The Automated Clearing House Network might not be the sexiest entity in the fast-paced world of payments innovation, but it’s got some heft.
Nearly $39 trillion and 22 billion transactions ride that rail each year, according to the electronics payments network NACHA, and a year from now NACHA will make the first major change in decades to speed up the pace at which the ACH Network moves money.
On Sept. 23, 2016, NACHA will implement the first of three phases aimed at allowing same-day processing. During phase one, NACHA will add two daily settlement windows, bringing the total number to three.
Phase one will also make ACH credit transactions — such as hourly payroll deposits, person-to-person payments, and same-day bill pay — eligible for same-day processing. Phase two will introduce same-day ACH debits — which will empower same-day processing for utility, mortgage, loan, and credit card payments — and phase three will require financial institutions that accept those deposits — the receiving depository financial institutions (RDFIs) — to make funds available by 5 p.m. local time that day.
The change to the charge-back amount is an impact we will look to mitigate but not something we will let drive our strategy on how we provide faster payments to our members.
Phase three will begin March 16, 2018, but early adopters are welcome to meet its requirement anytime before then, NACHA says. Phase two will begin Sept. 15, 2017. And phase one is coming fast.
For many if not most credit unions, processors — including regional ACH operations and core processors — will be doing most of the heavy lifting, but credit unions need to understand how these changes might affect their operations.
“RDFI credit unions — or in this case, we their processor — will be required to make funds available from ACH credits to depositors by 5 p.m. local time,” says Marsha Sapino at Michigan-based CU*Answers. “We’re working to update our operations to give clients options for multiple posting windows on the settlement date.”
California-based core processor Symitar has similar plans.
“Clients receiving files will simply have to be aware of the time cutoffs the (Federal Reserve Bank) will have in place and determine at what point they need to run the process,” says Ted Bilke, Symitar’s president, adding that his operation already can handle multiple postings throughout the day.
Meanwhile, John Freeman, senior vice president of compliance and security at Alabama-based core processor EPL, offers these four considerations for those financial institutions that receive deposits, including the paychecks of millions of Americans:
Ensure the credit union or core processor has processes and procedures in place to retrieve, post, and balance multiple ACH files in a timely manner each day.
Review and modify, if needed, the credit union’s return process to comply with return timeframes.
Establish a process to validate and record the Same Day Entry Fee.
If the credit union wants to adopt the 5 p.m. local time posting requirement for same-day credits, then adjust processing schedules accordingly. Credit unions that don’t adopt now will be required to do so by March 16, 2018, Freeman says.
We already give our members credit before it’s required. Once we close the business day, we pull and post credits at night.
NACHA is providing its own checklists to implement same-day settlements. There’s more involved for the originating depository financial institution (ODFI), but most credit unions needn’t concern themselves with those details yet.
“We’re currently reviewing the enhancement need for origination items,” Bilke says. “The main focus for clients right now should be evaluating if they plan to offer the same-day settlement option to their clients as far as ACH origination is concerned.”
CU QUICK FACTS
Data as of 06.30.15
HQ: Tukwila, WA
12-MO SHARE GROWTH: 8.15%
12-MO LOAN GROWTH: 13.04%
Credit unions that need to think about ODFI changes are the ones that offer business services. For example, under the new rule, the ODFI pays 5.2 cents per transaction to the RDFI instead of the current 8.2 cents.
“Will it have an impact? Of course, but I hesitate to call it significant for two reasons,” says Ken Myhra, payments director at BECU ($13.6B, Tukwila, WA). “First the estimated impact is based on an assumption of how much volume will actually shift from Next Day or Standard ACH to Same Day ACH and how much net new volume will occur because of Same Day ACH.”
“Second, this is not something we had any control over,” says the BECU payments director. “The change to the charge-back amount is an impact we will look to mitigate but not something we will let drive our strategy on how we provide faster payments to our members.”
Also Read: NACHA Throws Open Three Windows
Also Read: Should Credit Unions Settle For Same-Day Settlement? NACHA-rally
Also Read: ACH Same-Day Changes Show It’s Better To Receive Than Give
CU QUICK FACTS
LEGACY COMMUNITY CREDIT UNION
Data as of 06.30.15
HQ: Birmingham, AL
12-MO SHARE GROWTH: 0.28%
12-MO LOAN GROWTH: 22.65%
Legacy Community Credit Union ($407.7M, Birmingham, AL) offers business services but does not have a lot of business members that need ACH for things like payroll, so it’s not likely the Alabama credit union will become an ODFI. And the 38,097-member institution already has been working with its core processor to receive under the new rules, says Paula Miller, Legacy Community’s senior vice president for finance.
“It’s really no trouble for us,” Miller says. “We just have to make sure the people at EPL are ready to do a couple more pulls by 5 p.m. every day.”
She also says Legacy Community doesn’t have to notify its members that their incoming funds will be available sooner.
“We already give our members credit before it’s required,” Miller says. “Once we close the business day, we pull and post credits at night. So the member’s money is already there in the morning.”
Big Picture In The Details At BECU
Payments director Ken Myhra says he and his colleagues at big BECU ($13.6B, Tukwila, WA) have learned a lot in the process of speeding up ACH. Here he shares his Dos and Don'ts:
Develop a vision and strategy for faster payments with same-day ACH as a major component. “That approach sends a clear message that we are doing this to provide a value-add to the membership, not because it’s something we have to do,” Myhra says.
Engage IT partners early on. At BECU, Myhra says, “they’ve been instrumental in translating member-centric vision and strategies into tangible technical workflows and business processes.”
Don’t go it alone. ACH touches so many areas of the enterprise that speeding it up in a silo could have a significant negative impact on the membership and the organization.
Don't stay silent. Instead, ask a lot of questions and communicate across the enterprise and with partners. “We learned early on that something as simple as the concept of keeping the member whole had a different meaning to not only a number of internal departments but also a number of external partners,” Myhra says.