How Will Same-Day ACH Affect Banking?

Slowly but surely, the waits are disappearing in banking.

Mobile banking means you don’t have to wait on line at a branch (not that there would be a line these days if you went there). Accounts can be opened within minutes, and loans are approved more quickly. Perhaps most crucially, payments are getting faster — real-time payments are available through a growing number of networks, and same-day ACH — or part of it, at least — is going live today.

ACH stands for Automated Clearing House, and is the primary way banks (and many businesses) send money to one another. It’s also the way paychecks are “direct deposited” into user accounts. In the second quarter, approximately 5 billion transactions moving approximately $11 trillion traveled the ACH rails.

It is affordable and reliable but in the age of immediacy, slow.

NACHA, an FI-funded organization that manages the development and governance of the ACH network, lists the following as its first ACH Quick Fact on its site:

• The ACH Network is a batch processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing.

That will change tomorrow. Instead of ACH payments being sent out in a batch at the end of the day from Bank A, then arriving and being settled in a batch at the end of the next day at Bank B, ACH payments will have two windows per day in which to send and receive transactions. This means money will travel more quickly and recipients will get their funds faster. Today, only the receiving part goes live for all banks. Next year, the sending portion will be live as well.

Dwolla, which operates FiSync, one of several realtime networks available to banks, is also working on improving ACH. The company released a new API for same-day ACH this week that provides more human-readable data around transactions, and makes them easier to manage. The product Dwolla offers FIs to manage ACH is called Dwolla White Label.

Dwolla believes that Same-Day ACh will drive revenue banks in a number of ways. From one of its many posts on Same-Day ACH and its virtues:

Financial institutions receiving credits (and eventually requests) on behalf of their customers will get paid by the originating bank or credit union. You can think of this interbank fee as a small, fixed per transaction cost of $.052 per entry or transaction. The fee was designed to compensate the built-in costs, like risk and operations, associated with receiving Same Day ACH credits and provide a “fair return” on their investments. Still, don’t expect it to be a cash cow for receiving financial institutions.

New or improved devices will drive revenue opportunities for originating financial institutions to compensate themselves. Same Day ACH enhancements will offer providers, like credit unions and banks, a new value proposition to build into the services and products they offer. We’ll save the complex discussion around monetization, compensation, and incentives of Same Day ACH for another day, but looking at NACHA’s April 2016 survey we can draw one big conclusion: the nation’s largest originating financial institutions see Same Day ACH origination as an opportunity to provide value (i.e. monetizable products, like payroll, treasury management services, etc.) to their customers—with 100% of institutions surveyed saying that they plan to offer Same Day ACH payroll and another 95% planning to provide same day B2B payments.

Happier customers. Don’t laugh. Financial institutions make a significant portion of their revenues off of the money, or deposits, we hold with them. It’s why losing an account balance to a fintech company or a new-age digital bank, which provides compelling digital experiences and options, makes financial institutions stay up at night. And it isn’t looking good. Research has shown that Millennials hate banks.

Payments are a valuable component of the banked experience. In our eyes, the 2 to 3 business day wait times aren’t ACH’s fault, they are the bank’s. Same Day ACH provides financial institutions a new tool in building products, experiences, and options that matter to a new generation of consumer. Expedited bill pay? Better P2P experience? Cheaper wire services? These aren’t just consumer pain points, but opportunities for banks and credit unions to make their product stickier and more attractive.

To learn more about faster payments, join us in Tel Aviv in November for Bank Innovation Israel. Register here.