Same Day ACH – but is there a Place for Real Time?


In my recent posts you’ll have noticed a recurring theme of moving from batch to real-time systems. Flying back from the NACHA payments conference last week I was thinking over the future of payments services, or products. Payments are being seen as an increasingly important contact point in the quality of a banking relationship, but just processing transactions cheaply, reliably and as quickly as possible isn’t a product differentiator, that’s the baseline for being in business. Of course, the phrase “as quickly as possible” can vary significantly from country to country based on local clearing and settlement mechanisms. At NACHA there was discussion (accompanied by a dose of skepticism) of moving to same-day ACH. This is essentially compressing next-day ACH into a tighter batch schedule. Apart from any operational challenges of what are predominantly mainframe operations in a complex back office environment, there must also be concern from payments product managers about low cost ACH transactions cannibalizing their higher margin Fedwire business. To put all that in perspective, let’s consider what happened in the UK.

 

Faster Payments

Of course the UK has far fewer institutions, and there are no time zone challenges to deal with, but it is a good example of a more aggressive approach to payments network modernization that was implemented (at least according to various consumer advocacy groups) at delivering a better quality payments service to customers. In contrast to the US approach, the UK has implemented the ‘Faster Payments’ initiative to move from an archaic three day cheque clearing to a payment confirmation you can bank on (pun intended) in 20 seconds. Essentially this was achieved by taking features from both card and ACH networks. With a transaction limit of GBP 10,000, there is some overlap with the national high value system (CHAPS) for consumer payments, but that limit is low enough to allow CHAPS to handle interbank and corporate urgent payments.

 

From the payments product manager’s viewpoint, covergence of payment systems and cannibalization of revenue streams is inevitable as the trend to real time systems and risk continues. But it’s better to transfer revenues in-house than have another bank take it away altogether. The key is to add value to the customer at the point of service, and speeding up the availability of funds is an important part of that.

Comments (2)

  1. Peter Guidi says:

    Thank you for your excellent blog on the role of real time ACH in the marketplace. Over the past five years NPCA has worked to make ACH decoupled debit a reality. Real-time ACH would add value to the product. “Faster” ACH for the decoupled debit card transaction would ease the entry of a new low cost competitive payment platform to enter the market by lowering risk.  Low cost ACH transactions may cannibalize higher margin transactions like Fedwire, but new transactional growth from this service could create increased revenue to the FI.

    In my mind the key differentiator between payments systems, particularly low cost programs, will be issuance. If retailers pay a very low fee how will enrollment incentives and rewards programs be sponsored? Are we headed to a bland payments landscape as cost is driven out of the system, with a corresponding increase in bank fees? My question is: who owns the consumer. The old saying “he who enrolls controls” may be the real battleground. Same day ACH is a game changer, and real time ACH is the “Golden Fleece” of decoupled debit. So my answer to your question: Is there is a place for real time ACH the product in the market, I’d say; you bet!

  2. Colin Kerr says:

    Peter – many thanks for your comment – you make some great points. One of the macro trends we see in banking from a Microsoft perspective is, "The Customer is in Control." In other words, customers dictate how they want to be serviced, at what time, and via what channel. Banks need to respond to this if they are to remain competitive. Ultimately that may also require exerting greater influence through membership of payment associations to change the game rather than preserve the status quo.