The Payment Rail Rolls On Despite Delays In ACH Window

The Fed says it wants to gather more comment regarding same-day ACH payments, tapping the brakes on a process that began in 2016. But credit unions have other real-time options.


Top-Level Takeaways

  • A third origination window would allow later payments and benefit credit unions further west.
  • The Clearing House, card processor debit rails, and connectivity to biller-direct sites are real-time competitors.

The Federal Reserve has delayed by six months the drive to open more windows for same-day payments through the ACH Network, but the impact of that delay appears at best uncertain.

Despite the fact the ACH payments rail accounts for more than $40 trillion in transactions every year, it’s just one of the options available for credit unions and other financial institutions. Plus, there already are two new windows in place, and NACHA says network volume is growing.

NACHA, the administrator of the ACH Network, began adding new origination and settlement windows in 2016, in a staged rollout that’s now scheduled to be completed in March 2021 instead of later this year.’

Many institutions, like Credit Union of Texas ($1.4B, Dallas, TX), jumped on the opportunity early and adapted their processes to handle the new windows, and consumers noticed.

Our members enjoy receiving that same-day credit by 5 p.m., says Joy Wood, the Lone Star State cooperative’s vice president of e-services.

Typical of a consumer-oriented credit union, CUTX is more of a receiving depository financial institution (RDFI) than originating depository financial institution (ODFI), although it does both. ODFI transactions tend to be payroll and business transactions. In January, CUTX originated approximately 40,000 transactions worth about $21 million, mostly loan and account-to-account payments, Wood says. That’s from a total of 400,000 ACH transactions worth in the ballpark of $257 million that month.

And whereas the industry hue and cry for faster payments reaches a crescendo, the ACH channel, as large as it is, is not necessarily where that action is.

We don’t really see it as a competitive product offering but more of a regulatory requirement, Wood says.’

Arguably, NACHA could create 100 daily windows and offer something darn close to real time. But that begs the question, How fast is fast enough?

Glen Sarvady, Managing Principal, 154 Advisors

According to Wood, the real real-time payment plays come in the form of person-to-person services such as Venmo and Zelle or biller-direct functionality that allows members to make instantaneous payments on biller sites.

So, if and when the third ACH window opens, the size of the impact might depend on geography.’

The third processing window is primarily a plus for financial institutions located in the Pacific time zone, Wood observes.

That’s because the first same-day processing window opens at 10:30 a.m. Eastern Time. That’s 7:30 a.m. on the West Coast, before business hours. The third window for submission, which would close at 4:45 p.m. ET, would be a clear plus for financial institutions further west.

Although the delay doesn’t have a negative impact on us, the additional file will provide a competitive advantage for financial institutions in the Central Time Zone to process three Same Day ACH files, Wood adds.’

The same-day initiative began with the creation of two ACH credit transaction settlement windows on Sept. 23, 2016. Funds sent by the ODFI now must be available at the end of the processing day (providing settlement by 5:30 p.m. ET) at the receiving depository institution.

ACH debits became eligible for same-day settlement on Sept. 15, 2017, with the same availability requirement. Last March, debits were added with the stipulation that RDFIs must make the funds available by 5 p.m. local time.

NACHA members voted last September to expand Same Day ACH submissions to 4:45 p.m. ET. The new operating rules also increase the Same Day ACH per-transaction dollar limit from the current $25,000 to $100,000.

The third window was to open on Sept. 18, 2020, but NACHA bumped it to March 19, 2021, after the Fed said it wanted more public comment on the move.’

The Federal Reserve Board of Governors has informed NACHA that it will not be able to provide timely notification of its approval for Federal Reserve services necessary to enable the new window by the deadline provided for in the rule, NACHA says in an executive summary on its website.

Although that delay has raised some eyebrows, the same-day initiative is gaining traction. NACHA says there were more than 51.2 million same-day payments in the fourth quarter of 2018, a 46% jump from the same three months in 2017. There were more than 5.9 billion ACH transactions overall in the fourth quarter of 2018, an 8.7% bump over the 2017 quarter and the highest quarterly growth rate in 11 years.

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There is robust growth across many ACH transaction types and the numbers for Same Day ACH show it is being embraced by consumers, businesses, and financial institutions, says NACHA chief operating officer Jane Larimer.

That growth is occurring without that third window. One veteran payments consultant agrees that it might not make that much difference. Glen Sarvady of 154 Advisors says he’s not certain adding a third window will result in a significant bump in same-day volume.

Obviously the more windows, the closer the process comes to delivering real-time, says Sarvady, an Atlanta-based former Fiserv CheckFree executive. Arguably, NACHA could create 100 daily windows and offer something darn close to real time. But that begs the question, How fast is fast enough?

Along with the other faster payment rails noted by Wood at CUTX, there’s the nation’s other ACH switch: The Clearing House operated by a consortium of major banks.’

We can’t lose sight of the payment finality’ feature that’s baked into TCH’s real-time solution and is not part of Same-Day ACH, Sarvady says. This is an important factor that also will drive many use cases.


April 1, 2019

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