Same-Day ACH: Whose Interests are being Served?

Most everyone knows that the Federal Reserve announced recently that it would launch a same-day ACH settlement option to be available in the second quarter of 2010. The service enhancement would be offered optionally, would require opt-in, and would carry ostensibly higher pricing to the originating bank (ODFI) to compensate the RDFI for the accelerated debiting of funds – although the pricing plan was not announced. The accelerated clearing option would be available only for select debit transactions, eChecks, but would not be offered for ACH credit transactions – at least not initially. Some debate surrounds the specific mechanisms surrounding same-day settlement of what for years was a future dated transaction. The Federal Reserve unveiled its plan which some argue unduly favors ODFIs. Meanwhile, a number of industry executives advocate an alternative appearing to offer a stronger value proposition to receiving FIs. The latter proposal, known as the “NACHA concept”, would destroy a longstanding ACH system attribute; float neutrality. The result would look remarkably like today’s check clearing system. The Federal Reserve's proposed initiative appears adequately researched to us, and meets the stated objective just fine. Why the controversy? A larger question is this: Whose interest is same-day ACH supposed to be serving here? What hitherto unmet need is being met with either of these initiatives that cannot be met with an existing, alternative payment method? Celent finds the motivation for same-day ACH suspect. The often stated driver for same-day ACH is the growing network risk of direct sends occurring among several large banks, bypassing the network and thus “robbing” network operators of coveted transaction volume and its’ resulting revenue. A network based same-day option, some argue, would thus blunt the impact of such out-of-network activity by making ACH network based services more competitive. Not likely. Those same financial institutions have been clearing checks using direct exchange for years because doing so was less costly than using clearinghouses. Similar dynamics are at work with image exchange, and they will likely remain at work with ACH. A more viable argument for same-day ACH is to help the ACH network remain competitive with image exchange. Ironic isn’t it that after a decade of trumpeting the virtues of check conversion (faster returns among them) we are witnessing such a dramatic evolution of the ACH to improve its competitive position versus check clearing mechanisms? Ironic too is that the last ten years of ACH evolution, specifically check conversion, while bolstering ACH network volume, has also increased return rates and costs associated with the added complexity the changes created. Same-day ACH will likely only make matters worse by adding additional complexity. I suspect that when the dust settles a year from now, we’ll see relatively little same-day ACH volume. That is, unless we collectively think beyond competing payment systems and their institutionalized self-interests and deliver real value to consumers. Using same-day ACH for expedited payments would be one such approach.