The Emerging Case for a Rules Change to Force Same-Day ACH

With the Federal Reserve set to begin offering on Monday same-day clearing of automated clearing house transactions (Digital Transactions News, July 13), some industry observers are starting to push for a rules change that would mandate banks’ participation in this or a like service. “We either need a core [of committed financial institutions] or we need to mandate it, otherwise it’s going to face a struggle,” Beth Robertson, a senior analyst at Javelin Strategy & Research, tells Digital Transactions News.

Right now, the Fed’s new service, called FedACH SameDay, allows financial institutions to opt in as either originating or receiving institutions, or both. While optional participation eases the operational burden of the new service for banks, it leaves potential participants—including merchants–uncertain about whether their transactions will clear next day or a day sooner. “There’s no way of knowing you’ll be able to reach all the parties you need to reach,” observes Robertson.

She argues this uncertainty is keeping most players on the sidelines. Indeed, in a report she wrote for Javelin this month, she found only tepid support for the Fed program among institutions she contacted. “There is not a lot of interest in participating in the current incarnation of same-day ACH,” she says. “This comes from all sectors.”

A mandate, by contrast, would open investment spigots at banks and lead to a ubiquity of available endpoints, Robertson and others argue. Universal participation by receiving banks, in turn, would bolster originating banks in their efforts to sell the service to merchants. “A rules change would, of course, produce rapid compliance,” notes Bob Meara, a senior analyst at Celent LLC, Boston, in an e-mail message to Digital Transactions News. “A critical mass of [receiving institutions] is required to make this more than an experiment.”

Any rule forcing financial institutions to speed up ACH settlement would come not from the Fed but from NACHA, the Herndon, Va.-based organization that regulates the ACH. With alternative-payment channels like mobile payments starting to emerge with demands for faster funds availability, some experts argue the rules-setting body doesn’t have much time to position the ACH competitively with alternatives like Check 21, which already clears within 24 hours in many cases, and the card networks. “Mobile is going to take off,” says Robertson. “Now’s the time networks are being tested. We’ve got just a few years before transaction activity grows significantly and becomes more common. [NACHA] needs to get moving within the next year to make some changes that would support same day.”

For her part, Jan Estep, president and chief executive of NACHA, appears to agree but leaves open the question of whether, or when, such a change might be introduced. “It is difficult to envision the future of the ACH network without including the opportunity to clear and settle ACH transactions more expeditiously than is the case today,” she says in a statement sent to Digital Transactions News. “We will continue engaging the industry to assess the impact that any change would have on various participants and their infrastructure.”

Robertson concedes it’s difficult for NACHA, a creature of multiple banks and banking interests, to move quickly. “They’ve got their board and they’ve got to get buy-in,” she says. “They have a lot of constituents they have to work with.” And, though same-day clearing may be a high priority for some, it may not be for others. “Apparently, there have been plenty of other initiatives to pursue beyond same-day settlement at NACHA,” notes Meara.

Following up on a proposal it first put forward early in 2009 (Digital Transactions News, March 2, 2009), the Fed last month announced it will begin offering same-day settlement for certain ACH transactions beginning Aug. 2. The move, which speeds up settlement by one day and represents the first significant change to ACH clearing windows in 37 years, applies only to Fed-processed ACH debits. The Fed is one of two switches for the national ACH system and handles 57% of all ACH traffic. Consumer check conversions, as well as Internet-initiated and telephone transactions, are eligible. This range of transactions embraces both check-based conversions as well as payments that are electronic from the start, such as WEB-coded online bill payments.

The other ACH operator, The Clearing House Payments Co. LLC, based in New York City, has not announced whether it plans to offer an expedited service. Comment from the company was not immediately available.