What Is The Future Of Same-Day Processing?

July 7, 2015 at 10:16 am 2 comments

Whenever I get a chance I like to remind credit unions of the big issues right around the bend.  It’s important to pullback the lens and look at the forest instead of the trees.

One of the biggest shifts on the horizon is the movement of NACHA towards mandatory same-day settlement of ACH transactions.  It’s important not only because of its operational impact but also because, when fully implemented, it could either provide needed compensation for credit unions or conversely become the next frontier of regulator micro management in the name of so called consumer protection.

Under existing NACHA rules,  ACH payments are settled by the next business day.  New rules, once fully  phased in over a three stage process starting  in September 23, 2016 ,  mandate that  NACHA network participants must  be able to process payments the day they are received if requested to so  by the financial institution that originates the transaction (The ODFI). Specifically same-day settlement requests received by Receiving Depository Financial Institutions by 1030AM Eastern Time will have to be processed by 1:00 PM and payments received by 3:00 would have to be processed by 5:00PM.

My guess is that your average consumer or business, when they give it any thought,  doesn’t understand why the banking system has any float periods in an age when money is moved at the speed of light.  They have a point. NACHA is moving towards a system in which customers are offered the option of faster processing; the increased cost and hopefully a little profit (God forbid!) will be paid by the consumer or business that wants faster settlement. For large banks and credit unions with a high volume of originations the idea is a no brainer.

A mandatory rule is really the only way to get the ball rolling   on this long overdue innovation.  In 2010 Federal Reserve Banks began offering an optional FedACH® SameDay Service but the Fed reports that, in the five years since its introduction, the FedACH SameDay Service has received a lukewarm embrace with fewer than 100 depository institutions currently using the service. The Fed points out that, while ODFIs may be able to realize value from the service through enhanced ACH product offerings, smaller institutions with less origination volume have been reluctant to invest the time and money it may take to upgrade their systems.

To help address this issue under the new rules RDFIs will receive a fee of 5.2 cents for every same-day transaction they process.  Only time will tell if this is enough.  If financial institutions are allowed to function like regular businesses it should be   easy to adjust this fee if institutions aren’t being fairly compensated.  Unfortunately,   as same day processing becomes the norm regulators, led by the CFPB, may seek to cap these fees if they think they are too high.

NACHA originally proposed a fee of 8.2 cents but reduced it in the final regulation.  In its comment letter on the NACHA proposal the Federal Reserve expressed concern that “Through its effect on fees to originators, the interbank fee will likely reduce usage of the same-day ACH service from what it would be absent a fee, and ultimately limit the benefits that end users derive from it.”

In other words, regulators are already suggesting that they and not consumers are best positioned to know what fees are reasonable.  It’s this kind of thinking that will give the U.S. the most regulated but antiquated payments system in the advanced world.

Is that really what consumers want?

Here is a resource  for more information.






Entry filed under: Compliance, Regulatory. Tags: , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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