members. He was responding to an audience member who said she still didn’t know much about the plan.

At a news conference after the session, Estep said she expects the rule-making process to commence this year, with a ballot to follow in 2015. If approved, a same-day settlement rule would apply to all receiving depository financial institutions (RDFIs).

Session attendees and panelists all said the current push for same-day settlement is gathering strength from the same technological forces, including Internet-based services and mobile devices, that are boosting demand for faster payments worldwide. “Immediacy is now expected,” said Schoch.

NACHA’s 2012 same-day plan, dubbed Expedited Processing and Settlement, or EPS, reportedly failed to get the 75% vote it needed because of opposition by some big banks worried that faster, low-cost ACH payments might threaten their more profitable payments businesses. Whether the growing need for immediacy and the reworked plan’s features can get the needed votes is the next big question.