| Same-day ACH clearing and settlement is coming soon to a bank near you.
NACHA, The Electronic Payments Association, intends to propose a ballot to adopt a refined same-day ACH rule in the second quarter of this year, with implementation occurring between 2016 and 2018.
NACHA, which supports more than 80 million Automated Clearing House payments daily, including direct deposits and direct payments, said it received more than 200 responses to a request for comment on same-day ACH; the deadline was Feb. 6. The association said that it will redefine its proposed rule based on the comments and issue a proposal later this year.
Same-day ACH would implement two additional settlement windows, one at midday and the other at the end of the business day, to join the current early morning daily settlement. The modifications are expected to be a cash-flow boon, improving the speed and efficiency of the nation’s payment system, and free up money on ACH hold for other uses.
A previous initiative by NACHA in 2012 didn’t bear fruit. Neither did the Federal Reserve ACH’s opt-in program, launched in the last few years. The concern then, as now, was that payment originators (e.g. retailers, payroll managers, business-to-business customers and customers making mortgage payments) wouldn’t accept same-day ACH until they could be assured that financial institutions would widely adopt same-day processing. And the issue going forward is whether it will become incumbent on the smaller institutions to upgrade their technologies in order to offer same-day ACH.
The quicker the better, but the industry has to work through the questions of what will be required to get the job done – validation of good funds, settlement of funds or actual funds availability in a user’s bank account.
We’ve Got That Covered
Payment industry observers have raised concerns about exposure to fraud, and also, in smaller banks, about the availability of trained staff to review all the transactions in timely fashion in order to make the proper exceptions. But prefunding controls, which have been in place for a few years, protect against loss due to insufficient funds or fraud. With faster processing should come faster ways to make exceptions.
That’s the observation of Ben Craigie, director of compliance and training at the Massachusetts Bankers Association. “It’s good for the industry,” he said, noting that same-day ACH has received support from the American Bankers Association. Payers will be able to manage long-standing processing issues, he said; banks can underwrite consumers’ ACH ability by pre-funding a separate and distinct amount for up to 24 hours to ensure sufficient funds before payments leave the bank, which is mostly applicable to business customers.
As for the availability of designated ACH professionals at the community bank level, they have been in place for some time, as has the availability of integration with core providers, Craigie said.
The recent disclosure of mobile-payments fraud on the much-vaunted Apple Pay system raised concerns about where the weakness in the system was coming from. Apple Pay was supposed to be extremely secure, utilizing tokenization, biometric authentication and on-device secure storage. But those intent on committing fraud can load and use stolen cards into even the most secure phone.
“What’s happening [with Apple Pay] is nothing new,” said Damien Hugoo, product manager at EasySolutions, a security services vendor. “What’s different is that when Apple went to market with Apple Pay, [the agreement was] that liability would be on the banks.”
The critical issue is to establish that the card is being used by the entity to whom it was issued and to detect anomalies before the transaction gets into the system, he said; “it’s easy to use stolen cards, [but that] door is going to close.”
Big banks already have tools in place to verify legitimate cardholders, he said, but small banks lack the tools to verify Apple Pay. “I’ve worked with community banks [for whom] ACH is just part of what they do. Some don’t even have a call center.”
Big banks already have same-day ACH, as well as real-time fraud detection. Small banks, those with $10 billion or less in assets, offer ACH Positive Pay or ACH Debit Blocks to protect consumers, but those systems are based on overnight settlement. “Fraud detection is something new for a lot of community banks,” Hugoo said. And then there are cost pressures associated with converting from an overnight process to same-day.
That said, he acknowledged that same-day ACH is on its way, enhanced by consumer demand from those who use PayPal, for example. “It’s going to come – we will have something for real-time payment. It’s already there in other parts of the world.”
