On Sept. 23, the industry welcomed the rollout of ubiquitous faster payments to every consumer and business in the U.S. via all banks and credit unions. NACHA’s launch of Same Day ACH ushered in three settlement windows, enabling ACH payments to be received same day.

In the previous episode of NACHA’s Countdown to Same Day ACH podcast series, NACHA President and CEO Jan Estep identified the overlaps, complements and implications of all the initiatives under the faster payments umbrella — namely, real-time payments, Same Day ACH and blockchain.

In this week’s last and final installment of the series, George Throckmorton, Managing Director for NACHA, took the conversation one step further — exploring the impact of other payments initiatives, such as tokenization, APIs and ISO 20022, that are also supporting innovation across the ACH Network, which now moves money faster and smarter with the introduction of Same Day ACH.

 

The Road To Process Improvement

ISO 20022, which is designed to set the tone for global financial industry messages, provides a standardized approach to building messaging standards across financial services.

As Throckmorton pointed out, it’s not about moving money but more about making processes better, more standard and more secure.

Though the set of global business standards have been around for some time, ISO 20022 still has the ability to enhance how payment messages are sent and received.

Throckmorton explained that ISO 20022 is not new to NACHA; there’s been an increased interest from businesses to have this flexible option of using ISO formatted messages.

“They are trying to maintain interoperability from a global perspective and also trying to achieve that standardization,” he explained. “In addition, when thinking about faster payments, there’s still a need and a real desire for receivers of those payments to receive information about the payment.”

The growing interest in ISO has come from businesses wishing to reduce costs, gain efficiency and have standardized flow for how these messages are working through that entire platform, Throckmorton added.

NACHA offers an ISO 20022 Mapping Guide to businesses that enable them to send ISO formatted messages to financial institutions that can then move those payments and information through the ACH Network.

With Same Day ACH now in play, Throckmorton said the focus will be on creating additional efficiencies now that money is being moved faster.

 

Innovation On Old Initiatives

Much like ISO 20022, tokenization is not a new concept for NACHA.

Though it’s become a big buzzword across payments, the use of tokens to disguise and safeguard sensitive information is much more than just a trendy security tool.

Throckmorton noted that the ACH Network has used tokens for a number of years and that now, with faster payments, the interest in them has increased from both businesses and consumers.

“Consumers have a growing interest to protect their information, whether it be on a mobile platform, with a merchant or biller,” he explained.

Now more than ever, especially in an increasingly mobile landscape, tokens have become a sought-after option because they are user-friendly, while also able to protect the companies that are originating payments.

NACHA is continuing to look at tokenization and better understand the implications on all parties, looking at the investment in the technology, the advantages and reduced risks it provides.

In addition to that, Throckmorton said NACHA has the ability to reach out to the industry about tokenization through its Payments Innovation Alliance, which is made up of a diverse set of stakeholders, including corporates, service providers, financial institutions, etc.

“That group takes a deeper dive and really looks at the individual use cases, provisioning options and any further impacts that they might see that could potentially happen with ACH payments and beyond,” he added.

APIs are also another significant force in supporting innovation.

The technology enables a very small amount of code to be used by systems to talk to each other, whether they be legacy or just disparate systems where connectivity is needed.

In faster payments, APIs are being developed faster, at less cost and in an open environment to support innovative products and services, Throckmorton noted.

Whether it be specific to user experience or improved security, there are already a number of ways these APIs are being used to spark change across the industry.

“I really think that’s where we’ll see the most innovation in the coming years, is with this API strategy — both with financial institutions and nonfinancial as well.”

 

In just a matter of days, the payments industry will see a significant — and ubiquitous — change in the way payments are sent and received. Same Day ACH will create a new option for faster payments for all the banks and credit unions across the U.S. Two new same-day settlement windows will be added to the ACH Network, which will increase the actual movement of funds between all those financial institutions from once a day (at the beginning of the day) to three times a day.

Through NACHA’s Countdown to Same Day ACH podcast series, we’ve explored what Same Day ACH is all about, the myriad of use cases and applications it’s designed to deliver and if corporations and businesses are truly ready for the change. This week, Karen Webster was joined again by NACHA President and CEO Jan Estep to discuss the relationship between Same Day ACH and other faster payments initiatives — namely, real-time payments and blockchain.

 

What’s Under The Faster Payments Umbrella?

The term “faster payments” means many different things to many different people; however, Estep said, the best way to think about “faster payments” is as an umbrella for payments initiatives designed to speed up the systematic movement of payments.

“That way,” Estep said, “faster payments sits over the top, and Same Day ACH or real-time payments are options underneath that. Both are about moving payments faster than they are today.”

To that end, Estep said, real-time payments and Same Day ACH are distinct, but complementary, in this construct. They also come with real differences, depending on where you are in the world.

For example, Same Day ACH will move money between all bank accounts in the U.S. three times every day, supporting both debits and credits when fully deployed. In other countries, however, real-time payments have traditionally only supported credit or what are sometimes referred to as “push payments.”

Alternatively, Same Day ACH is designed to support all ACH payments, both credit (push transactions) or ACH debit payments (those which pull money from an account after authorization.)

Estep said these faster debits, which will launch next year in a later phase of Same Day ACH, can also mitigate risk by providing faster returns for individual organizations, such as billers that tend to use ACH debits for recurring payments, like utility bills or other invoices.

But, Estep said, it’s important to remember that Same Day ACH is more than just moving the money faster. Along with the funds movement, a lot of information passes through the ACH Network right with the payment. More frequent settlement can also benefit messaging layers that may operate on top of the ACH Network. Estep said that, since the ACH Network functions as a backbone for other payment mechanisms, it can enhance functionality for other payment processes across the U.S.

Take merchant acquirers who wish to expedite the posting of funds on the same day to a merchant’s bank account. Same Day ACH can give a boost to them, as well as to prepaid cards that can be loaded faster, with the assurance of having good funds behind them.

“Same Day ACH really just provides additional functionality right on top of the network, which makes it quite easy for innovators — be they independent companies or financial institutions — to create new and faster payment offerings and services,” she explained.

While both Same Day ACH and real-time payment initiatives have unique functionality and innovative use cases serving distinct end-user needs, collectively, these initiatives will give U.S. banks and credit unions the ability to better serve their customers.

“It’s not an ‘or’ but an ‘and’ when you think of Same Day ACH and real-time payments,” Estep noted.

 

Where The Blockchain Fits

As we know, experimentation with blockchain and distributed ledger technology is happening across the payments space.

Many organizations are experimenting with these new technologies to simplify complex financial transactions. For instance, some are developing use cases around things like smart contracts, cross-border payments and security transactions.

Estep said there are touch points for these options under the faster payments umbrella and, specifically, with Same Day ACH.

“As we think about architecture around this technology, blockchain is used kind of as a protocol layer on which these applications can be built. But it is not standalone; it has to connect to other processes, and at this time, we also have to remember that distributed ledger and blockchain aren’t widely used across the globe,” she explained.

This means many of the applications will require integrations with other systems — whether they’re back-office systems or payment systems, such as ACH; interoperability with other systems will be key. Estep views the ACH Network as having on- and off-ramps for many applications through which money must change hands.

“One of NACHA’s core competencies is really helping diverse parties come together for payment-related standards and rules. As these new technologies evolve, we can also play an additional role to help the industry where maybe a thin set of rules can help to drive efficiencies by better defining roles, responsibilities or processes.”

 

Same Day ACH is just weeks away from becoming a reality. Consumers are ready; banks are ready.

But are corporations prepared to handle the new world of faster payments?

As part of NACHA’s Countdown to Same Day ACH podcast series, this week’s episode provides a look at what corporations and businesses should be expecting as the ACH Network moves closer to speedier payments and quicker settlements. Rob Unger, Senior Director of Product Management and Strategic Corporate Relations at NACHA, said that, although businesses are generally excited for the change, there’s still much they have to keep in mind in preparation for the first phase of the Same Day ACH initiative.

 

Listen Up, Corporates!

Corporations and businesses are important stakeholders in the ACH Network, and whether they have a desire to use Same Day ACH or not, Unger said, they need to be prepared for the upcoming shift to faster payments.

Every business that either sends or receives an ACH payment today will be impacted by Same Day ACH when it arrives, whether they like it or not. This is why it’s important for companies to review both their payables and receivables processes.

While it is optional to send a Same Day ACH payment, there are potential impacts to the payables process even if a business will not be sending Same Day ACH payments.

Many businesses set up their payment runs and ACH payment files with financial institutions years ago, and those files could potentially have static effective entry dates — the field a bank will use to determine if a payment goes by a classic ACH or Same Day ACH. Having a stale or static date in that field could result in a Same Day ACH being initiated by accident and money being removed before a sender is ready.

“Even if you’re not thinking you’re going to be sending Same Day ACH payments, you have to review your payment run and effective entry dates to make sure you’re using that correctly,” Unger said.

And though sending Same Day ACH payments will be optional, the same can’t be said for businesses when it comes to receiving faster payments.

“On the receivables side, businesses don’t have a choice. If you receive ACH now, you’re going to have to receive and post Same Day ACH payments should they be sent to you,” Unger said. “What that means is that, if you receive a payment on day one, you have to be able to apply credit on day one.”

Lack of preparation, Unger explained, could result in consequences to a corporation’s cash position or customer relations, where a customer sends a Same Day ACH payment and expects to receive credit that day.

Whether a corporate entity is making a payment or receiving a payment, Unger suggested using NACHA’s Same Day ACH For Businesses Essentials Guide as a resource for recommended processes and actions to take before the launch.

NACHA’s hope is that businesses will make the time to conduct an opportunity assessment, review current payment services and ACH origination or receive agreements, assess internal processes and systems and evaluate their risks.

 

Making The Case For Businesses

According to Unger, there’s a wide range of use cases businesses can evaluate with respect to whether or not Same Day ACH can benefit them.

For time-critical or emergency off-cycle payments, Same Day ACH enables funds to be sent, settled and credited much quicker. This facilitates paying an invoice on the day it is due and conserving funds until that time. It’s also considered to be the lowest cost receipt channel for receiving an expedited payment if a customer needs to make an emergency payment to a business.

“When the debit becomes available next year, we think Same Day ACH is a great option to help reduce risk because you’ll get those returns and errors back quicker, so you’ll have a better sense of your payment status,” he added.

There are also recognized business needs in the form of emergency payroll payments, off-cycle disbursements, garnishments, tax withholdings or payouts for employees that Same Day ACH can support.

Today, when faster payments are needed, corporations tend to go with the option of using wire transfers, but Unger noted that those can be costly and don’t provide as much remittance information as an ACH payment can.

This remittance information, he noted, is critical for a receiver of a payment to know what the payment is actually for.

Through its research, NACHA has found that many businesses pay with split remittance — they will send a payment, but then they will send the remittance information by fax, email or regular mail.

That means the person receiving the payment has to re-associate that, and that’s timely, costly and can slow down the payment.

Unger explained that it’s very important for corporations, whether they are the sender or receiver of the payment, to look at the benefits around sending the information with the payment, which ACH can accommodate.

“Sending that Same Day payment with the remittance information can really help get the payment there and can help that cash be applied faster in the account receivable system,” Unger said.

“We think Same Day ACH can reduce a lot of the friction around the costs and information flow with respect to faster payments.”

Not only are Same Day ACH payments on the way, but they are expected to have huge impacts on the way payments are made throughout the payments landscape.

And we’re not just talking about speeding them up.

As we learned in last week’s installment of the Countdown to Same Day ACH podcast series, the first phase of the Same Day ACH initiative launches on Sept. 23, ushering in three daily settlement windows, five days per week, to support access to more efficient transactions.

NACHA President and CEO Jan Estep made it clear that the industry is more than ready for the change, and this week, she provided us with a look at several use cases and applications that Same Day ACH payments are sure to deliver on.

 

The Importance Of Certainty

The Same Day ACH capability is designed to move payments and payment-related information faster — ensuring that any ACH payment can reach absolutely anyone else in the country on the same day, regardless of which bank or credit union is used.

The initiative is centered around ubiquity, something that’s hard to achieve but what Estep said is necessary to provide tremendous value.

“Same Day ACH really serves as an immediate solution to support the demands of consumers and businesses that simply want to move money faster,” she explained.

The goal is that both consumers and businesses will be able to use the new capability in a variety of new ways.

The ACH Network today supports many types of payments and environments in which those payments can be made. So, by adding options for speed, Same Day ACH will be able to provide benefits across all ACH Network users.

 

The New Face Of Faster Payments

According to research commissioned by NACHA related to the needs of payment users in the U.S., there are a total of 63 potential use cases for faster payments in the market today. Of those 63, NACHA has identified 10 primary use cases that, in the end, are projected to generate nearly 1.4 billion Same Day ACH transactions, Estep confirmed.

Many of those use cases actually align with some of the traditional uses of ACH, such as payroll for businesses and bill payment for consumers and businesses.

For payroll and direct deposit payments, which make up a third of the ACH Network today, Same Day ACH can provide good backup for anyone that wants to move payroll faster or not worry about the impacts from potentially missing a file delivery date.

Most payroll is executed by businesses on a Friday, meaning that, if a Thursday deadline is missed, it can result in a major pain point for both those employers and employees.

Estep explained that Same Day ACH can enable a payroll file to be submitted on Friday morning and ensure that funds from those direct deposits are available to employees that same day, providing the funds to cover any debits coming out of their account later that day.

Faster payments will also help businesses to pay hourly employees in a timelier manner, she added, giving employers flexibility and the opportunity to avoid the lag time that usually takes place between final hours being reported and when payroll can be processed.

In the same way, Same Day ACH can help businesses or consumers with cash flow. They will be able to initiate a Same Day ACH credit on the last day an invoice or a tax return is due, thereby conserving cash and still meeting the due date.

This will also be the case when it comes to urgent needs for P2P or other account-to-account payments, Estep noted.

“As we look to the second or third phases of our implementation of Same Day ACH when debits will be supported, things like getting faster returns on debits will also help our payments ecosystem,” she said.

 

Building In Innovation

The use cases for faster payments are broad.

Innovation can even be found in what may seem like very basic or straightforward applications.

“Bill pay — which you view as just a general application — is one that becomes innovative if it’s highlighted to consumers and gives them an option where they can eliminate something like a disruption or a cancellation of service or avoiding a late fee,” Estep stated.

The importance is shedding light on the value-add of the experience once faster payments are involved.

“The key is not just being able to move the funds that rapidly, but it is innovation that’s infused in terms of the service layer,” she continued.

This is the point at which unique payment applications are developed.

Estep emphasized that it’s not just the movement of the money but how you make it easy to pay.

“The innovation on top of the ACH Network is really the way for that to happen,” she said.

“When you think about innovation in this environment, it’s looking at the benefit of cost savings, efficiencies and good customer service for businesses and for consumers alike.”

 

It’s official — the launch of Same Day ACH payments across the U.S. is less than 30 days away.

The good news is, it’s happening. The question that remains is whether the industry is actually ready for the significant transformation faster payments is sure to bring.

Phase one of the Same Day ACH initiative goes live on Sept. 23, and with it will begin the shift to three daily settlement windows, five days per week, in order to provide both consumers and businesses access to more efficient transactions.

And it will enable this, on day one, with all 14,000+ banks and credit unions in the U.S.

According to NACHA President and CEO Jan Estep, not only is the industry ready for the change, but it has rallied together to create this new option for same-day clearing and settlement of ACH payments between all the banks and credit unions throughout U.S.

Driving Towards Ubiquity

Under this new Same Day ACH rule, two additional same-day settlement windows will be added to the ACH network. This is expected to increase the movement of funds between financial institutions and help support ubiquity, which is the linchpin for making Same Day ACH successful.

Estep described the importance of ubiquity as being the absolute certainty that a payment can get to anyone else — a consumer or a business — on the same day electronically, regardless of where they bank.

It’s a powerful concept and one that has the potential to radically change the way payments are both sent and received.

“With Same Day ACH, a payment can be sent to and received by any bank account in the U.S., because all financial institutions will be required to receive Same Day ACH transactions,” Estep explained. “That really provides tremendous value for all the users of the ACH network.”

NACHA said that the nation’s financial institutions are ready for Same Day ACH.  Estep noted that this is particularly relevant on the receiving financial institutions’ side, due to the requirement that all financial institutions are obligated to receive Same Day ACH. However, NACHA’s survey results also found that 71 percent of financial institutions said they will also make received funds available to their clients by 5 p.m.

That, Estep said, reflects the level of enthusiasm that receiving banks have for the new service, since the requirement to support a 5 p.m. deadline is actually not scheduled to be put into place for the next 18 months.

On the originating side, the picture is just as promising.

According to NACHA’s research, 95 percent of the  nation’s top financial institutions that help their customers send ACH payments plan to offer their clients Same Day ACH origination services by the end of this calendar year.

Estep confirmed that 100 percent of those surveyed who said they will offer Same Day ACH origination services also plan to make same-day payroll payments available, while 95 percent said they will offer same-day business-to-business payments, in addition to services such as expedited bill payment and person-to-person payments.

It’s quite a feat to wrangle approximately 14,000 financial institutions into moving in the same direction by a certain date, but it looks as though the industry is well on its way when it comes to Same Day ACH.

Prepping For The Big Move

As the Sept. 23 kickoff date for phase one quickly approaches, Estep said that banks and credit unions should be doing certain things to prepare to both receive and originate Same Day ACH payments.

On the receiving side, Estep explained that financial institutions must have discussions internally and request any support needed from their vendors and processors. It’s also important for financial institutions to understand the schedules for receiving Same Day ACH and determine when they will post those transactions to the end user account, she added.

When it comes to the originating side of Same Day ACH, banks and credit unions have the opportunity to take advantage of what Estep called the “fun part” of the shift, which includes thinking about the new capabilities supported across the industry and meeting the needs of their clients in new ways.

“Many financial institutions are also looking at how they can create the new innovative services to meet the changing demands in the industry,” Estep pointed out, “so they need to understand how Same Day ACH is available for virtually any payment, although it is not applicable to international ACH or for larger transactions over $25,000.”

In an effort to help financial institutions as they transition into the new faster payments environment, NACHA supports a Same Day ACH Resource Center. The site provides a variety of educational materials in the form of white papers, webinars, toolkits other resources.

The information is delivered in different formats for specific audiences – very technical information for those who need to implement, and information that is easier to understand for end users.

One final key aspect Estep said banks and credit unions should keep in mind as the industry moves closer to Same Day ACH is the ability to move together both a payment and a substantial amount of information related to the transaction.

“Providing that benefit of straight-through processing with the potential to receive not only the payment but the information, and then post it directly to an account without human intervention, is really one of those key places where doing that on the same day can provide tremendous value to the industry,” she said.