Although new payments rails and formats continue to emerge, all signs point to ACH remaining the dominant payment network. In fact, volume on the network is expected to accelerate, placing a strain on many financial institutions’ longstanding payment infrastructures.

In a recent PaymentsJournal webinar, Finastra’s Radha Suvarna, Chief Product Officer, Payments and Mihail Duta, Director of Global Solution Consulting for Payments, along with James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the trends driving ACH adoption, the impact on banks’ systems, and why payments modernization has become essential in today’s financial services milieu.

Becoming Forward Compatible

The FedNow and RTP instant payments networks burst onto the scene, fueling speculation about the advent of real-time payments. However, even though these networks have been active for years, ACH continues to serve a critical set of use cases—such as bulk payments, payroll, and government disbursements—and is likely to do so for the foreseeable future.

A recent U.S. government mandate to eliminate paper check payments and adopt electronic disbursements will only drive even more volume to the network.

While this increase may not overwhelm banks’ systems immediately, the mandate signals several important implications: ACH as a payment method must be supported by banks for the long term with additional changes on the horizon.

“One thing that surprised a lot of folks in the payment space is the speed with which this mandate was put in place. The executive order was signed in March and it was in effect at the end of September,” Duta said. “The other question is, what’s going to happen next and how quickly is it going to be implemented? Today, I know about this mandate, but tomorrow there could be another that could throw off the capacity that I have left in my existing solution.”

This growing ACH volume, combined with the dynamic nature of the financial services landscape, highlight the urgent need for payments modernization—enabling financial institutions to adapt to changes with minimal disruption.

Unfortunately, many of the ACH platforms that banks rely on were built decades ago, are mainframe-based, brittle, and not forward-compatible. Maintaining these platforms and integrating with new channels—such as mobile, digital, or ERP systems—has become costly.

Perhaps more importantly, these legacy systems have stymied innovation.

“You have a situation where you have this very important payment method that serves very important use cases for corporates and consumers that will continue to grow, and it’s going to be around for the next decades,” Suvarna said. “However, on the flip side, the platforms are very old and legacy and it is critically important for the industry and for the banks and for the rest of us to come together and make them forward-compatible for the years to come.”

The Compelling Drivers

In addition to the external forces impacting ACH platforms, organizations must also consider compelling business drivers.

One key advantage of a modern platform is its ability to create more value for customers. Commercial clients often separate payments into different files, such as bulk payroll payments versus emergency payments, each requiring distinct routing. Modern platforms streamline these complex workflows, improving efficiency, and reducing errors.

“From a corporate customer perspective, if they could send a list of payments, and depending upon the execution date of the payment, they’re automatically parsed into appropriate rails. That would be the ideal experience, rather than the customer trying to figure out which rail the payment needs to go through,” Suvarna said.

“To deliver those enhanced customer experiences where we obfuscate the complexity of payments from the end customer, it is critically important that ACH is modernized,” he said.

Another important driver is the resiliency that modern payments platforms deliver. While disaster recovery is a critical component of this resiliency, cloud-based third-party platforms offer additional benefits, including scalability and flexibility as payment volumes increase.

Finally, forward compatibility has become essential for financial services companies. The payments industry has undergone a metamorphosis in recent years, driven by innovations like digital assets and real-time payments. Alongside these emerging payment types, new standards like the data-rich ISO 20022 payments protocol have rapidly become the international norm.

“Outside of ACH, most other rails in the U.S. are using ISO 20022,” Duta said. “What I hear more from customers—corporates especially—is asking for the ability of sending an ISO-formatted file that can be transformed and processed through ACH, and I can tell you that the legacy solutions can’t do that.”

“ACH doesn’t live on its own, it has to interact with other rails and ISO,” he said. “It’s a perfect example of how the need for modernization is now versus later, because ISO is present now. It’s going to continue to evolve, and customer expectations are going to continue to evolve. If my current ERP systems can only generate ISO files, I will expect my ACH solution to take in an ISO file and process it for ACH. Only a modern solution can accommodate that—the payments hub in most cases.”

Priority Number Three

Although more financial institutions recognize the need for these solutions, ACH modernization projects are still often relegated to the back burner.

“I think the problem with ACH is it just works so well and always has,” Wester said. “When you look at all the things that financial institutions must do when it comes to payments—whether it’s to connect to new rails, whether it’s to worry about new fraud—the problem with ACH is it always is the perpetual priority number three, where there is always a rotating number one and number two. You always have something that’s more important ahead of it.”

Despite the reliability of existing systems, ACH modernization can no longer be ignored. Fortunately, financial institutions now have solutions available to address these concerns.

Modern payments hubs can be tailored to the needs of businesses ranging from mid-market to enterprise. For mid-market companies, in particular, payments hubs can be transformative, allowing them to leverage the scalability and reliability of cloud-native software-as-a-service (SaaS) solutions.

This eliminates the need for organizations to build and maintain infrastructure themselves. When adjustments are required—whether due to changes in transaction volume or new regulatory requirements—these responsibilities fall under the SaaS provider.

Such advantages are prompting a shift in mindset across many institutions.

“Many years ago, mentioning the words ‘cloud’ and ‘payments’ in one sentence would have led to a very short conversation. Now it’s almost table stakes,” Duta said. “This way I can address the needs for increased volume, I can address the additional use cases that I need to deal with for my customers and I don’t need to worry about reliability.”

“ACH—even though it’s been present for a long time—doesn’t stay still,” he said. “New rules come into place; there are new proposals are out there. If you think of the fact that the Same Day ACH transaction amount has been increased and the fact that there is potentially an opportunity for another Same Day ACH window, all these things point to a modern ACH solution which is tied to a payment hub.”

The Latter Camp

In this landscape, financial institutions have increasingly fallen into two camps. One group has chosen to retain their core ACH processing systems, opting instead to modernize and build around them. While this approach carries relatively low risk in the near term, it doesn’t resolve the inherent challenges posed by mainframe-based monolithic platforms.

The other group is willing to migrate  from existing systems in search of forward-look capabilities.

“We at Finastra have a modern ACH platform which is built on microservices, it’s API-based, and scalable,” Suvarna said. “Just last month we took one very large US enterprise bank live, moving from the legacy platform to an API-based platform which is forward compatible. It’s cloud-native, therefore there’s connectivity to third parties and it’s going to be significantly simpler.”

“The other benefit is that ACH sits alongside of other clearings in the United States, which is RTP, FedNow, and Fedwire,” he said. “That brings an additional value proposition, a consistency of experience that each bank will have to make their own choices on, in terms of how important it is for them to modernize around ACH. When it comes to leaving ACH as-is or bringing ACH into the fold of overall payments modernization, we are seeing more banks on the latter side.”

The post ACH Is Thriving, and Banks Are Struggling to Keep Pace appeared first on PaymentsJournal.

ACH is a critical part of the U.S. payment infrastructure, driving a significant portion of transaction volumes and supporting important use cases such as supplier payments, payroll, and many others. Despite competition from newer rails that serve similar purposes, ACH continues to grow at a remarkable pace.

In a PaymentsJournal Podcast, Radha Suvarna, Chief Product Officer of Payments at Finastra, and James Wester, Co-Head of Payments at Javelin Strategy & Research, examined why ACH payments have remained so resilient and valuable, and highlighted the benefits for financial institutions considering offering ACH payments to their customers.

Old Is New Again

When fintech is discussed in the context of modernizing financial services, there is often the assumption that “old” means outdated and “new” means superior. Even though ACH is considered a legacy rail, it’s still highly reliable. It was designed for a specific type of payment: high-volume, predictable transactions that need to be scheduled, such as payroll or bill payments.

“One reason ACH continues to grow is because we can do the planning for those predictable payments,” said Wester. “If you can plan for all of that beforehand, it becomes a great rail for handling those types of payments.”

A Modern ACH Payments Engine

Looking ahead, ACH must become forward compatible alongside other payment rails. Enabling forward compatibility allows the industry to leverage new technologies such as artificial intelligence and integrate them seamlessly with ACH driving improvements in areas such as fraud detection and automation.

So what does a modern ACH payments engine look like from an operational perspective? First and foremost, it must be cloud-native and modular. It should leverage modern technologies such as microservices and API-based capabilities to connect seamlessly with both upstream and downstream systems. The platform should also be architected to scale volumes up or down as needed, recognizing that ACH doesn’t necessarily need to run continuously throughout the day and has peaks in volumes.

“If we can scale the infrastructure up and down as necessary to drive more efficient total cost of ownership, that would be a significant value add,” said Suvarna. “It would be particularly effective in high volume throughput windows.”

Another important component of forward compatibility is the ability to test new use cases and enable fast experimentation. Smart routing between batch payments and real-time payments, for example, could be offered as a value-added service. To determine whether such capabilities create meaningful impact, organizations need platforms that allow quick testing, with the ability to fail fast or scale successful outcomes.

Financial institutions can rely on a modern ACH solution to integrate with cloud-native and API-driven systems, enabling faster and more efficient launches for new offerings.

It’s also important to note that while the ACH clearing itself has not yet transitioned to ISO 20022, many corporates are already using this for their submissions. A modern ACH platform needs to be able to both handle this, and the eventual migration of the clearing system, seamlessly while accommodating the complex workflows already built around ACH today.

Seeking ROI: Cost

The ROI from ACH can be viewed through two primary lenses: cost and revenue. On the cost side, the first consideration is infrastructure. Platforms built on open-source technologies and modern software stacks are typically less expensive than legacy systems.

The second cost driver is software maintenance and enhancement. As new use cases come up across corporate and retail segments, and as specifications continue to evolve, keeping pace with business-driven and standards-driven changes can be very expensive for legacy platforms.

“There are fewer software developers available to code in some of the older technologies like COBOL,” said Suvarna. “Which means there aren’t that many developers around to make the necessary changes for the foreseeable future. The specialized infrastructure roles where you have a person who really knows the system, those obviously become more expensive.”

The third cost area is operations. Today, exception handling and returns for ACH are often managed separately from other clearing systems. Consolidating these processes into a unified stack—and leveraging technologies like AI—can streamline operations.

“I’m not saying today you can’t deploy AI technologies and machine learning to identify payment repairs, based on the data coming from the legacy ACH capabilities,” said Suvarna. “But the more open modern stack makes it easier and faster.”

Seeking ROI: Revenue

On the revenue side, the primary opportunity for banks lies in differentiation through an enhanced user experience. Examples include offerings such as smart routing between ACH and real-time payments. A second opportunity comes from innovative use cases, where banks create differentiated value propositions around ACH that set them apart from competing institutions.

“When people start talking about ROI, I often hear them talk about revenue first,” said Wester. “But you have to be careful when you talk about system upgrades from a revenue standpoint. To sell it to your leadership, start with the inevitable things that need to be sunsetted and where you can find cost avoidance.”

Finding a Partner

Financial institutions embarking on this modernization journey need partners with experience across multiple implementation domains. A broad perspective helps identify dependencies, eliminate blind spots, and apply best practices. An experienced vendor understands the optimal path forward, knows where common pitfalls exist, and can guide institutions toward scalable, future-ready solutions.

“I like to use the phrase “fish don’t know water is wet,”’ said Wester. “Oftentimes, financial institutions have been running their systems a certain way for so long that they no longer look inefficient, just because they still work. A good partner can come in and say, here are the best practices, here are things where you might be blind to your own issues.”

Finastra, for instance, serves both large enterprise and mid-market client segments. They have built out Global PAYplus for large enterprises and Payments to Go for mid-market clients—both delivered on cloud-native platforms supporting modern ACH  clearing. This single, modern payment hub architecture supports multiple clearing types with a common user experience across all rails, and enables forward compatibility, positioning the platform to support future use cases as they emerge.

“At the end of the day, ACH isn’t about just technology modernization,” said Suvarna. “It’s a transformation of business processes around very critical infrastructure that serves many corporate and retail customer needs.”

The post ACH and the Path Toward Future-Ready Payments appeared first on PaymentsJournal.

The ACH Network is reliable and ubiquitous. And over the past year, it continued to realize strong growth, both in the volume of payments and overall dollar amount. In 2025, ACH Network payment volume increased by roughly 1.6 billion, reaching a total of 35.2 billion, or an average of 141 million payments per day. In the same period, $93 trillion moved across ACH rails, up nearly $7 trillion from the prior year. While transaction volume grew by 4.9%, the total value of those payments increased by 7.9%.

This growth reflects the continued expansion of ACH use cases across the payments space. In a PaymentsJournal Podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Ben Danner, Senior Analyst, Credit and Commercial at Javelin Strategy & Research, analyzed the drivers behind this increase and explained why ACH is positioned to grow even further.

Embedded in the Economy

A highly efficient method for moving large volumes of payments, ACH continues to see growing adoption—including B2B payments, consumer bill payments, and account transfers. It remains a cost-effective option for high-volume payments between known counterparties.

ACH is directly embedded across a wide range of platforms, software providers, and business workflows, including invoicing and payroll. Businesses from Stripe to QuickBooks to ADP all offer ACH as a readily available payment option.

Because ACH is so deeply integrated across the economy, it tends to grow in lockstep with overall economic activity. How the ACH Network scales to support that growth has been an important factor in its recent expansion.

Moving on From Checks

Despite the government’s high-profile decision to move away from paper checks last year, federal ACH volume increased by just 1%. The commercial sector has been the primary driver of overall growth.

In the B2B segment, ACH volume exceeded 8 billion transactions in 2025, representing $63 trillion in value, and continues to grow at roughly 10% annually. This dovetails with findings from the Association for Financial Professionals, which reported last year that checks now account for just 25% of B2B payment volume.

“That calls out a success at the industry level in moving businesses from checks to ACH,” said Herd. “It also shows that there’s room left to continue that transition for the 25% of B2B payments left that are checks, and that could still move to ACH and other payment rails.”

Danner added: “Replacing paper checks has been an important development. The paper check is clunky, less efficient, prone to fraud, and you have to mail it. Why not use something like ACH? It’s safer, it’s automated, it’s cheaper, it’s easier to reconcile, improves cash flow, liquidity, and reduces manual processing.”

Another fast-growing B2B use case is healthcare claim payments, which flow from insurers and other payers. Last year, ACH processed 548 million healthcare payments, moving nearly $3 trillion directly to medical providers, hospitals, and pharmacies.

Consumer Growth in Same-Day ACH

As impressive as the growth of the overall ACH Network is, Same Day ACH has been expanding at an even faster pace. In 2025, Same Day ACH transactions grew nearly 17%, exceeding 1.4 billion payments. It’s increasingly becoming a routine part of consumers’ financial lives.

“We’re seeing Same Day ACH being deployed in consumer payments pretty broadly,” said Herd. “The use cases include account-to-account transfers between financial institutions, digital wallet loads where funds are being debited from a bank account, and credit card bill payments where the issuer has reasons to collect funds as quickly as possible.”

Online consumer ACH payment volume rose by about 650 million payments to reach 11.4 billion, representing 6% year-over-year growth. These payments cover a wide range of consumer bills—including mortgages, car loans, insurance premiums, utilities, student loans, and credit card bills. Essentially, any recurring payment that resembles a bill is a natural fit for online ACH.

Popular alternative payment methods, such as digital wallets, often rely on ACH either to move money to or from a user’s bank account or to settle transactions behind the scenes. Many credit card bills are paid via ACH, as are numerous settlement payments to merchants. The continued shift away from paper checks is also driving this trend.

Pay-by-Bank via ACH

The continued shift toward faster electronic payments has paved the way for Open Banking, also known as Pay by Bank. This approach lets consumers pay directly from their bank accounts, streamlining transactions and reducing friction. Younger generations, in particular, expect mobile-first, fully digital experiences, making Open Banking a natural extension of the ACH Network. Linking to a bank account through an Open Banking session to initiate an ACH payment fits seamlessly into this environment. Even major players like Walmart now offer Pay by Bank through their apps.

“I often talk about people in their 20s who have never had a checkbook, have never written a check, wouldn’t know how to locate routing and account information in order to pay a bill, or even sign up for payroll Direct Deposit,” said Herd. “They largely do that through their phones by Open Banking and linking their bank accounts.”

“It’s not surprising that these areas are growing, especially as consumers continue to embrace digital payment methods,” said Danner. “We’re in the early stages of adoption of true Open Banking in the U.S., and there’s still tremendous potential for ongoing and expanded adoption of that and its ability to enable ACH payments.”

“Younger generations of consumers and employees are enrolling in ACH payments for transfers and payroll Direct Deposit,” he said. “And there’s still a lot of potential there for it to become even more mainstream.”

New Rules for the New Year

Even with the rise of Open Banking and faster, more frequent ACH payments, Nacha also remains focused on safety and soundness. New Nacha Rules are set to go into effect to enhance the system’s value and security. In 2026, ACH participants will begin implementing upgraded transaction monitoring rules, with additional improvements—including for international transactions—also on the way.

These changes aim to support the growing volume and speed of payments while maintaining reliability for both consumers and businesses.

“Over the long run, we have better risk management across the entirety of the ACH system,” said Herd. “That creates an environment that is receptive to and encourages additional adoption and growth.”

“An example we’ve experienced in the past is account validation, which is a rule we added in 2018,” he said. “It created a whole new industry of account validation services that enabled better ACH risk management quality and therefore better adoption. That’s the kind of thing we’re looking for to contribute to even further growth in the future.”

Taken together, these trends show the ACH Network’s continued growth is the outcome of thoughtful integration, ongoing adoption, and continuous modernization. It continues to be well positioned for businesses and consumers who are moving away from paper checks and towards faster, safe electronic payments.

The post What’s Driving the Rapid Growth in ACH Payments appeared first on PaymentsJournal.

In just the first half of the year, ACH payment volume grew by 5.5% on a daily average basis, reaching roughly 17.25 billion payments. The growth is even more pronounced in terms of dollar value, with the ACH Network processing $45 trillion in the first half of 2025—a 6.8% increase compared to the same period last year.

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, examined the state of ACH, the payment types that are driving growth, and the future of the pay-by-bank.

Hitting on All Cylinders

According to Nacha, the ACH Network is experiencing substantial momentum and is on track to add two billion payments in 2025.

The persistent growth signals that the ACH Network is poised to maintain its upward trajectory.

“When I look at the metrics and consider ACH, quite often you’re just looking for general growth,” Riley said. “I look at the total volume of payments and that was solidly up, and the dollar value was significantly up. When you compare that to debit volumes in the U.S.—which only grew by 1%—it’s really significant. I see everything hitting on all cylinders.”

Continuing Long-Standing Trends

This shift is especially notable because it’s spread across multiple payment types.

First, there are Same Day ACH payments—transactions that clear and settle on the same day they’re initiated. Volume rose by 15% year-over-year in Q2, putting this format on track to reach 1.3 billion same-day payments this year.

“The second area I wanted to call out are business-to-business payments,” Herd said. “B2B volume on the ACH Network increased by over 10%, and this is a long-standing trend in ACH. While there are still pockets of check payments that are in use in the B2B space, I think it’s also clear by now that ACH is the predominant payment method in B2B. They tend to be much larger dollar payments and so that boosts the dollar volume that is moving through the ACH.”

The third area seeing increased activity is consumer payments, which were up nearly 6% year-over-year.

Together, these three segments have significantly expanded overall ACH volume and reinforced its role in the broader payments landscape.

“It’s something that’s really been built into the economy,” Riley said. “When I think of myself as a consumer working professionally since 1980, I don’t think I’ve seen a physical paycheck since then. One way or another, I’m probably doing seven or eight in or out transactions on ACH just personally in a month, so I can imagine how those numbers stand out.”

Growth Across the Board

Within each of these segments, new use cases for ACH are continually emerging.

For example, in the B2B payments space, ACH is gaining traction in healthcare claim payments—transactions made by health insurance payers to medical providers like hospitals, doctors, and dental practices. This area has seen a year-over-year increase of 10% in ACH usage.

“I think there’s a pretty clear use case and benefits there for medical providers to get paid electronically, instead of waiting for a check to arrive in the mail,” Herd said. “I think that’s a clear benefit where even a standard ACH is a much faster payment than that check that will follow at some future date. We’re seeing strong growth there in that B2B vertical.”

On the consumer side, the growing popularity of subscription-based services has led to broader adoption of ACH for recurring payments, including bill payments and donations.

Consumers also frequently rely on ACH for account transfers, both one-time and recurring. The rise of online bank accounts, digital wallets, and other fintech solutions has further fueled the use of ACH for these types of transfers.

Collectively, these segments and use cases also present strong opportunities for the continued growth and adoption of Same Day ACH.

“We’re still seeing good growth in Same Day ACH across all the major ACH use cases,” Herd said. “That includes Direct Deposit of payroll and other consumer disbursements. It also includes consumer payments to businesses and other kinds of account transfers, and B2B payments.”

A Unique Factor

Amid this adoption, a significant development will impact the ACH Network this year: an executive order signed in March instructing the U.S. Treasury to eliminate paper check disbursements. With limited exceptions, the order directs a full transition to electronic payments for federal disbursements by Sept. 30, 2025, to the extent permitted by law.

“It’s been a long time coming,” Herd said. “We should see additional migration of some volume of federal government check payments to ACH. Financial institutions should be assisting existing account holders that still receive federal government checks with options on how to enroll to receive those payments by Direct Deposit.”

“One other lesson is that with no checks, there can be no check fraud,” he said. “That’s been a driving reason for the federal government to pursue this policy—paper checks have become probably the single largest source of fraud committed within the space of federal government payments.”

Another major factor influencing the ACH Network is the growing adoption of pay-by-bank and open banking technologies. In this emerging model, consumers no longer need to manually enter their routing and account numbers for each transaction. Instead, they simply authorize a business or organization to securely access their banking information directly from their financial institution.

“That should make enrollment for ACH easier and more seamless to the consumer, particularly in an all-digital or a mobile-first environment,” Herd said. “Many younger generations of consumers who’ve never had a checkbook don’t know what those routing and account numbers are.”

“This is a method that should overcome that barrier to being able to enroll to use ACH payments, so we’re going to see that continue to expand,” he said. “Nacha currently has a work group that is looking at potential benefits and risks of using pay-by-bank in the marketplace.”

Decades in the Making

The transition from paper checks to digital payments has long been a topic of discussion in payments circles, with the shift unfolding over several decades. However, there are signs that this momentum is now accelerating.

“In the federal government space, it’s been official policy to mandate the use of electronic payments since 1999,” Herd said. “In fact, one of my first assignments when I joined Nacha was to participate in the in the campaign around EFT ‘99 use. Without getting into all the dirty laundry, it’s taken a long time to get to the point where just about 99% plus of federal benefit payments are made using Direct Deposit or Direct Express card.”

“There’s that last mile to go to get as close to 100% as possible, so it’s exciting to think that may actually happen,” he said.

The post Exploring the Factors Driving Continued ACH Growth appeared first on PaymentsJournal.

Amid constant speculation about the future of payments technology, the ACH Network had its best year yet. The ACH Network processed more transactions, moved higher dollar values, and established more use cases for businesses and consumers. With new initiatives on the way designed to increase security and foster innovation, the ACH Network’s impressive growth could just be beginning. 

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed the growth areas for the ACH Network, the continued rise of Same Day ACH, and the future of the platform.

Milestone Growth

The ACH Network is a firmly established payment network that connects to nearly every U.S. bank account, making last year’s growth even more impressive. In 2024, the ACH Network added more than 2 billion payments to its annual volume, reaching a total of 33.6 billion payments. ACH’s 6.7% growth rate significantly outpaced the previous year’s 4.8% increase.

The scope and scale of the ACH Network are highlighted by its remarkable dollar volume: more than $86 trillion was moved on the ACH Network last year, representing a 7.5% year-over-year increase.

Nacha also reported that consumers are increasingly making bill payments and account transfers online. In fact, online ACH payments grew by 8.4% last year to exceed 10.7 billion payments, making it the single largest category of ACH payments.

The second-largest growth area for ACH was business-to-business payments, which increased by 11.6% in 2024, reaching a total of 7.4 billion payments. Within this segment are healthcare claim payments, where insurers compensate medical providers, including doctors, dentists and hospitals. This category grew by roughly 5%, surpassing 500 million payments.

“The third-highest growth area was Direct Deposit transactions, which have been the bread-and-butter ACH transactions over the years,” Herd said. “That includes payroll, benefit payments, and other types of consumer payments. We continue to see growth in that segment at 8.6 billion payments, which was a 3.7% year-over-year increase. Overall, there was across-the-board growth in anything that begins life electronically and digitally, and a sharp decline in anything that started off based on a paper check.”

Renewed Interest

The declining usage of checks accelerated during the pandemic, when staffing an office to issue, receive, and deposit high volumes of checks became a challenge. Since then, there hasn’t been a reversion to paper checks, even among small businesses. Security, cost, and convenience concerns have driven the shift to alternative payment methods.

“Several retailers stopped accepting paper checks in their stores last year, including Target and Petco,” Tavilla said. “Primarily, this is because there’s very low consumer demand to pay with checks anymore. More retailers are offering decoupled debit or their private label debit cards, which the consumer can use to pay with funds from their checking account, and they can also take advantage of rewards and loyalty incentives that are offered by that retailer.”

For years, large mobile carriers like Verizon, T-Mobile and AT&T have offered autopay discounts to incentivize their customers to move away from paper payments in favor of ACH. In addition, the ongoing push for eco-friendly, low-cost solutions has spurred interest in one of the original ACH use cases: recurring bill payments.

“We’ve seen interest in recurring ACH for things like donations and subscriptions, where you have a repeat payment scenario between a known payer and payee that looks a lot like a bill payment,” Herd said. “It’s not quite literally paying a bill, but the payment characteristics look almost exactly like it. That’s a sweet spot for recurring ACH debit in those use cases.”

The peer-to-peer space is another area of growth for ACH. Many P2P users fund their accounts using ACH rails, and several platforms use the ACH Network as their infrastructure. As these services have gained adoption, there has been corresponding growth in ACH usage.

A Lighter Lift

For all of last year’s success, the most significant news from 2024 was the rapid adoption of Same Day ACH. For the first time, total Same Day ACH payment volume surpassed a billion payments for the year—a 45% year-over-year increase.

Roughly 20% of all new ACH payment volume is same-day payments, and Same Day ACH is being utilized in many of the same use cases as standard ACH. There has been volume growth in consumer online payments like bill payments, account transfers, wallet loads, and in B2B transactions.

“It’s no surprise to see such significant growth this past year, the most to date,” Tavilla said. “ACH is already ubiquitous, so all the financial institutions who can currently send and receive standard next-day ACH can also easily accept Same Day ACH, making it a relatively lighter lift. The infrastructure is in place operationally and the financial institutions are already enabled to do that, so I anticipate that the growth will continue in both volume and value going forward.”

Though there has been speculation that faster payments will eventually eclipse more conventional payments, a more likely scenario is that both payment methods will continue to flourish. Depending on the use case, not every payment must be same-day or instant. Many of the core ACH use cases like payroll or bill payment are scheduled payments with known due dates and counterparties, and there may not be a good rationale for utilizing same-day settlement capabilities.

“Even within a standard use case area like payroll, you’ll have cases like payroll errors or payments to temporary workers, hourly workers, and gig workers, where it does make sense to take advantage of faster settlement speeds,” Herd said. “In bill payment, you may have bills that are late or overdue and service is scheduled to be cut off. These are one-off use cases where it may make sense to take advantage of a faster settlement speed.”

Areas of Focus

In addition to driving standard and Same Day ACH adoption, Nacha has three areas of focus for the upcoming year. The first is risk management. The organization’s members adopted a new set of rules that are designed to reduce the growing prevalence of credit push fraud, such as business email compromise.

These rules will require a base level of transaction monitoring on all parties in the ACH Network, except for consumers. While the major provisions won’t go into effect until 2026, Herd recommended that ACH Network participants, including financial institutions, work on implementing their protocols this year to be compliant when the rules go into effect.

A second area of focus is a pay-by-bank project created within Nacha’s Payments Innovation Alliance membership program. Pay-by-bank has become a common industry term over the past several years, but there’s no commonly agreed upon definition among industry stakeholders.

“There is also virtually no consumer recognition of the term, even though consumers are seemingly willing to use and link their bank accounts to make payments and conduct transfers,” Herd said. “The project is intended to forge a participant consensus on what pay-by-bank actually means, to describe use cases, and to identify any novel risks that pay-by-bank transactions might present.”

The last initiative will expand the capabilities for account validation services that Nacha provides through Phixius, their information network. These services can help financial institutions and their customers comply with the Nacha account validation rules for Internet-initiated payments.

“That can help with de-risking ACH payments for a wide variety of use cases, including validating vendor counterparties in the B2B space, and even in payroll in validating accounts for payroll Direct Deposit,” Herd said. “Watch this space this year for news and announcements about the expansion of Phixius account validation services.”

The post ACH Has Best Year on Record, Driven By Accelerating Same Day ACH Adoption appeared first on PaymentsJournal.

The ACH Network is set to surpass 33 billion payments by the end of the year, marking a significant milestone. Consumer Internet-initiated payments are set to surpass 10 billion, a remarkable achievement considering the payment method was created just 20 years ago.

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed this success story and the future of the protocol in a crowded payments landscape.

The State of ACH

Instant payments rails like FedNow and RTP have received significant attention over the past year, but this hasn’t slowed ACH’s momentum. In Q2 2024, ACH payment volume increased by over 6% year-over-year, with an average daily payment volume reaching 132 million payments. The total value of payments flowing through the ACH Network topped $42 trillion in just the first half of the year.

“There are a few areas that are driving overall ACH volume growth,” Herd said. “The first is B2B payments, which are growing by more than 10% per year. That’s been a long-standing trend for the last seven or eight years. While there are still pockets of check use in industries like healthcare and higher education, overall check volume seems to be declining and the B2B space is moving towards ACH.”

ACH is also thriving in consumer single and recurring bill payments, as well as account transfers. This volume exceeded 2.6 billion in Q2 2024, up 8.3% year-over-year.

“With increasing automation of business processes and the digitization of payments, both businesses and consumers are looking for greater efficiency,” Tavilla said. “It comes as no surprise that there is now record-breaking volume being transacted over ACH. There’s more data that is available with digital payments and it also helps businesses improve cash flow.”

However, there was a recent slowdown in healthcare claim ACH payments, likely due to a large-scale ransomware attack on the healthcare sector. A major processor in healthcare payments was unable to process claims for a period, leading to a 2.8% year-over-year increase in healthcare claim payment volume in Q2.

Same Day ACH

There’s a strong demand for faster payment settlement, and Same Day ACH has a formidable use case in both consumer and business applications. For consumers, that includes transfers to non-DDA accounts like digital wallets and brokerage accounts.

Same Day ACH supports the two-way flow of funds in B2B, C2B and B2C payments, allowing for both debit pull transactions and credit push payments. This contrasts with many real-time payment networks, which are currently credit push only.

“To say Same Day ACH has a key role is an understatement,” Herd said. “Same Day ACH volume in 2024 is up 47% from last year, including 566 million payments in the first half of the year. April was a banner month, maybe because it was tax month, but there were over 100 million Same Day ACH payments in April. In all likelihood, Same Day ACH payments will exceed a billion this year for the first time ever.”

The payment landscape is trending toward digital and real-time payments. Consumers increasingly demand faster payment methods, and Same Day ACH is a key part of that trend.

A driving factor in the growth of Same Day ACH payments is the ACH Network’s firm establishment. ACH is ubiquitous, and businesses and consumers are familiar with it. Unlike some of the newer real-time payment rails, virtually all financial institutions are connected to ACH, facilitating money movement regardless of the customer’s bank.

“If you’re a business and you haven’t dipped your toe in the faster payments waters yet, start with what you’re familiar with, which is likely to be ACH,” Herd said. “Same Day ACH is just a faster form of what you already know. It’s the same system and the same processes. You will have to adapt to the faster settlement of funds, but ultimately there’s a much lower barrier to entry.”

Improving the Experience

While the ACH Network is well established, there are three key areas where the platform can improve: risk management, exception resolutions and ACH scheduling. To mitigate risks, Nacha members have adopted new rules to raise the bar for payment monitoring among every participant in the ACH Network.

The objective is to better identify and recover from fraud attacks that target ACH and other credit push payments. As fraud attempts rise, it’s crucial to understand how organizations continue to fall prey to criminals. The new rules aim to define the network’s response to fraud and mitigate criminal activity.  

Second, paper-based processes should be eliminated from the ACH payment exception resolution process. Exceptions are payments that don’t process directly through, and resolving those transactions often requires manual intervention from the two financial institutions involved.

The institutions must share documentation and information to resolve the exception, which is often still done through phone calls and faxes. Because the manual methods lessen the efficiency of the underlying ACH process, a better solution is to resolve exceptions through secure online platforms. The Federal Reserve’s exception resolution service and Nacha’s risk management portal are two examples of how exception resolution and information exchange can occur through secure channels.

The last area of opportunity is to expand the current Same Day ACH schedule to align with the close of business in the Pacific Time zone. Currently, the latest time a Same Day ACH payment can be sent is 1:45p.m. PT. There is significant value in supporting Same Day ACH processing up to the end of the business day for Pacific Time zone businesses and consumers.

Lower Hurdle to Entry

Though the ACH Network has room to improve, there is little doubt that ACH will continue to have a place in the payments landscape for years to come.

“It’s not instant,” Herd said. “However, with ACH there is a lower hurdle to entry in nearly every situation. Wherever you’re transacting, wherever your employees have their bank accounts, and wherever your customers are, you’re going to be able to reach them with ACH.”

The post The Ongoing Success Story of ACH appeared first on PaymentsJournal.

In 2023, the ACH Network added more than a billion and a half new payments, a year-over-year growth rate of 4.8%. With the economy doing reasonably well, employment levels being high, and payments continuing to migrate away from paper checks and cash, ACH is not just growing robustly but also poised to continue that growth well into the future. 

We asked Mike Herd, Executive Vice President of ACH Network Administration at Nacha, about what’s fueling that growth and where he expects ACH to be headed. Herd discussed these issues with Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, in a recent PaymentsJournal podcast.

ACH by the Numbers

The ACH Network handled 31.5 billion payments last year and moved more than $80 trillion. Of that growth, Same Day ACH volume increased by more than 22% in 2023. Notable drivers of overall ACH expansion included:  

• The number of consumer internet-initiated payments rose by 5.7% to 9.9 billion, primarily supporting bill payment and account transfer use cases.  
• The number of healthcare claim payments to medical and dental providers rose by 7.7% to 488 million.   
• Direct Deposit volume increased by 3.3%, with 8.3 billion payments to workers.    

The dollar limit of a Same Day ACH payment increased in 2022 to $1 million, which has had an effect in the marketplace. “We have been seeing results from it continue through the present with increases in transactions and increases in dollar flows,” Herd said. “Since Same Day ACH started in 2016, we’ve now surpassed 3 billion payments, moving more than $6 trillion. Among the leaders in that growth are things like business-to-business payments and consumer-initiated debt—transferring funds, paying bills [and] loading wallets.”  

Herd said that the increase in Same Day ACH usage has been largely through payroll and other types of disbursements to workers and consumers. That might be a missed payroll, or paying shift or gig workers, for whom speed of payment is an important consideration. Or it might be something like an insurance payout, another instance where speed is an important factor.  

The pandemic was another factor that led to more ACH payments. “During the COVID era, we saw a pretty dramatic shift, impacting businesses that didn’t have staff present in person to issue or process checks,” Herd said. “That was a catalyzing event from a behavioral perspective, for businesses to not process checks at all, and to move to ACH in particular rather than other electronic payments.” 

The Growth in B2B Payments

Business-to-business payments have been one of the true success stories for the ACH Network. Over the past decade, there has been a documented decline in the use of checks for B2B payments. Nacha’s data shows where the action has moved, with ACH use for B2B payments growing by double digits over the past seven or eight years.  

In 2023, the growth was by almost 11% to 6.6 billion B2B payments, primarily oriented around B2B vendor payments. In the Same Day B2B payments, volume grew by more than 50% in 2023, up to 261 million B2B payments made. From a dollar perspective, that’s growth of nearly 60%, with about $1.4 trillion moved via same-day transfers. 

“From the Javelin side, we have survey data that shows, for example, that small businesses often face challenges with cash flow, and they think faster payments would help improve their cash flow,” Tavilla said.  

Herd added to “keep in mind that better cash flow for one side of the payment might mean worse cash flow for the other side of the payment. A payer that holds on to money longer to accumulate more interest is going to pay at the last minute, and that will have an impact on the receipt side.” 

Looking to the Future

What’s certain is that ACH will continue to evolve to meet users’ needs. “I like the analogy of how everyone used to have a landline,” Tavilla said. “Then we had the giant cellphones, then flip phones, and now we all have smartphones. It’s similar with payments. With the technology and the evolution and the different iterations of the products, I imagine the trend will be toward faster, greater efficiency and more precision and control for all who are making payments.” 

Nacha has several priorities on tap. It is looking to define additional expansions for Same Day ACH, including to encompass the full business day in the Pacific time zone. Most of the systems operate from an Eastern time zone perspective, and the current processing day closes in midafternoon Pacific time.  

Nacha will also propose changes and enhancements to the International ACH transaction to try to improve understanding and adoption. It is evaluating expanding its Account Validation services offered through Nacha’s Phixius and for the Payment Information Exchange Network. Finally, it is looking roll out new rules around ACH Network risk management, particularly around fraud monitoring and reporting, to try to raise the bar on monitoring the ACH Network for anomalies and fraudulent transactions. 

The post Same Day, B2B Payments Fuel Growth of ACH Network appeared first on PaymentsJournal.

Validating account information is key to ensuring ACH payments continue to be safe and reliable.

In a recent PaymentsJournal podcast, Rob Unger, Associate Managing Director of ACH Network Development at Nacha, spoke with Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, about payment innovations to help safeguard banks and consumers. They discussed how Phixius by Nacha helps financial institutions and fintechs verify bank information to mitigate risk, reduce costs and meet compliance requirements.

Collaboration Is the Key

As ACH payments grow in volume it is important to ensure these payments are accurate and safeguarded as well. As the bad actors come up with more sophisticated scams, it’s important for participants to stay ahead of these new risks to ensure optimal security for payments. 

“Collaboration is the key,” said Unger. “By working together and sharing information, the entire industry could not only reduce risk but also create new risk mitigation tools to enhance security.”

“There is no standard way of validating accounts in the U.S.,” said Tavilla. “We have some folks using micro deposits, screen scraping and several other methods, which creates a clunky customer experience. Having something that’s more standard and consistent would make for an easier and more convenient way to pay.”

Phixius by Nacha

Created and operated by Nacha, Phixius uses standardized APIs so customers can validate accounts with validation sources. Phixius is a peer-to-peer network where participants can exchange and verify payment-related information quickly and securely.

Specifically, Phixius participants can verify routing and account numbers, as well as any associated names on the account, and will soon be able to evaluate the related ACH return history before executing payments. The goal is to simplify the spider web of connections that organizations must maintain.

“If you want to increase coverage, you have to go to multiple options and multiple providers, which entails multiple contracts, different API standards, and different API gateways,” said Unger. “We’re looking to simplify that friction and be that connective tissue.”

Phixius has successfully validated information for more than 4 million accounts since its debut in March 2021. Its first use case involved helping organizations comply with Nacha’s WEB Debit Account Validation Rule. Whenever a biller or other payment originator sees the authorization for an account number for the first time, the rule requires that entity to validate that the account has been opened. 

While participants are welcome to share information, Phixius does not require connected banks and fintechs to provide information to access the Phixius services. However, a new, optional API will soon facilitate the sharing of information related to ACH returns, giving the entire community further insight into potential fraud or suspicious activity. 

As organizations assess their need to validate accounts, the waterfall approach can be very valuable. “Phixius very much fits into that,” said Unger. “You can ping Phixius and get responses from multiple sources. But if it’s a very high-risk payment, you may need to consider other tactics to de-risk that payment.”

Who Can Benefit from Phixius?

Direct customers of Phixius are credentialed service providers, fintechs and banks providing services downstream, as well as their customers, businesses and consumers trying to be compliant with the Nacha web validation rule or that have other use cases around risk mitigation. 

“These capabilities would also be helpful with the newer debit payment methods and technology that continued to evolve,” said Tavilla. “The account validation piece and a frictionless experience would be key in increasing adoption for these newer payment methods and achieving scale.”

As a one-stop shop, Phixius is particularly valuable for many smaller financial institutions that rely on third-party service providers because they might not have the in-house resources to conduct their own risk mitigation. Phixius’ partnership with Aliaswire is designed to serve businesses with smaller account verification needs. 

“Every ACH originator has a wealth of information in the ACH return file,” said Unger. 

“Every day as you send your payments out, you get returns that may include one of 70-some reasons why payments can’t be posted. That’s very valuable information. Our community said, ‘I’d like to be able to share that information.’ When an originator experiences some kind of fraud, they’ll certainly contact their bank and maybe law enforcement. But meanwhile, the community doesn’t know about this, and fraudsters are not just attacking one entity. That’s what this new API is designed to address.” 

The post Paving the Way for More Efficient Account Validation appeared first on PaymentsJournal.

In the rapidly evolving world of financial transactions, the Request for Payment (RfP) system emerges as a game-changer, offering unparalleled efficiency and convenience. This innovative approach to payments revolutionizes the traditional billing process, allowing businesses and individuals to request payments directly within a secure banking environment. The advent of RfP not only simplifies transactions but also enhances the control and flexibility for both payers and payees.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower-left of your screen to receive notifications as soon as the episode publishes.

Data for today’s episode is provided by Javelin Strategy & Research’s Report: How Financial Institutions Can Plot Their Instant Payment Strategy

6 Benefits of Request for Payment

• 32% – avoiding late payment
• 26% – immediate confirmation that payment was received
• 19% – immediate payment posting/transfer of funds
• 13% – faster option
• 5% – more secure option
• 5% – simpler option

About Report

Consumers and businesses alike are clamoring for faster and easier payment options. With the recent launch of FedNow, as well as the continued presence of The Clearing House’s RTP network, instant payments are poised to transform money movement in the United States. This will require careful consideration and planning by financial institutions as they assess the needs of their customer bases, the potential for growing revenue, and the products and services they want to push out to consumers and business clients.

This Javelin Strategy & Research report looks at U.S. instant payments, assessing the differences between FedNow and RTP, the essential use cases, and the factors financial institutions must sort through as they plot out an instant payment strategy.

The post What are the Benefits of Request for Payment? appeared first on PaymentsJournal.

When it comes to business-to-business (B2B) payments, those funneled through automated clearing house (ACH) rails are increasingly popular.  Although many businesses are still mailing checks as payment, more businesses are seeing the risks and looking toward ACH payments as a cost-efficient and convenient alternative.

During a recent PaymentsJournal podcast, Brian Holbrook, Director of Product Strategy and Integrated Services, LSEG Risk Intelligence, and James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, delved into the current landscape of ACH payments in B2B use cases, the potential impact of Nacha’s proposed amendments on originators, and the challenges and opportunities for originators that are arising from these amendments.

The Current Landscape

ACH payments have been growing in popularity among businesses making B2B payments. Funds are transferred seamlessly between bank accounts, and settlement times range from one to three days. ACH payments are also fast and more cost-effective than paper checks. As waiting for payment becomes less sustainable in the maintenance of cash flow, B2B use cases will continue to expand.

“So when we look at data coming out of Nacha, we can see that the B2B volume increases across ACH are up nearly 10%,” Holbrook said.

“We’re seeing a significant growth across the originator landscape, seeing multiple increases in different verticals, different industries. And, of course, with those increases come additional risk.

“We see some new rules coming out that are going to have an impact on the whole ecosystem, but particularly on the originator side.”

With the ACH network processing tens of billions of transactions, with thousands of banks in participation, and numerous regulations, the network can be difficult to navigate.

“I think that sometimes it’s a bit of a surprise—just how the infrastructure for ACH transactions, the use of the ACH network, and the need across multiple use cases is growing so very, quickly and so expertise in this space is sometimes hard to come by,” Wester said.

According to Holbrook, Nacha reported that Same Day ACH payments were up 20% in Q3 of 2023 over the same quarter a year ago, a significant jump indeed.

“When you look at that Same Day (ACH), as we began to see that demand for faster and faster settlement times, faster and faster throughput, the other side of that coin is, OK, less and less time to address issues, less and less time to figure things out like fraud, suspicious transactions,” Wester said.

“I think that surprised everybody in terms of how quickly we are beginning to move to this need for faster and faster settlement across multiple networks, but especially across ACH.”

Getting Familiar with Key Proposed Amendments

Nacha is proposing a new risk management framework that could affect the entire network, including a third party, the Receiving Depository Financial Institutions (RDFI), the Originating Depository Financial Institutions (ODFI), or a new regulator. The proposals will require more from industry participants.

“These proposals are going to require everybody in the value chain to have more diligence on the accounts, on the account ownership, particularly with higher-dollar value transactions,” Holbrook said.

“It’s going to be critically important that they understand where those funds are coming from, where they’re going to. When something suspicious is happening, that the receiving institution has an opportunity to reject that, that inbound money, or for the originator to call it back.

“It’s going to be paramount that they have the tools to validate accounts, validate identities, and to be able to do it. And as close to real time as possible.”

Risk, Wester said, was not an important topic for a long time. The original focus among fintech players within the industry was growth. However, the tides have changed and more FIs, their partners, and technology vendors have shifted their focus to mitigating risk.

“Risk, compliance, governance, fraud, security, all of those things are now becoming more and more important in coming to the forefront,” he said. “And we’re hearing a lot more about the need for risk, and risk tools, and the things that financial institutions and the financial system have done very, very well.

“So I think that’s a very interesting switch in the last 12 to 18 months, that prominence in terms of risk and compliance being a talking point or something that we’re discussing more.”

Said Holbrook: “It’s really about monitoring across all parties in the value chain funds, recovery tools and standardizing of information so that individual names, descriptions are standard across the network, that there is an ability to recover funds, and that there is monitoring across that. I think that’s really what it comes down to across the value chain.”

Potential Challenges for Originators in Proposed Amendments

Although regulations are put in place to protect participants from fraud, there will always be the challenge of establishing a happy medium between mitigating risk and delivering a seamless customer experience.

“People want these funds moved in as close to real time as possible. So striking the balance between good customer service, good throughput speed, and risk and fraud mitigation is going to be a needle they’re going to have to thread very carefully,” Holbrook said. “They’re going to have to strike a balance there, and they’re going to need processes, procedures, and tools to be able to do this.

“And those tools are going to have to work in as near real time as possible so that you’re not applying excessive friction to your customer base or to the movement of funds.”

Wester elaborated on the required balancing act.

“And that’s almost as much art as it is science,” he said. “That’s one of the things that we’ve said about security for a really long time. You can make something absolutely secure, but it’s completely useless (if it repels legitimate users with friction), or you can make something very open, but unfortunately, it’s not very secure.

“That balance that you were talking about between customer service and protecting things, making sure that risk is taken care of on one side, but also making sure that customer service and access and all the stuff that we want in terms of payments are available on the other side. It is a balance.”

And it doesn’t end there. Wester said achieving it will require constant monitoring and fine-tuning, ensuring that organizations are doing everything in compliance in terms of fraud, risk, governance, and security. This has to be done in tandem with customer retention efforts.

Opportunities and Benefits from Proposed Amendments

Although these newly proposed amendments are likely to create some headaches, there is a silver lining, and that is the many potential benefits for the ACH Network and the consumers and businesses using it.

“There’s an opportunity for them to not only improve what they’re doing today, but it’s an opportunity to help them reduce risk and loss further within their systems,” Holbrook said.

“There are opportunities here where these tools that they would apply to these types of transactions can be used in other parts of their business that will also, whether it’s at account opening or account closure and throughout a customer lifecycle. Those tools that are available in the market can absolutely help them in other parts of the business.

“And I think that’s a huge opportunity for them to reevaluate many of the systems and processes they have in place today and look for ways to enhance them, make them better, make them faster.”

Said Wester: “A lot of times we think we’re going to take a tool and we’re going to apply it to the problem. Especially a digital solution is going to come in and it’s going to fix things.

“You do have to look at those processes, those things that are internal that may have nothing to do with the technology or the tool, but you still have to address those.

“It is better to have those tools that are easier to integrate, the partners that are easier to work with because you are going to have a lot of stuff internally that you have to work on.”

Top Recommendations for Originators to Prepare for Proposed Amendments

Before originators can tackle and implement the directives under the proposed amendments, they must get educated. Reading up on these amendments on the Nacha website and attending conferences and webinars can be valuable ways to stay current. Once armed with information, originators can look at their current toolbox and see what they have and what they need to add.

“This is an opportunity for compliance departments to really go back and evaluate what they’re doing today, where they may have gaps,” Holbrook said. “What tools do they have in place today that are going to help address these new rules? Or do they need to be looking for something new?

“In some of the other workshops that we have done, many of our clients tell us that they feel good about where their risk and compliance mitigation is at. But there’s more to do. This is where these areas need to be out looking at new solutions and looking at different providers, and seeing what’s going to best fit their needs, what fits into their technical ecosystem, and what’s going to give them the best performance when they’re looking to strike that balance between speed and risk.”

Wester and Holbrook agreed that preparation and proactivity are keys. Organizations need to grant themselves ample time to research, invest, and implement new solutions to remain compliant.

“I think one of the things we’re also seeing a recommendation for is (to) be proactive on this,” Wester said. “A lot of times, when you look at deadlines, when you look at compliance issues, you do an, ‘OK, I must be done by this date,’ and you do a workback. This is one of those where you start sooner rather than later.

“There are issues, there are areas where there may be problems, there may be costs, there may be concerns that need to be worked through that you didn’t know, the things you know that the unknown unknowns.”

Preparation is essential, Holbrook said.

“If you’re going to engage with a new solution, you know you’ve got to get it into a road map, you’ve got to develop, you’ve got to have resources that can work on it, and then you’ve got to have time to test it and do proof of concept,” Holbrook said.

The post ACH Proposed Amendments: Originators Must Prepare appeared first on PaymentsJournal.

Deposit processing appears to be back to normal after a “manual error” caused delays at many U.S. banks on Friday. The Automated Clearing House (ACH) system, which allows banks to send electronic payments to each other, said it had experienced a processing error on the evening of Thursday, November 2, with a batch of bank transactions. ACH said the error originated with the Electronic Payments Network (EPN), its private sector operating partner.

As a result, customers reported deposit delays at many major American banks on Friday morning, including Bank of America, Chase, Truist, PNC, U.S. Bank and Wells Fargo. According to the Clearing House, which operates the ACH, the delay affected around 900,000 deposits, which is less than 1% of the daily volume of ACH transactions. 

The good news is that the glitch looks like a one-time event that was caused by human error rather than systemic issues or a malware attack.

“There was a processing error with an ACH file last night, said Gregory MacSweeney, Vice President and Head of Communications at the Clearing House, in a statement issued on Friday. “It was a manual error associated with the file.”

On Friday, the Federal Reserve issued a more technical explanation for what had happened: “On November 3, 2023, a processing issue at EPN, the private sector ACH operator, resulted in a number of ACH entries having certain data elements obscured (file dated for November 1, 2023, processed on November 2, 2023, with effective dates from November 2-3). This error was contained in a single interoperator file that was distributed by EPN to its participants during the November 2 6:00 p.m. processing window. These entries contain valid Nacha syntax, but obscured account information and recipient information.”

Banks Scramble to Respond

Banks were caught somewhat flat-footed by the problem. PNC sent out a notice to customers on Saturday, a day after the delays, stating: “PNC will waive any non-sufficient funds or overdraft fees you may incur as a result of this delay.” Bank of America issued the following through its mobile app: “Some deposits from 11/3 may be temporarily delayed due to an issue impacting multiple financial institutions. Your accounts remain secure, and your balance will be updated as soon as the deposit is received. You do not need to take any action.”

The delays appeared to be resolved by Friday afternoon, although consumer complaints continued to trickle out via social media throughout the weekend. The problem was exacerbated—and more widely noticed—given that it fell on the first Friday of the month, a common payday for many Americans.

The post Deposit Delays Blamed on “Manual Error” appeared first on PaymentsJournal.

In the first half of 2023, the ACH Network saw consistent transaction volume growth, handling 7.7 billion payments valued at $19.7 trillion in Q1—a 6.4% increase over a year prior, and a processing 7.8 billion payments transferring $20 trillion in Q2—a 4.3% and 2.9% increase respectively. The steady rise underscores the ACH Network’s indispensable role in various financial operations, including payroll, tax refunds and business-to-business payments.

In a recent PaymentsJournal podcast, Michael Herd, Senior Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Head of Debit at Javelin Strategy & Research, discuss the current state of ACH, offering insights into its trajectory and impact.

ACH is a Booming Market

In March 2022, the dollar limit for Same Day ACH payments increased to $1 million from $100,000. This change led to a noticeable rise in the use of Same Day ACH for higher-value payments.

“The value of Same Day ACH payments for the first half of 2023 reached almost $1.2 trillion, which is more than 50% higher than the previous year,” Held said.

The higher transaction limit has influenced various areas, including payroll and consumer disbursements. Insurance companies, for example, have found it beneficial for making larger insurance payouts, including homeowner claims.

The new limit has also been advantageous for businesses making vendor payments and inter-business transfers. Such transactions often involve larger sums, and the increased limit has allowed for wider adoption of Same Day ACH.

“People are also showing a lot of interest and enthusiasm for faster payment options, including both Same Day ACH and other rapid payment systems,” Tavilla said. “There are numerous areas where these faster payments are valuable, like healthcare, payroll and real estate. It’s clear that the increased transaction limit has opened up more opportunities for businesses to make the most of these faster payment methods.”

And the demand for faster payments is set to continue to grow.

“Various payment systems will likely experience simultaneous growth, especially as transactions move away from checks,” Herd said. “It’s a reasonable forecast considering how many businesses are already accustomed to using ACH. While they become acquainted with alternatives like FedNow and RTP, they will likely begin by utilizing ACH, a method they are familiar and comfortable with.”

ACH in the Healthcare Sector

Healthcare organizations are increasingly leveraging ACH—and this adoption is driven by the need for efficiency and convenience in processing medical bills, insurance claims and reimbursements.

“People are adopting digital methods to split bills, share expenses and transfer funds among friends and family,” Herd said. “The ease of ACH transfers is contributing to this trend, making it more convenient for individuals to manage their finances seamlessly.”

Unlike retail, where payments happen at the point of sale, healthcare payments often occur after care is given. Although electronic bill payments have been common for decades, medical practices still use paper for these transactions. But the pandemic accelerated the shift to digital, with more insurance providers encouraging electronic form submissions and reimbursing providers through digital payments. But that shift is not complete throughout the industry.

“Healthcare organizations have documented the potential savings in administrative processes by transitioning from paper-based transactions to electronic methods,” Herd said. “In 2023, there remains a significant opportunity to embrace electronic submissions and payments in the healthcare industry.”

A similar shift is also occurring in the business-to-business (B2B) sector. “Efforts over the years have led to making electronic B2B payments more convenient and user-friendly than checks,” Herd said. “The need to adapt during the pandemic pushed businesses to use ACH for B2B transactions instead of checks.”

Even though some employees are returning to their workplaces, the shift back to checks hasn’t happened. Once a switch to ACH is made, it tends to stick.

These trends suggest that payment systems such as ACH will shape the landscape of payments in the coming years.

Check Fraud: A Reason to Move to ACH

Although the use of checks is diminishing, it remains active. And those still using checks should reconsider, Herd stresses, particularly because of fraud.

“When it comes to the ongoing issue of check fraud, my advice is quite straightforward: Stop using checks,” Herd said. “The irony lies in the fact that while check usage has decreased, check fraud has remained a persistent problem. Financial institution filings about check fraud have doubled in a year, and checks are the payment method most impacted by fraud.”

To reduce vulnerability to fraud and unauthorized payments, it’s best to look at electronic payment methods, such as recurring electronic debits, which offer greater security and efficiency.

“From a consumer’s standpoint, I’ve noticed news stories about thieves stealing checks from mailboxes,” Tavilla said. “It’s a bit like the scenarios portrayed in ‘Catch Me If You Can,’ which we might assume were things of the past. But check fraud remains an issue.”

For financial institutions dealing with check fraud, Nacha offers a helpful tool called the ACH Contact Registry, which provides contact information for the personnel responsible for check payments at various financial institutions. This resource helps resolve check fraud cases effectively.

Conclusion

The ACH network is steering the course of financial transactions toward greater efficiency and security. The growth in transaction volume during the first half of 2023 cements the ACH Network’s pivotal role in powering a multitude of financial operations. The industry’s embrace of electronic methods, guided by ACH’s stability and security, continues to transform the payments industry, particularly in the healthcare sector and with B2B transactions.

The post ACH Drives Efficiency in Healthcare and B2B Transactions appeared first on PaymentsJournal.

Stripe and Airbnb have joined forces to enable guests to pay with a linked bank account. By using Stripe Financial Connections, once all guest credentials have been entered and saved, guests can then use Link, Stripe’s proprietary one-click checkout, to make a bank payment for their booking.  

Airbnb guests simply need to have a U.S. bank account to participate. By using Stripe Financial Connections and Link, they can conveniently make their payments and will no longer deal with the inconvenience of re-entering their bank information for each subsequent booking.  This Airbnb and Stripe partnership offers guest another convenient method of payment.

According to Nacha, consumers are paying more of their bills via ACH. ACH payments enable customers to transfer funds from one bank account to another electronically, without the need for paper checks or physical cash. Not only is it a convenient method of payment, but it’s also more secure and cost-effective for both businesses and consumers.

The draw for ACH is clear. For one, it’s convenient—no more fidgeting with finding and writing a paper check that could get lost or stolen. It’s also safer, the funds are received quicker, and you will know that your funds have arrived, without third-party intervention. What’s more, the lack of a third-party or manual processing means that the risk of error is eliminated.  

Stripe’s research indicates that two-thirds of businesses are focusing on growing their customer base by offering bank debits.  

“We are excited to partner with Stripe to provide our guests with more options to pay for their travel, including paying by bank with Link,” said Dave Stephenson, Chief Financial Officer at Airbnb, in a prepared statement. 

Mike Clayville, Chief Revenue Officer at Stripe added: 

“Anyone who’s made a booking on Airbnb knows how great the experience is. For guests who want to pay using their bank account, we’re thrilled to partner with Airbnb to offer bank payments as an option that’s just as fast and convenient as anything else.”  

This integration is timely, especially as more consumers expect various payment choices at checkout. As many businesses have experienced, the more payment methods they offer, the greater the likelihood that consumers will remain loyal, repeat customers. 

The post Airbnb and Stripe Announce Partnership to Facilitate Bank Payments  appeared first on PaymentsJournal.

Most readers will be familiar with the various systems available in the U.S. for transferring funds between entities, be it for personal or business purposes. We recently covered that Nacha, the ACH governing body, grew its ACH Network volume during 2022.

Nacha posted that the ACH Network processed 30 billion payments in 2022, encompassing $76.7 trillion. Those figures were up by 3% and 5.6% over what the network handled in 2021.

There are both credit and debit payments in eight separate categories across ACH, including Same Day ACH (SDA). SDA also has sub-categories, including B2B. Overall B2B payments across Same Day ACH are up 44% year over year. We would expect that one reason for the increased SDA for B2B network activity was the transaction limit increase from $100,000 to $1 million in March 2022. Overall, SDA transactions totaled 697.5 million and were valued at $1.7 trillion last year. Those were increases of 15.5% and 86.3%, respectively, over prior.

What’s more, Nacha and the ACH operators (The Fed and TCH) introduced a ‘late night service’ last year, which allows for payments file delivery up until 11:30pm on business nights. This has made file delivery more efficient and has apparently been particularly beneficial on Fridays, with 50 million new files delivered on average.

Interested readers can click out to the Nacha site as well, where there is a fair amount of historical data available for ACH by category. Again, a continuing trend for faster and better, with B2B one of the use cases where strong growth is expected, which will be boosted by the launch of FedNow later this year. Members will also be familiar with some of our thoughts on faster payments given recent research on the topic, as well as the many postings on these pages related to payables in general.

Overview by Steve Murphy, Director, Commercial Advisory Service at Javelin Strategy & Research.

The post Business-to-Business ACH Use Cases on the Rise appeared first on PaymentsJournal.

In a payments world that often is often focused on the new thing, reliable ACH payments—the province of the National Automated Clearing House Association (Nacha)—keep steadily growing, with billions of payments processed annually to the tune of trillions of dollars.

That doesn’t mean, however, that nothing is new in the ACH lane. On a recent PaymentsJournal podcast, Michael Herd, the Senior Vice President of ACH Network Administration at Nacha chatted with Brian Riley, Co-Director of Payments at Javelin Strategy & Research, about the highlights of the past year, what has been driving business for Nacha, developments to look forward to in 2023, and why Herd sees reason for optimism.

“It really is a far-reaching, industrial-strength payment system here in the U.S.,” said Herd.

2022 by the Numbers

The volume attests to Herd’s contention.

The ACH Network processed 30 billion payments in 2022, encompassing $76.7 trillion. Those numbers were up by 3% and 5.6% over what the network handled in 2021.

Herd said that volume was achieved despite “some headwinds.” He noted the absence of pandemic assistance payments, which flooded into taxpayers’ bank accounts in 2020 and 2021. There was also a slowdown in economic growth and in jobs.

Nonetheless, the numbers grew across the board for the ACH Network, with dollar growth of about 6% year over year. It all amounts to more than 120 million payments per business day, and over the course of the year, it’s approximately 89 payments per U.S. citizen.

But perhaps the best measurement of ACH payments’ enduring appeal and easy reliability is that the value of the payments processed by the ACH Network has increased by more than one trillion dollars every year for 10 consecutive years.

It’s an enviable steadiness, Riley noted.

“The volume continues to grow,” he said. “I don’t want to know about events that blow up. It’s nice and steady. It’s there, reliable.”

The Continuing Growth of Same Day ACH

In March 2022, the per-payment limit on Same Day ACH transactions increased from $100,000 to $1 million. That boost brought new players into the fold and fueled remarkable year-over-year growth for the payment method.

“There was an immediate impact to that increase,” said Herd. “We were able to see a doubling of the dollars flowing through same-day ACH (from February, the month before the increase, to April).”

Again, the numbers tell the story of the growth: 697.5 million payments using same-day ACH that added up to $1.7 trillion in value, a more than 86% increase year over year.

What’s more, the boost in the per-payment limit expanded the use cases for Same Day ACH, drawing in such things as vendor payments, tax withholdings, merchant funding and settlements, and concentrations of cash. Further, business-to-business (B2B) payments across Same Day ACH are up 44% year over year, according to Herd.

The cap increase, Riley said, “was significant for the long-term reliability of that relationship.”

Herd backed that up with anecdotes from his dealings with users and would-be users of same-day ACH.

“It is the corporate user community that has been driving those increases over time,” he said. “They’re the ones that have really told us that this is something that they wanted and that it makes a difference to them. It enables them to use the capability that has been created.”

The ACH Network has continued to see shifts from the pre-pandemic business payments models, which in many cases clung to older forms like paper checks, to what became a necessity during the pandemic: paying employees, vendors, suppliers, and the like without putting a piece of paper in their hands.

That ended what Herd described as “inertia” among some businesses.

“When you don’t really have ways to send and receive checks with actual people doing the physical processing of those, that changes behavior very quickly,” he said. “So we saw some significant increases in business payments and especially B2B volume, and that continued in 2022 even though many businesses have either gone back or portions of the workforce have gone back.”

“Once you make that shift away from paper,” Riley quipped, “you’re not really going to go back.”

Looking to the Year Ahead

Herd pointed to three fronts where Nacha will be looking to refine how it does business:

• Extended hours for Same Day ACH: Right now, the settlement times for Same Day ACH correspond with standard East Coast working hours. As a result, the West Coast currently has a truncated window for Same Day ACH payments. Herd said the idea is to work with industry partners to expand Same Day availability to align with West Coast close-of-business hours.
• International ACH transactions: Improvements, Herd said, can make the user experience better and easier to understand.
• Risk management: Implementation has begun on a new Risk Management Framework, issued in 2022. Herd pointed to a focus on fraud like “credit push payments, things such as business email compromise and vendor impersonations and other types of fraud.”

An Optimistic View

Herd ended on a hopeful note, citing some of the reasons for optimism he has seen in the young year. Recession fears, swirling since last year, are easing a bit. Job gains for January (517,000 new jobs) were strong, and fortified statistics from November and December that were also encouraging.

“It’s good for payment systems,” he said. “It’s certainly good for the ACH direct deposit of payroll payments.”

And while acknowledging what Riley called “unpredictable things” such as inflation, Herd cast the steady reliability of ACH transactions in the wider light of Nacha’s ongoing mission to refine its processes and protect its customers.

“The world wants to move faster and faster and faster, and the ACH [Network] has been central to that conversation,” he said. “And we also have to be safer, safer, safer, and so we need to do that, too. So that’s kind of all in the mix of how to keep something running efficiently.”

The post ACH Network Processed 30 Billion Payments—a Total of $76.7 Trillion—in 2022 appeared first on PaymentsJournal.

The ACH (Automated Clearing House) Network affects most Americans daily, having moved nearly $73 trillion in payments in 2021, according to Nacha, the organization that governs it. 

As payments constantly evolve and become more digital and faster, the ACH Network is also evolving in order to meet the needs of both businesses and consumers. To learn more about how it is handling the new world of payments and what might be in store for the future, PaymentsJournal sat with Michael Herd, Senior Vice President of ACH Network Administration at Nacha, and Steve Murphy, Director of Mercator Advisory Group’s Commercial and Enterprise Payments Advisory Service, for a discussion on this vital payments network that Americans use every day.

Payments volume, especially B2B payments, continues to grow significantly on the ACH Network in 2022, noted Herd. The number of transactions on the ACH Network increased 2.8% so far this year, with B2B payments increasing 14% so far in 2022 B2B payments are defined as invoice and supplier payments from one business to another or merchants and businesses getting funded for card activity. It does not include payroll direct deposits, which are a separate category.

“So, the increase in volume of B2B payments has been really dramatic,” he said. “We’re also seeing very, very high levels of dollars moving through Same Day ACH windows. And consumer payments continue to be strong as well despite the end of the pandemic-era assistance payments.”

ACH Limit Increase to $1 Million

Murphy asked about the impact of the ACH Network’s move in March to increase the Same Day ACH payment limit to $1 million. Nacha members approved a measure to increase the per-payment maximum from the previous limit of $100,000 to $1 million effective March 18, 2022. It applies to all eligible Same Day ACH payments, including credits and debits for both businesses and consumers.

The $1 million limit can be used for many different types of payments, from insurance claim payments and payroll funding to business-to-business and tax payments, according to Nacha.

The second quarter was the first full quarter with this per-payment increase. There were 185 million Same Day ACH payments transferring $486 billion in the second quarter, respective increases of 24.4% and 94.4% over the same timeframe in 2021.

“That has obviously had an impact?” Murphy asked.

Herd replied, “we have gotten a lot of good feedback from the industry on that step,” and businesses especially have been taking advantage of the new limit increase. 

“Businesses are really the entities that have a need to send larger-dollar payments,” he added. “They have really been taking advantage of the new dollar limit.”

It’s not only businesses but also consumers who have benefited from the increased $1 million limit, Herd said. Some examples of consumers taking advantage of the new limit include authorizing payments from a personal banking account to a brokerage account or a retirement account, or conversely, taking money out of such accounts and into a personal account.

“We’re seeing a lot of activity here,” he said. “People want the ability to move that large amount of money on a same-day basis.”

The Rise of Digital Payments

Herd observed that the COVID-19 pandemic spurred higher use of digital payments, and that looks set to continue even as we move into a post-pandemic era. This was especially true for small and medium-sized business, which have adopted digital payments in droves after years of relying on paper-based payments such as checks and cash.

“The pandemic era was really transformative in how small and mid-sized businesses send and receive payments,” he said. “This change in behavior to more digital payments [for SMBs] is something the industry has been trying to push for decades with only moderate success. But in the two-plus years of the pandemic era we have seen transformational change.”

This is true even for businesses such as personal services providers, which have largely been cash-based historically.

Murphy asked if the current economic climate and possibility of a recession are affecting the volume of B2B payments. “What are you seeing reflected in the network?” he asked.

Herd said that, so far, there has been no discernible decline in business payments on the ACH Network.

“We have not seen a decline in volume that is attributable to a recession,” Herd said. “We’re still seeing growth in B2B payments, which is a core part of economic activity.”

The Future of the ACH Network

Herd also discussed several new innovations on the ACH Network and some potential future plans. He said that in September it will start implementing late-night file deliveries to all 9,800 financial institutions that are part of the ACH Network. This means payments can be transferred later at night on banking days and that “this is really addressing a gap that exists today.”

He said this move will provide accountholders with more accurate and up-to-date information on account activity and what their balance will be at the opening of the next banking day.

“This will create a better user experience and help consumers avoid things like overdraft fees,” he said.

Murphy speculated on whether the ACH Network will look at implementing another increase past the current $1 million limit in the near future. Herd noted that the limit was raised from $25,000 to $100,000 in 2020 prior to the current increase. Nothing is set for yet another increase, but it is a situation that the ACH Network is watching.

“We will see what the activity looks like over the next six to nine months and how the market is adapting to the larger dollar amount,” Herd said. “There is nothing on the table at the moment, but it is something we are acutely aware of.”

The post How the ACH Network Is Evolving to Meet the Needs of Businesses and Consumers appeared first on PaymentsJournal.

September 2021 marked the five-year anniversary of the Same Day ACH (SDA) debut. When SDA went live, the ACH Network only allowed up to $25,000 per same day payment. Now, on March 18, 2022, the Same Day ACH limit will increase to $1 million per transaction, a ten-fold increase from the current $100,000 per transaction limit. Since its introduction, the market has only grown more accustomed to SDA as a payment method, and if SDA expansion continues at the current rate, the sky is the limit.

To learn more about Same Day ACH, its meteoric rise, and what that rise means for the payments industry, PaymentsJournal sat down with Mike Herd, Senior Vice President of ACH Network Administration at Nacha, and Sarah Grotta, Director of Debit and Alternative Products at Mercator Advisory Group.

Growth leads to opportunity – and vice versa

The higher ceiling in allowed dollar value per SDA transaction means one thing: opportunity. A wide spectrum of industries, government entities, and consumers will be able to utilize and benefit from the ACH Network while ensuring that their payments continue to be safe and secure.

B2B payments will likely see a particular boon, including vendor or supplier payments, tax payments, and payroll funding. Other uses like insurance claims and other A2A transfers are also expected to increase.

“The last time there was a dollar limit increase was about two years ago, to the current level of $100,000 per payment,” Herd noted. “That generated larger dollar flows using Same Day ACH almost immediately. We’re going to be watching closely as that goes into effect, but that’s our anticipation.”

According to Grotta, this planned increase demonstrates three things:

1. The market is finding utility for Same Day ACH with expanded use cases.
2. Financial institutions have confidence in the ACH Network and confidence that they can successfully manage any accompanying fraud.
3. There is a growing expectation that money should move more quickly.

“Hockey stick” inflection point

The numbers being recorded surrounding Same Day ACH are frankly staggering. In 2021, SDA volume increased by 74%, and dollar volume increased by 105%. A combination of factors in the last two years – the prior dollar limit increase to $100K, the expanded hours of availability for Same Day ACH settlement, and the general economic conditions of the country moving towards electronic and faster payments – all ignited steep growth after a steadier period. If you were to track SDA use on a graph, it would resemble a hockey stick – mostly flat and then a sharp turn upward.

On a more granular level, Herd pointed out two specific growth areas for Same Day ACH in 2021. The first is consumer debits initiated online, which increased by 127%. The second area is B2B payments, which saw a doubling in the number of transactions and a 142% increase in dollar volume. Whereas prior growth was driven primarily by consumer direct deposit and other disbursements, these new use cases have spurred tremendous gains.

ACH currently clocks in at 29.1 billion payments valued at $72.6 trillion – with a T.  Compared with 2020, that represents an increase in ACH Network payment volume by 8.7%, or 2.3 billion, and dollar volume by 17.4%, or $10.8 trillion. “ACH is really in record-setting territory at the moment,” Herd summarized.

Three primary factors

The remarkable growth in ACH can be attributed to three main factors, according to Herd:

1. ACH payments initiated online by consumers
   1. Consumer online payments are the largest growth area, with more than 1 billion new payments in 2021. These payments include bills, recurring donations and subscriptions, A2A transfers, and links between fintechs and bank accounts. “Using online abilities to initiate payments has become more important than ever over the last couple of years,” Herd pointed out.
2. B2B payments
   1. The 5.3 billion B2B payments, valued at $50 trillion, reflect a 20.4% increase from 2020, and over the past two years, ACH B2B payments have jumped 33.2%. A big part of that is the transition from check usage, which has declined to the remote work conditions of the pandemic. “Close to 40% of business-to-business transactions are still done via check,” Grotta elaborated, “so I think there’s even more to be had there.”
3. Government payments
   1. The federal government continued economic assistance in 2021 using payments largely distributed by ACH. These payments included direct deposit of Economic Impact Payments, child tax credits, unemployment benefits, as well as disbursements to states, businesses, agencies, and medical providers and facilities.

The future of the ACH Network

With all the positive movement in the ACH space, one might assume it would be easy for the ACH Network to rest on its laurels. But this is not the case.

“One thing we’re interested in is expanding the ACH Network’s availability and settlement capabilities into additional days and times,” explained Herd. “For example, to shorten the time over a weekend or a holiday weekend when ACH payments currently cannot be settled.” Nacha has reached out to the Federal Reserve to advocate for the expansion of the Fed’s interbank settlement service, positing that it would benefit both banks and customers by increasing the availability of funds.

Another opportunity is simply to lock in the gains made in the last several years with B2B and government payments. The IRS looks to be on a record pace to issue tax refunds by direct deposit during this filing season, which is a good sign for ACH. “One thing I hear people wonder about is, if we are returning to a state of more normalcy, is there going to be some backsliding with payments going back to paper?” Herd said. “So far, it appears that type of backsliding is not happening.”

Expanding ACH adoption into new business models akin to bill payments is also a top priority. From a payments perspective, repeat donations and subscriptions have much in common with monthly utility bills, and the ACH Network is well-equipped to handle it. Even BNPL solutions and the predicted onset of open banking in the U.S. could utilize ACH. “There’s a lot of opportunity for ACH to expand into the payments for those types of services,” Herd concluded.

The post Same Day ACH and So Much More appeared first on PaymentsJournal.

The world seems to have it out for ACH, with lots of talk about replacement tech like Real-Time Payments (RTP) and the use of crypto solutions as an alternative for financial transfers, but ACH isn’t all bad. It’s overwhelming coverage and low cost will likely keep it in use for years to come.

In Q3 of 2021 in the US, there was $18.1 trillion transferred via ACH. More interesting than the sheer volume is that volume across the ACH network seems to be growing at a solid clip, nearly 18.7% year-over-year. So despite more alternative methods for financial transfers than ever, why is a nearly 50-year-old technology so prevalent and growing in popularity?

The good:

Coverage – Unlike some of the newer technologies like RTP, almost every bank in the US system is accessible via ACH. If you are sending a significant amount of transfers, knowing that more banks are available to receive an ACH is a huge process win.

So cheap – At the moment, there is no cheaper way of moving funds between two accounts than via ACH – and it’s not even close. If you need to move $1,000 and you want to do that via wire, that would be an extra $35 fee. Instant cash out to your debit card? $15. If you have an extremely tech-forward bank you might be able to create a transfer involving a USD to ETH to USD transfer but the “gas fees” are quite real. ACH wins on price. 

The less good:

Fraud – The amount of fraud on the ACH platform is non-trivial. In 2021, losses due to fraud in the ACH network exceeded $55B overall. The opportunities for fraud stem from the exploitation of two components of the ACH system: 1) settlement timing, and 2) chargebacks.

Kinda slow – Nearly every experience has been altered through digitization: you can book a flight instantly from your phone or order a movie from an endless database of content and watch it instantly. All of this and yet money, primarily traveling on ACH, can still take days.

I won’t make excuses for the shortcomings of ACH, but I do think that many of them stem from the implementation of the transfer technology and not the technology itself. Moreover, I think that addressing these shortcomings in the near term can unlock faster transfers for more consumers than RTP can in the same time frame. 

ACH is a rail and not a full-stack solution. As a financial transfer technology, ACH is actually quite powerful – letting you move large amounts of money between financial institutions with very little friction, but developers can end up in trouble if they view ACH as a complete solution. Although you can clear large sums of money for very little expense between almost any two U.S. accounts, all of the risks associated with confirming account ownership, problems with available funds, return codes, and transfer failures all fall to the developers to reconcile, on an almost daily basis. 

It’s not just enough to integrate an ACH API into your platform and begin to move money. You need to build all of the components for account verification, balance checking, and return code risk mitigation if you don’t want to find yourself with mounting losses due to failed or fraudulent transactions. The opportunity presented then is to acknowledge the shortcomings of ACH and package the other components that are needed for a successful transfer process around the technology. As a result, you can have a ubiquitous transfer protocol, capable of handling large transfer amounts between almost any account with the low risks associated with other transfer types, like debit.

The early part of my career was spent in two very different arenas – asset management and aerospace. On the surface, it seems like they couldn’t be less similar, but where both were completely aligned was risk. No one wants to fly on a plane with risky design features or technologies, and no one wants to bank at an institution with faulty infrastructure. That’s why planes have looked nearly the same for 70 years and banks use software from the early 2000’s and verify wire requests by matching signatures sent by FAX to those on card files. 

Risk is bad for everyone – new things can break and are therefore risky, until proven otherwise.  Recently, we have seen some advancements in aerospace with faster airframes and new propulsion technologies, and over at banks a steady hum about new asset classes, adoption of new protocols like RTP, and the importance of embracing crypto and or DeFi in some capacity. But, nothing beats tried and true technology, and in finance, the technology of transfers is ACH.

 ACH volumes will keep growing. The usage of wire transfers will fall. And the technologies that make ACH into the powerful, fully-functioned payment solution that it can be, will get bigger and better.

Long live ACH.

The post Long Live ACH appeared first on PaymentsJournal.

When it comes to the modern payments ecosystem, speed and security are topmost priorities. The automated clearing house (ACH), proven to be a reliable provider of fast and secure payments, has seen steady growth over the last several years, with a 10% compound annual growth rate (CAGR) between 2017-2020 and even larger gains projected through the end of 2021.  

However, increases in transaction volume bring commensurate increases in fraud and the mitigation of fraud risks, undermining the benefits of ACH with lengthy remediation processes. One way to nip fraud risk in the bud is with a strong account validation system, but it must continue to allow for seamless and fast payments. 

To learn more about how to optimize account validation to mitigate fraud and drive faster payments, PaymentsJournal sat down with Nirmal Kumar, CTO and Head of Product at Aliaswire, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group. 

ACH spiked with COVID-19 

ACH is not a new system – its roots trace back to the late 1960s and early 1970s – but Same Day ACH was only introduced in 2016. When the COVID-19 pandemic drove payments into the digital space, the ACH Network was already in place and ready to accommodate widespread changes in the payments ecosystem.  

“There was a tremendous amount of volume pumped through the ACH as a result of the CARES Act and unemployment benefits,” Grotta pointed out. “The pandemic also put a lot of pressure on businesses to stop processing checks, just because it became such a burden, particularly in the B2B and B2C channels.”  

Everybody from financial institutions to individual consumers desired greater efficiencies through electronic transactions. “It’s a behavior shift,” said Kumar. “It’s not going to go away.” Some of the growth has come from new digital tools for P2P payments such as Venmo and Zelle, which appear to be different payment mechanisms but which in fact use ACH under the hood.  

Kumar highlighted how the ACH network handled a record high of over 26 billion payments in 2020, which translates to about 81 payments per person in the U.S. “That’s how efficient the system needs to be,” said Kumar. “If there’s any friction in the system, that’s how impactful it’ll be across the board.” 

The vital role of account validation 

As ACH volume grows, it is only logical that fraud, errors, and return rates would grow as well. Anybody with the right credentials can enter an account number, and something as banal as a “fat finger error” can disrupt the flow of payments and introduce friction.  

“The entire onus of entering accurate account information is on the payer,” Kumar explained. “Inaccurate information causes what I call the ‘pipe freeze,’ and eventually the [pipes] thaw, the payment is kicked back, and the fraud is realized, but that almost takes four or five days to happen. That slows down the entire system.” 

NACHA introduced a new countermeasure rule that went into effect on March 21, 2021, requiring account validation for the first use of any bank account that goes into the ACH network. Still, the U.S. banking system is fragmented across many different banks and accounts, and there is not yet a single unified account validation scheme for everyone to follow. “If account validation is done the right way, it can increase both volume and user experience,” said Kumar. 

For years, people have used prenotes and microdeposits (negligibly small transactions to verify account information) as an account validation method, but that process takes time and runs counter to the whole concept of fast payments. “In this day and age of faster payments, that is just not viable,” suggested Kumar. Some sort of account validation is necessary to give users the confidence to use ACH, because if the system is bogged down in errors, people will turn to payment cards instead, which will increase costs for FIs and other account originators.  

What strong & modern account validation looks like 

Any strong account validation process will provide cost efficiency, reduce drop-offs, and lower risk of fraud. However, historical account validation tools such as prenotes and microdeposits can take 5-7 business days to process, and account aggregators add risk to the equation by sending customer information to a third party. How does one modernize this essential process?  

According to Kumar, account validation in the U.S. requires a multi-pronged approach to meet the needs of a fragmented system. “It really has to have a platform approach where you can mix and match different tools to provide the best experience as far as account validation is concerned,” he said. Most importantly, money needs to be able to move at high speed, particularly as open banking finds its footing in the U.S. “As banking becomes more democratized, I think these tools are very important and essential,” Kumar continued.  

Account validation must confirm four main things: 

1. Account status 

2. Payment history, particularly NSF or chargeback history 

3. Ownership, and matching ownership to the payment originator 

4. Consistency of Personally Identifiable Information (PII) including name, address, phone number, email, etc. 

Overall, account validation must be built for real-time payments with a sophisticated understanding of how fraud is conducted, and it must be done cost-effectively. “ACH is the most cost-effective way of moving money,” Kumar explained. “But as soon as you add account validation and start using third parties, that cost jumps almost 5-6 times.” A platform approach can minimize that financial burden by proactively using existing data, multiple providers, and relevant payment history. “That kind of cost optimization can only be brought in by a platform approach and not by a single source,” Kumar concluded. 

The post How ACH Account Validation Reduces Fraud and Facilitates Faster Payments appeared first on PaymentsJournal.

Buy Now, Pay Later (BNPL) has exploded over the past year as a payments method. Although the general concept is not particularly new – buying items “on layaway” was popular for decades after the Great Depression, and installment lending was the most popular form of credit prior to 1977 – BNPL has recently seen a massive resurgence, no doubt in part due to the financial uncertainty brought on by the COVID-19 pandemic.

As with any payments method that operates on some form of point-of-sale credit, the primary concern for merchant adoption of BNPL is ensuring that purchases are consistently repaid. Fintechs that offer BNPL must make decisions about which payment types they will accept to settle outstanding transactions. While credit and debit cards are both very popular, one potentially overlooked method is the Automated Clearing House (ACH) Network.

To learn more about the benefits of ACH for BNPL repayment, PaymentsJournal sat down with Brad Smith, Senior Director of Industry Engagement and Advocacy at Nacha, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Service.

What BNPL offers customers and merchants

There are two main types of BNPL payment. One is a kind of one-off personal loan that tends to be used for the purchase of more expensive items. The other is a “pay in x” model where the customer pays in three or four installments spread out over a longer period. Exercising some flexibility around how and when people make payments is obviously very attractive from a consumer standpoint.

“I think a lot of individuals – given what’s happened during the pandemic – they’ve had a lot of income volatility,” said Grotta. “They’re really not sure what they’re going to be earning over the next, say, month or so. The opportunity to plan for certain purchases in smaller increments can be really helpful.”

Renewed interest in BNPL as a budgetary tool may also be a generational thing. “There are consumers out there in that millennial age group that might be a little bit averse to using credit,” Smith added. “I think that they’re more into being able to spread out the payments as opposed to putting everything on their card.”

As for merchants, there is both value in investing in payments options that are demonstrating significant growth, and value in terms of how BNPL affects consumer behavior. “Shopping cart abandonment is a big deal in the merchant space, especially online,” said Smith. According to a PayPal study, 64% of consumers are more likely to purchase what they have in their cart if they are offered an option to pay in installments with 0% upfront.

The FI perspective – and how ACH can help

While BNPL may be mutually beneficial for merchants and consumers, financial institutions may be left out of the conversation. Smith cited a McKinsey study saying that in 2020, Buy Now, Pay Later was a $97 billion industry that pulled away $8-10 billion in annual revenue from banks. If BNPL continues to grow, as it looks poised to do, that will turn into a larger loss for FIs. “I think they need to be concerned by lost revenue from card swipes, whether it’s debit or credit, or lost revenue from installment loans,” said Smith. “If banks have not been focused on how to combat this potential loss due to Buy Now, Pay Later, they really should be.”

One solution that may help is introducing ACH to the BNPL process. Certainly, banks will want their services to be included in the payments process. “Any way that financial institutions can be a part of the repayment option is great to the extent that they can remind consumers about the opportunity to utilize one of their products,” explained Grotta. “Further repayment, including ACH, including their checking account, would be helpful. That way, a bank has the opportunity to include themselves in Buy Now, Pay Later.”

Smith added: “Barclays and First Citizens have offered their own products to merchants. So, those financial institutions can stay right there and be part of that payback process, so as to reduce the potential for loss from other payment types.”

Convenient, reliable, cost-saving

Granted, what is best for banks is not necessarily what is best for merchants or consumers. So, why would a BNPL provider want to include ACH as a payment option?

The answer is all about maintaining an uninterrupted repayment process. If, for example, the repayment of an item is spread out over 24 months, the card on file to make that payment could easily expire before the final payment is due. Bank accounts, however, don’t expire. “By using ACH, the payment comes out of a bank account,” said Smith, which will “create a much more steady flow of payments back to the merchant.”

ACH is also likely less expensive than other payment methods. Smith clarified: “If they’re offering a longer term loan at 0% and their margin is slim, offering ACH is going to help those Buy Now, Pay Later merchants keep those costs down.”

This, too, will ease the process for the consumer, insofar as the consumer is uninterested in payment delinquency. With ACH, consumers will not have to update their payment information every time a new card comes in the mail, and they will not have to worry about incurring undue interest. “If you get those payments coming out of the banking account by ACH, you’ll see a much more consistent, lower return level type of payment,” Smith added.

ACH is the best option for BNPL

Among six fintechs surveyed [see below], only half offered ACH as a repayment method – Affirm, PayPal, and Sezzle. The other half did not – AfterPay, Klarna, and Zip. But between the tremendous growth of Same Day ACH and the modernization of the ACH Network in the U.S., it may be the strongest option. “I think it really should be prioritized as the number one payment method,” Smith emphasized.

In these unsteady times, finding a flexible and reliable spending model is imperative for consumers. “I think ACH is a much better financial planning solution for those individuals who might perhaps be overextending themselves,” concluded Grotta, who recently published a study on the influence of BNPL. “I just appreciate the opportunity to offer every payment type that isn’t a credit option.”

The post The Benefits of Using ACH for Buy Now, Pay Later appeared first on PaymentsJournal.

In just five short years, Same Day ACH – Nacha’s faster payments solution – has gained remarkable traction, with the payments community putting it to work in several use cases.  

To learn more about the creative ways Same Day ACH is making a difference in the move toward faster payments, PaymentsJournal sat down with Michael Herd, SVP of ACH Network Administration at Nacha, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group. 

Same Day ACH turns five years old 

On September 23, 2021, Same Day ACH celebrated five years since its initial launch. Since then, the network has seen immense growth in both the number and value of payments made via Same Day ACH. This volume growth is apparent in the chart below:   

“The main thing that these results show is that Same Day ACH has gone mainstream, and that we have entered another high growth phase of same day ACH,” explained Herd. While adoption rates were slower in the earlier years of Same Day ACH, increasingly widespread availability has contributed to its more recent rapid growth. In fact, the ACH Network continued to thrive and evolve even during the pandemic.  

New use cases are contributing to this growth. “Same Day [ACH] use cases are built right into a payment processor service and are not an afterthought. And so I think that is a significant contributor to why we’re seeing some of the growth numbers that we are right now,” he added. 

Quantifying the growth of Same Day ACH  

In the first six processing days of September 2016, there were 1.3 million payments worth a total of about $1.5 billion transferred through Same Day ACH. In the first half of 2021, there were more than 291 million debit and credit Same Day ACH payments worth a total of $439 billion. Those figures are up 86.3% and 123%, respectively, from the first half of 2020.  

“It really has had a significant impact and change of trajectory since we first launched it,” said Herd. The cumulative tally since its 2016 launch now stands at more than 1.2 billion payments transferring over $1.5 trillion. 

“It’s worth realizing… that Same Day ACH comprises now about 2% of total ACH volume, and that the growth in non-Same Day ACH payments, which you might call standard ACH, exceeds the growth in Same Day ACH in absolute numbers,” acknowledged Herd.  

Nonetheless, the growth rate of Same Day ACH is impressive. “It seems like the growth rate is actually accelerating. And I would expect that to start to moderate at this stage of its product lifestyle, but I think Same Day ACH as well as traditional ACH have really just been swept up in the whole overall digitization of payments,” said Grotta.  

Continuous enhancements add to the value of Same Day ACH 

Same Day ACH has undergone multiple enhancements since its September 2016 launch. “We’ve continually increased the capabilities and the features of Same Day ACH every year, adding debit processing, speeding up funds availability, increasing the dollar limit, and expanding the available hours. So that’s kind of where we are today,” explained Herd. 

Up next is yet another increase in the dollar limit, which will go into effect in March 2022. This change will raise the dollar limit for Same Day ACH to $1 million per payment. “To me, the increase in the dollar limit suggests that the organization is very comfortable with the fraud limits that have been occurring thus far, and so you’re feeling more comfortable and allowing higher dollar values to flow through the network,” added Grotta.  

Creative ways businesses are utilizing Same Day ACH 

In the earliest years, consumer disbursements such as payroll and insurance payouts were the main growth drivers for Same Day ACH. Now, more use cases are emerging. “We’ve really seen a shift in where the growth is coming from, and we’re seeing large scale adoption and transaction types that represent bill payment and account-to-account transfers both for consumers and businesses,” said Herd.  

One innovative Same Day ACH use case that has emerged comes from the fintech ExcheQ, which uses the ACH rail to allow its customers to send money by phone. ExcheQ uses Same Day ACH to allow for immediate notification and real-time settlement.  

But that’s not all. “We see billers that are adopting Same Day ACH to collect funds more quickly,” said Herd. “The pandemic has driven a lot of additional bill payment activity. Many, if not most, billers provide consumers with immediate credit for bills paid at the biller’s website. So, when using Same Day ACH, they can collect funds more quickly for credit that they’ve already given to a customer,” he continued. 

Insurance claims and disaster relief payments can also get to those who need them faster by using Same Day ACH. B2B payments can be made the day they are due, consumers can quickly transfer funds as they are needed, and payroll can be processed immediately. It is also useful in ad hoc emergency scenarios such as payroll errors or for immediate payment of terminated employees. 

Even the IRS has benefited from Same Day ACH, using it to pay over 430,000 beneficiaries of Advanced Child Tax Credit payments. “In September, the IRS did use Same Day ACH to pay a small percentage of beneficiaries that they had missed for the September regularly scheduled payment… I think what’s significant about that is that it’s the first time that we’ve seen use of Same Day ACH by the U.S. Treasury at any scale,” explained Herd. 

With growing value, use cases, and impact, the future is bright for Same Day ACH. “I still think there’s a lot of strong growth areas for ACH and Same Day ACH in our future,” Herd concluded. 

The post Same Day ACH is Making a Difference in the Move Toward Faster Payments appeared first on PaymentsJournal.

9to5 Mac reported that Apple Cash users can now use the Instant Transfer feature with Mastercard debit cards.  Apple Cash can be used for purchases and for person-to-person transactions.  Apple recently launched Apple Cash Family, allowing users to share funds with kids.

Adding Mastercard for transfers is not difficult, particularly for a tech firm like Apple, so it makes one wonder if the delay in adding the Mastercard option (they have had Visa in place for a while) was due to contractual concerns, not technical.  In addition to adding Mastercard access, they also increased the fees, trying to give users more of an incentive to keep their money with Apple. 

Here’s the scoop from the article:

In an email sent to Apple Card users on Thursday, Apple says users can now transfer money from their Apple Cash balance to a bank account using a Mastercard debit card and Instant Transfer. Previously this was only possible using a Visa debit card. With Instant Transfer, the money is sent immediately to your bank, so you don’t have to wait until the transaction is processed.

The company is also changing some Apple Cash terms and conditions with today’s update. Most notably, the company will now charge 1.5% (previously 1%) for transfers made with Instant Transfer. There will be a minimum fee of $0.25 and maximum fee of $15 per transaction. These changes will take effect from August 26, 2021.

Those who don’t want to pay any fees for sending money from the Apple Card balance to a bank account can use ACH transfers. However, this method takes from one to three days to add the money to your account.

With Apple Cash, users can easily send and receive money to friends and family through iMessage. The service is also integrated with Apple Card so users can receive Daily Cash. All the money in an Apple Cash account can be used in stores through Apple Pay.

It’s worth noting that Apple Cash is currently exclusive to the US

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Apple Now Allows Instant Transfer with Mastercard Debit appeared first on PaymentsJournal.

As the pandemic winds down, both consumers and merchants are beginning  to figure out what the “new normal” will be. This is especially true for the way they interact with money. People are paying at the register with their phones, and merchants are accepting alternative payment methods. The shift to digital payments has seen exponential growth, and an impressive number of those payments are transacted via the ACH Network.

To further discuss the growth of the ACH Network, especially during the pandemic period, as well as what’s new and up-and-coming for the payments powerhouse, PaymentsJournal sat down with Michael Herd, SVP of ACH Network Administration at Nacha, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

A State of the Union for ACH

The state of the ACH is very strong. Due to the pandemic over the last year-and-a-half, there has been a shift in the way entities conduct their businesses, and there is a strong drive for all payments to be digital. This is pushing the ACH Network to new heights.

“We announced a record year in 2020 in terms of volume and volume growth on the ACH Network, but then our first quarter of 2021 exceeded any quarter in 2020,” said Herd. “ We started the year very, very strong. Volume growth in the first quarter was up over 11% year over year.”

Business-to-business (B2B) payments really stand out, with nearly a 20% year-over-year growth in B2B volume on the ACH Network. While B2B has always been an area of growth, the curve has not always been quite as steep. The ability to get small and medium businesses (SMBs) to use electronic payments for accounts payable, accounts receivable, payroll payments, and even other kinds of payments has been accelerated by the state of the country and the economy over the course of the pandemic.

Lastly, Same Day ACH had a volume increase of 88% year-over-year. “We had a strong growth rate before. But this year, so far, it’s double last year’s growth rate,” concluded Herd.

Same Day ACH Extended  Hours

As of March 2021, the third Same Day ACH settlement window is live. The rule expands access to Same Day ACH by allowing Same Day ACH transactions to be submitted to the ACH Network for an additional two hours every business day until 4:45 p.m. With this extension, ACH payments are now settled four times each business day.

Before the rule went into effect, Same Day ACH capability in the western time zone would close before the end of the business day, while other time zones in the continental U.S. would have access to the faster payment method throughout much more of the business day.

So why is this important? The ability to use Same Day ACH for a greater period of time during the business day for things like paying invoices, collecting bills, and making payroll could be the different between a business’ decision to use or not use the technology.

“We have some anecdotal evidence that the window extension is currently  being used and was even used on the very first day that it was available,” explained Herd. “I think it will  have a significant impact [in] the long run.”

Per payment limit increase for Same Day ACH

An increase to the Same Day ACH dollar limit has been approved and will go into effect as of March 2022. The limit will increase from $100,000 to $1 million per payment.  It will apply to all eligible Same Day ACH payments, including credits and debits for both businesses and consumers. “The dollar limit increases [have] always been at the forefront or top of mind, particularly to business users of the ACH,” said Herd, adding that it’s an enhancement that they’ve often asked for.

This could be particularly beneficial for tax payments, insurance payouts, and claim payment payouts to either a consumer or a business. Many of those will be above the current existing limit of $100,000 per Same Day payment . Additional uses include paying out the proceeds of a loan or collecting funds for payroll through an ACH debit.

“The increase is expected to have a positive impact on the users who are coming up with ways to make better use of the Same Day ACH capability. Just looking at what happened last year when our prior limit went into effect, it had almost an immediate impact on the use of ACH,” added Herd.

The average dollar amount of the Same Day ACH payment increased by 40% in just two months when the new limit went live. A similar outcome is expected when the new limit increase goes live.

What’s next?

It’s hard to know what the payments systems’ “new normal” will look like. But as 2021 progresses, the large-scale government assistance that resulted in a large volume of payments, many of which used the ACH Network, will be phased out. This includes the extensions of unemployment and government compensations.

Starting in July, the IRS will start to distribute the advanced child tax credit payments in a series of six monthly recurring payments throughout the rest of the year. These payments will continue to generate assistance dollars through the ACH Network.

However, other kinds of payments are starting to recover and rebound. For example, small businesses and the hospitality industry staff members are returning to work, which will result in more payroll payments. As for the B2B sector, it continues to recover and grow, resulting in more supplier type payments. Consumers are also spending more money now that their income is more stable, leading to more consumer bill payments.

“I think 2021 will be a very strong year for the ACH Network,” said Herd. “We’re seeing signals for ongoing adoption and stronger ACH usage.

The post The ACH Network Continues to Thrive and Evolve – Even During a Pandemic appeared first on PaymentsJournal.

Any time we see postings on real-time payments we tend to have something to say, since we’ve closely tracking developments in the U.S. (and globally) for the past several years. Unlike most of the broad commentary found in blog and other posts, we both provide research with estimated numbers, both overall and by use case, including specific B2B member research, as well as ongoing posts and podcasts through this channel.

This particular referenced article is found at CFO and the author provides a bit more depth of information than is usually found in such postings.  The piece is about the growth of the RTP network in the U.S., which is owned and operated by The Clearing House (TCH). 

‘What’s holding up real-time payments? In 2017, the veil was lifted off an interbank payment system providing near-instantaneous settlements instead of next-day automated clearinghouse (ACH) transactions. The real-time payments (RTP) network worked and was ready for adoption by banks, businesses, and consumers….Four years later, the RTP Network can point to several success stories, but nowhere near the adoption rates hoped for when it debuted. About 130 banks are on the network, up from a handful in 2018. Combined, they can reach 60% of demand deposit checking and savings accounts. That’s a far cry from the 4,430 commercial banks, 640 savings institutions, and 5,160 credit unions in the United States.’

Although it has actually only been 3.5 years since the initial RTP launch, the author’s points are valid since bank adoption, particularly in B2B use cases, has been a bit more tepid than expected.  We have reported on the reasons for this in our latest overall member report on the status of faster payments, including factors such as complicated internal systems and process integration efforts to launch a real-time environment, relatively slow integration of RTP by TPSPs (Jack Henry was the first major adopter in 2019), as well as the comparatively low initial transaction limit of $25K (which was increased to $100K in Feb ’20). 

We have reported on the generally accepted expectation for that limit to increase to at least $1 million sometime in the near future. The author adds another factor, which is the general skepticism around the need to adopt real-time payments for a net gain of a few hours (not counting weekends and holidays), which is manageable.  We might add that the Fed announcement of plans to launch a separate real-time payments system (FedNow), likely also delayed some RTP adoption, particularly by smaller asset class banks.

In any event, the article is worth a quick read by those who have some interest in latest developments in this important payments sector, including intentions for various banks and TPSPs to utilize RTP for bill pay (request for pay) and greater use of APIs for B2B use cases. We see a much faster rate of usage during the next three years.

‘Even if all the banks in the world went real-time, Horowitz, the CFO at CareCentrix, remains dubious about the opportunities inherent in a system that limits payments to $100,000….“I can see the opportunity for smaller midsize companies and those in the [business-to-consumer] space where payments are much less, but for companies that do bigger transactions, they’d still have to go through a different mechanism,” Horowitz says….His point may become moot in the first quarter of 2022 when the RTP Network will review a proposal to raise the limit to $1 million. If it gets the green light and more banks join the network, another barrier will be gone….“We’ve seen three times the number of real-time payments in the last year than we saw in the preceding three years,” says Deloitte’s Aron. “I don’t know if Moore’s Law is at play, but I can see momentum building. In five years, this will be par for the course.”  ‘

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Closer to Real-Time for Real-Time Payments appeared first on PaymentsJournal.

Wire and ACH payments are an integral part of a financial institution’s strategy. With the introduction of The Clearing House RTP^® service and the Federal Reserve’s plan to offer instant payments in 2023, organizations need to work out how these payment rails coexist and develop a roadmap that allows them to meet market demands. Meanwhile, the ISO 20022 standard will soon dominate high-value payment systems in the United States. What does this mean for high-value wire payments, which are critical and foundational to large corporate banks and financial institutions?

To learn more about how financial institutions can be ready for the next round of innovation, PaymentsJournal sat down with Kevin Peck, Director of Product Management for Enterprise Payments Platform at Fiserv, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.

Breaking down payment types in the U.S.

It is important to understand the different types of payments in the United States and recognize the value they provide. According to Peck, there are three main payment types: real-time or instant payments; high-volume, low-value ACH payments; and high-value payments that are mostly corporate and interbank focused.

Payment types can be further broken down by features such as settlement time and speed, messaging standard, transaction limit, and funds availability, as shown in the chart below, provided by Fiserv:

Fedwire^®, The Clearing House’s RTP network, and the upcoming FedNow service, all settle in real time, and use or will use the ISO 20022 messaging standard. A key difference between high-value wire payments and real-time payments is the amount of money that can be moved or settled in a single transaction. Currently, The Clearing House’s RTP network has a transaction limit of $100,000. In comparison, wire payments can move billions of dollars in a single transaction.

“The expectation on the real-time payments and eventually FedNow and even same day ACH is that the transaction limits are going to increase over the $100,000 limit that currently exists, which is going to spur additional B2B payments use cases,” explained Murphy.

Peck agreed, adding that “as it stands right now, the two main limitations [are] that transactions limit up to $100k for real-time payments as well as the ubiquity, so it doesn’t necessarily have access to every account in the United States.

Until the limitations surrounding real time payments networks are removed, wire payments will continue to dominate corporate use cases.

Even with the entrance of real time payments, wires remain relevant to financial institutions

Wires are a critical part of a financial institution’s payments infrastructure and revenue streams and contribute significant fee income. Effective use of Wire systems helps corporate treasurers’ cash management, improves transaction efficiency and reduces fraud.

“Listeners may not realize the extent to which wires underpin transaction banking revenue. They’re utilized in a wide variety of transactional use cases, and there’s literally trillions of dollars of value exchange that moves along these rails every day,” said Murphy.

Wires are a key utility for cross-border corporate payments, with capabilities such as the international movement of funds and executing FX transactions, providing banks with the opportunity to add value-add services that drive revenue.

“Wires are also used for bank reserve account requirements, Fed funds, repurchase agreements, trading account obligations, corporate client deposits, and all sorts of liquidity needs and payroll… so they are really the predominant choice for initiating cross-border payments,” Murphy added. 

ISO 20022 will soon be the universal standard for wires

The shift to ISO 20022 is on the horizon for wire payments. ISO 20022 is a global messaging standard set by the International Organization for Standardization (ISO) that can be used for all types of financial communication. 

ISO 20022 is rapidly becoming the universal standard for wire transactions, comes with enhanced remittance data information that far exceeds the capabilities of SWIFT. It is already used by payment systems in over 70 countries.

“What ISO 20022 is bringing [is] a much richer data scheme and [more] structured information into the processing that’s going to have benefits for financial institutions as well as their customers,” said Peck.

Financial institutions will benefit from access to better and more structured data, which makes scanning for sanctions and fraud easier and more robust, and drives down exceptions resulting in reduced operations costs. Customers will benefit from improved reconciliation and easier management of payments.

“The really big benefit across both financial institutions and customers is all that extra information that’s coming in. Being able to take rich data analytics and layer it on top as a value-added service to really drive better insights into those payments – how that money is moving, who you’re doing business with, and open up new opportunities to go after,” added Peck.

How financial institutions can prepare for ISO 20022 

The ISO 20022 deadline is fast approaching. SWIFT is undergoing modernization efforts to move to ISO 20022 with a targeted adoption date of November 2022. Fedwire is also committed to ISO 20022 conversion, but has not announced a firm date which means they will not achieve full migration until the end of 2023 or later. Even so, the Federal Reserve will soon require all Fedwire transactions to have the capability to transfer the ISO 20022 information to enable coexistence with other clearing infrastructures that have already adopted to format. Meanwhile, CHIPS is aiming for full ISO conversion by November 2023.

“Changes are now coming down the pipe that banks are going to have to start expecting and planning for… All of these changes with the Fed and modernization of ISO 20022 [are] going to have a large impact on a financial institution’s back office,” explained Peck.

The path to modernization can be challenging, and most banks will find that they need to make significant changes to multiple systems to achieve ISO 20022 migration. From payment processing systems to accounting, the shift to ISO will have an organization-wide impact.

“The key [to modernization] is that banks and credit unions are looking for that partner, that flexibility, to be able to help them meet their needs. And that’s really what we focus on, is helping address [those needs] based on key drivers… and bringing the appropriate solution to the table to help them realize the strategic vision that they’re after,” concluded Peck.

If you are interested in learning more about how to make wire transfers relevant and profitable, please fill out the form below to access Fiserv complimentary whitepaper titled “Four Trends in Wire Payments.”

The post Expanding the Value of Wire Payments Systems appeared first on PaymentsJournal.

Let’s face it: fraudsters follow the money. As the digitization of payments has accelerated, fueled by high customer satisfaction, convenience, and cost efficiency, bad actors have shifted their sights accordingly.

In response to the uptick in fraudulent activity targeting electronic transactions, including ACH transactions, the WEB Debit Account Validation Rule was put into effect on March 19, 2021. To further discuss how the new Nacha WEB Debit Rule can impact fraud, PaymentsJournal sat down with Andy Barnett, Aggregation and Information Services Solutions Consultant at Fiserv, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

ACH volume and dollar value growth

It has been a fantastic year for ACH volume growth. The chart below shows that there were 26.8 billion credit and debit transactions in 2020, totaling $61.9 trillion. This represents an 8.2% increase in volume and a 10.8% increase in dollar value from 2019.

Both ACH volume and dollar value continue to grow, year-over-year. “In fact, these have grown by more than a trillion dollars every year for the last eight years, and by more than a billion transactions every [year for the] last six years,” elaborated Barnett. With the cost efficiency and convenience of the ACH network, and its ability to reach every checking account in the country, this transaction growth shouldn’t come as a surprise.

Additionally, there was a 15% increase in ACH internet transactions from 2019 to 2020 (not displayed here). “That’s a pretty amazing statistic in and of itself, as we start to move more and more of our transactions to online and other types of remote channels,” added Grotta. While this massive growth is predominantly a good thing, it is reasonable to believe that fraudsters will see it as an opportunity to target a growing transaction stream.

The new Nacha WEB Debit Account Validation rule

The Nacha Web Debit rule is not a new thing, but there has been a slight modification made to it. “Currently, ACH originators of web debit entries are required to use what Nacha calls a commercially reasonable fraudulent detection system to screen web debits for fraud,” explained Barnett.

The altered rule will supplement the existing screening requirement to make explicit that account validation is included in a commercially reasonable fraudulent transaction detection system. This additional requirement applies to the first use of an account number or changes to an account number that is on file.

This rule was implemented to:

• Help prevent fraud on the ACH network.
• Protect FIs from posting unauthorized payments that are fraudulent or incorrect.
• Make payments more secure, improve risk management, and enhance quality within the ACH network.
• Meet consumer demand for “fast, frictionless payments.”

“While this rule applies only to web debit specifically, it’s something that, as an organization, if the correct controls are put in place, will also cover WEB credits as well,” added Barnett.

How can organizations comply with the Nacha WEB debit rule?

There are a number of ways for organizations to satisfy the Nacha WEB Debit rule account validation requirement.

First, they can do this manually with a voided check. The organization would obtain the check from an end user and call the FI directly to validate the check. “That is still a method that would work, even though it’s probably the worst user experience because it’s the most friction prone,” explained Barnett.

The next option for compliance is with an ACH prenote. The organization sends a $0 transaction to the FI specified by the end user. The transaction will contain the routing and account numbers and is used to determine whether or not the transaction made it to the institution. If the transaction arrives, it qualifies as a status check for that account.

The third choice is through trial and micro deposits. Essentially, an organization deposits two small amounts, usually just a few cents, into the end user’s bank account. At a later date, the end user can access their bank account to validate that those deposits were successful. This validation method is a bit stronger than the previous two, but is not an ideal user experience due to the wait time between sending and receiving the transactions.

An even stronger account validation mechanism is database verification. “This is where the organization would take the end user’s first name, last name, account [number], routing number and any other pieces of identifiable information that would help validate [the account], and bounce that information off of a database, such as EWS, or Early Warning Systems,” said Barnett. While this database does not include all the FIs in the U.S., it covers nearly two-thirds and provides instant, frictionless status verification and ownership. An example of a tool that can leverage this method is VerifyNow™ from Fiserv, which adds instant verification along with risk protection and can help facilitate Nacha compliance.

The final option is to use financial institution credentials to access the end user’s bank accounts.. While there is some friction here in terms of user experience, once access is granted, the organization can see a user’s running balances and transactions over time. They can then utilize that information to make informed decisions about users’ ability to pay on a recurring basis. AllData® Aggregation from Fiserv can enable account validation via this option and can also retrieve additional account details.

Any of these options will facilitate compliance with the Nacha WEB Debit rule.

The “best” ways to comply

Of the five compliance methods listed above, organizations are not confined to only one option. Multiple combinations can be used in conjunction with one another.

“As a best practice, businesses and financial institutions should consider combining database, financial institution credentials and micro deposits in a waterfall type fashion,” suggested Barnett. He expects this combination to provide organizations with the best fraud protection and user experience, all in one.

Additionally, Barnett advises that organizations looking to manage risk around ACH debit and credit transactions start with the database approach.

If this approach is not successful, the next step is to utilize the FI credentials method. The user will be presented with a screen to log into their FI. If this is also unsuccessful, then the organization should use micro deposits to try and obtain validation status.

“That waterfall approach, and those specific verification methods, in my opinion, are the strongest in terms of providing the best protection [and] best user experience, in combination with one another,” concluded Barnett.

The post Nacha’s New WEB Debit Account Validation Rule Helps Stop Fraudsters in Their Tracks appeared first on PaymentsJournal.

Citi has added the capability for its corporate clients to push credit transactions to consumers through the use of the debit push payment solution, Mastercard Send, delivering transactions typically within seconds. Send joins other payment types like ACH on the treasury platform providing clients with a choice of payments. 

What I find intriguing about this is that Citi has been an early adopter of The Clearing House’s RTP network.  This highlights the breadth of options and the rich, competitive market that has developed in the U.S. for payments that are faster and always available. 

These payment types will likely continue to develop side-by-side, serving specific markets and use cases. Here’s an excerpt from Mastercard’s and Citi’s announcement:

Citi^® Payment Exchange provides Citi commercial clients with the ability to send Business-to-Consumer (B2C) payments via their customers’ preferred method of payment. It also incorporates payee enrollment services, a payee database, online payment preference management, an administrative platform, dedicated support, bank-grade data security and storage all in one.

By leveraging various electronic payment options, including ACH and now near real-time payments to debit and prepaid card accounts, organizations can simplify and help reduce payment costs while providing an exceptional and brand building user experience for their clients. In the United States, Mastercard Send reaches virtually all consumer and small business debit cards, delivering a quick and enhanced consumer experience. Consumers won’t need to receive a check in the mail, deposit a check, or share sensitive bank routing information. In addition, they will benefit from near immediate access to funds.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Citi’s Treasury and Trade Solutions Adds Mastercard Send for B2C Transactions appeared first on PaymentsJournal.

This brief release can be found at The Fintech Times and is announcing the expansion of the Mastercard Track Business Payment Service into the UAE.  Readers of these pages may recall previous postings on these pages about the service, which was originally announced back in Q3 2018 as a trade platform built on Microsoft Azure. 

There have been gradual additions to the platform to include the execution of various payment types. This UAE implementation is being done initially through HSBC.

‘The latest collaboration will result in the launch of Mastercard Track Business Payment Service in the UAE. With partnerships across all regions around the world, Mastercard Track Business Payment Service helps companies simplify and optimise how they pay and get paid through a global open-loop network. Businesses have greater control of their payments with rich data exchanges and the ability to automate payments across multiple payment rails. Among the benefits for businesses are the ability to scale, improved security and control, cash flow efficiency and digitisation of existing manual processes’

As we have reported before, Mastercard’s solution provides a business directory, parameter-driven preference settings, and richer data for reconciliation.  There is also now access to card, ACH, real-time and cross-border payments. 

This is one of the ways that the payments technology company is executing its strategic move to further provide B2B payments modernization, which has been a priority for Mastercard and other networks now for several years given the size of the value flows in global wholesale goods and services as compared to consumer spend. 

‘ “The launch of Mastercard Track Business Payment Service is a game-changer for the Middle East and Africa region. We are seeing a structural need to digitise and automate B2B payments across all our markets, accelerated by the global pandemic, and Mastercard Track allows us to fully take advantage of this opportunity. We are thrilled to have partnered with HSBC to further deliver on modernising the business payment ecosystem by delivering a better payment reconciliation experience for HSBC business customers in the UAE,” “said Girish Nanda, Country Manager, UAE & Pakistan, Mastercard…In November 2020, Mastercard announced the addition of global Card payment capabilities to Track Business Payment Service and Account-to-Account functionality in the United States, with plans to scale globally.’

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Mastercard Partners with HSBC in UAE to Help Modernise MEA’s B2B Payment Ecosystem appeared first on PaymentsJournal.

Payments innovator continues to be the pioneer of real-time payments, executing on its vision by adding RTP to its payment platform

Des Moines, IOWA — April 6, 2021 — Dwolla, a modern payments platform, releases access to Real-Time Payments, an instant* payment option that can send money directly to a bank account in seconds using the RTP® Network.

Dwolla’s solution for programmable Real-Time Payments powered by Cross River Bank comes after a decade of experiences in faster payments. The company contributed to the Federal Reserve Faster Payment Task Force and Mojaloop initiatives in partnership with the Bill and Melinda Gates Foundation to truly refine a customer-centric real-time experience. Today, businesses can integrate Dwolla’s payment API to connect with RTP-enabled financial institutions and send funds within seconds to a bank account. Existing clients can change a single line of code to initiate an RTP transaction using the Dwolla API.

“Today is game-changing,” says Dwolla CEO Brady Harris. “Not just for adding real-time payments to Dwolla’s payments technology. But because of how we collaborated with a forward-thinking financial institution to make real-time payments easily accessible to businesses of all sizes. The immediacy of real-time payments will fundamentally change how businesses operate. As electronic payments continue to grow in adoption, RTP is the perfect complement to our ACH and Push-to-Debit offerings.”

By integrating Dwolla’s simplified API, businesses have the flexibility to initiate transfers across multiple payment modalities (ACH, Push-to-Debit, RTP) to their vendors and customers for an ideal experience. In partnership with Cross River, Dwolla has lowered the barrier for its clients to access the RTP® Network for instant* bank transfers that are available 24 hours a day, every day of the year.

“We are always working on ways to provide our partners with the most innovative and cutting-edge solutions to align with their needs,” said Adam Goller, EVP, Head of Fintech Banking at Cross River. “The payments space is rapidly evolving to meet customer demands and instant transactions are the next wave. We are excited to power Dwolla’s new, Real-time Payments offering, positioning us to lead the industry into the future.”

The Clearing House established the RTP® Network as the only provider of real-time clearing and interbank settlement. As one of the first community banks to join the RTP® Network, Cross River provides the ability for its fintech clients to seamlessly send, clear and settle payments instantaneously* via API with advanced messaging capabilities, while maintaining a strong focus on compliance. Real-time payments give companies a convenient option for those making consistent or larger vendor payments, while avoiding the higher payment costs that can be associated with cards.

Other benefits of Dwolla’s Real-Time Payments offering include:

• Send and receive payments that are immediately* available, 24/7/365. The RTP® Network is available whenever a business needs it.
• Bank-agnostic payments technology gives businesses an efficient and faster way to get access to RTP transfers.
• Avoid ‘in transit’ payment delays for improved cash flow.
• Greater contextual data for business operations with transactions that include remittance, invoicing information.
• Easy access to the RTP® Network after a single, simple integration with Dwolla’s payment platform.

Organizations that integrate with Dwolla’s payment API have the flexibility to configure a tailored payment solution with various pricing options, transfer speeds and support levels, depending on the needs of their customers. With various pricing options, businesses can pay per-transaction or exchange a monthly payment for a more expanded feature set and premium support.

For more information on Dwolla’s comprehensive payment solution, visit www.dwolla.com. To learn more about Dwolla’s Real-Time Payment offering for your business visit www.dwolla.com/access-real-time-payments.

The post Dwolla Unlocks Real-Time Payments appeared first on PaymentsJournal.

Businesses using ACH will soon have to comply with a new rule, the WEB Debit Account Validation Rule, related to account validation.

The effort – meant to help combat fraud and protect users – has also been a source of uncertainty.  Despite the rule taking effect this month, on March 19, and Nacha taking steps to educate users, the rule is by design “neutral regarding specific methods or technologies,” citing that a “commercially reasonable fraudulent transaction detection system” is required for compliance. How do they define commercially reasonable? What solutions and processes will help your organization stay in compliance? And does the rule go far enough to reverse the risks associated with faster payments?

To unpack the upcoming rule, dispel some of the misinformation current in the market, and provide some advice for organizations, PaymentsJournal sat down with Melissa Townsley-Solis, Head of GIACT, Katie Hawkins, Associate at Hudson Cook, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

Many organizations utilize ACH and this rule will affect them all

The recently reported growth in the ACH is nothing short of remarkable. Oftentimes, when a product or company reaches the age and maturity level of the ACH, the growth is actually expected to decline. This has not been the experience in 2020, and fraudsters have taken note.

The ACH has benefited tremendously from the economic impact payments that have been disbursed by the federal government, as well as the many unemployment insurance payments that have been disbursed through the ACH from numerous state governments. But that’s just a part of it. “Overall, the ACH network has seen [an] 8.2% increase in transactions over 2019,” said Grotta, “and the value of the payments that have been processed through the ACH network has gone up even further…close to 11%, in 2020.”

There are certainly a few use cases that are related to the volume increase that happened during the pandemic. There was an upsurge in P2P payments, or money transfer apps, which consumers continue to find more and more uses for. For example, many people with older adult neighbors would buy their groceries for them and receive reimbursement through apps such as Venmo and Cash App. The ACH played a huge role in delivering many of those payments. There was also increased use of the ACH for other things such as bill payments and B2B, when in-person interactions became less frequent, making check cashing an inconvenience.

But this is all just part of the bigger picture. “What COVID really did was push digitalization forward,” interjected Townsley-Solis. “I know we were headed there, but I think it really sped that process up, and a lot of companies and consumers that maybe weren’t quite sure if they were ready for that change [were] forced [to adapt to] it.”

One of the biggest forms of unpreparedness for these companies was outdated security software. Fortunately, there are fraud detection services like GIACT that go beyond simply confirming if an account is active, thereby reducing the risk of fraud. With the help of these services, companies were able to adapt to the digitalization more seamlessly and with greater peace of mind.

Where there is growth fraud is bound to follow

Across the globe, there’s a lot happening in the fraud risk space. Many processors have not kept up with the increasingly digital trends in the payments industry and are suffering the consequences of an outdated solution via an increase in fraudulent activity.

“Fraudsters are smart [and] well-funded. They’re innovative, patient, [and] they’re organized,” explained Townsley-Solis. “They have access to most of the data that the Bureaus and the fraud risk providers have [from] all the data breaches, and they have our information.” As a result, fraud is happening faster than before and surpassing the capabilities of the outdated security software.

“That’s why you see all the fraud around the unemployment,” continued Townsley-Solis. “You see stimulus payments being paid out to dead people, you see fraud happening with companies that are processing ACH and credit card payments, and that’s because the solutions that they are using have not kept up with the ever-changing tide.”

COVID-19 certainly pushed the world towards digitalization, and now fraud solutions must also evolve, a task that GIACT has since faced head-on with constant innovation and a mind for the changing landscape.

The WEB Account Validation Rule

The WEB Account Validation Rule is a supplement to an already existing rule. “Originators of WEB debit entries, which are internet initiated debits from consumer accounts, need to use a commercially reasonable fraud detection service to screen web debits for fraud. That still stands,” said Townsley-Solis. “But as part of that fraud deterrent detection service, now originators need to add in this account validation piece, and that becomes the heart of that commercially reasonable fraud detection system.”

So what does this all mean?

Well, the first time that a user is initiating a WEB debit from a consumer’s account, they must validate that account by A) making sure it is a valid account that accepts ACH debit, and B) performing the same validation of the account each time the consumer makes a change to it. For example, if the consumer sets up a recurring monthly payment to their electric company, there is only a need to validate that account when it is initiated. However, if the user adds a new bank account, the same validation must be redone.

Hawkins noted another perk of this validation: “if you are, at the outset, confirming that this account is valid and can accept this ACH transaction, then not only are you cutting down on fraud, you’re also cutting down on sending these transactions in error to the account that cannot accept them, or otherwise may lead to a return.”

The rule does not require the originator to validate ownership of the account, or any other records associated with the consumer. The point here is simply to prove that the account in question is a valid one.

Misinformation vs. Reality: the truth about the new rule

There has been some misinformation around the requirements of the new rule. The minimum requirement of the WEB Account Validation Rule is to validate that the account being debited is a valid account. It is an extension of a previously existing rule that requires originators to have a fraud detection service in place, within the limitations of their business. “[The merchant] needs to really think about what is commercially reasonable for [their] business, based on the size of the business, the types of transactions that [they’re] doing, the volume of transactions, and also what [their] peers might be doing,” elaborated Hawkins.

For some businesses, simple validation of a consumer’s account may be enough. For other, larger businesses, the merchant may want to not only confirm the account is valid, but also check the validity of ownership through additional steps. Additionally, the business may want to work with their own fraud detection services and with other third parties that can provide added layers of validation.

The other area of confusion relates to the effective date. The rule goes into effect on March 19, 2021. However, Hawkins acknowledges that there are many participants in the network who are dealing with staff shortages, operational issues, and demands on their resources due to COVID-19. She states that because of the unusual circumstances, any business that is making an effort to execute the new rule has until March 2022 to do so.

“I don’t think that’s a free pass to not do anything right now. [Business owners] need to be able to demonstrate that [they] are making a good faith effort to move towards this [requirement],” concluded Hawkins.

Takeaway

If participants are interested in learning more about the WEB Account Validation Rule, they can visit the Account Validation Resource Center, which is located on Nacha’s website. There are helpful FAQs and details about the new rule, as well as others. Participants are also encouraged to contact an attorney to work with them on payment issues, as well as any third party vendors, such as GIACT, who can provide additional support.

“This is not just a rule,” Townsley-Solis concluded. “We all have an obligation to protect the consumers that do business with us… each one of us play a role in making sure we stop fraud.”

The post GIACT and Hudson Cook Break Down NACHA’s New Account Validation Rule appeared first on PaymentsJournal.

Since the start of the pandemic, the ACH Network has worked diligently to support changing and growing needs of  the payments industry. With an uptick in Direct Deposits and the volume of per day transactions ACH payments thrived in 2020 and show few signs  slowing down.

To further discuss the “new normal” of ACH payments and what the future of the payments industry will look like for both businesses and consumers, PaymentsJournal sat down with Michael Herd, Nacha SVP,  ACH Network Administration and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

ACH Payments on the rise

2020 was a record setting year for the ACH Network. For the first time ever, payment volume increased from one year to the next by over 2 billion payments, with a total of nearly 27 billion payments for the 2020 calendar year. To put that figure into perspective, it equates to about 81 payments per each U.S. citizen.

 “ACH has been in a high growth phase over the past five years or so, even before the events of 2020.” Normally, the impact on the economy directly correlates with the impact on the payments system. For example, if unemployment rates are high, there will be fewer payroll payments and purchases. But this is not what the payments industry saw from 2020.

“Unemployment benefit payments, economic assistance payments, and other types of assistance payments to the economy more than made up for the loss of payments due to the impacts on payrolls,” explained Herd. Distributing many of the first-round stimulus payments via checks through U.S. mail proved to be highly problematic, leading to a greater initiative by the government to find new ways to make payments electronically and remotely. This initiative certainly gave the payments industry an additional boost in its already thriving transaction ratio.  

Are pandemic payments trends here to stay?

While there are numerous COVID-19 related reasons for the swift changeover of many to electronic payments, experts don’t expect the payments industry to go back to its pre-pandemic methodology once the virus is under control.

“Part of the challenge over the years is [getting]…consumers, businesses or small businesses, or government agencies or nonprofits to change practices,” said Herd. “This is what we spend a lot of time on [educating] the industry, trying to convey and quantify the benefits of making the change [to ACH]. But you still have to convince parties [that] it’s in their interest to make the change.”

While there is still a future for in-person business, a lot of the changes are expected to be lasting. Both merchants and customers have become accustomed to new practices, such as e-commerce and contactless payments. Additionally, the majority are having a better experience in relation to the way they make and receive payments.

“I’m optimistic that those types of changes will be longer term,” concluded Herd.

Same Day ACH payments are thriving

It appears to be yet another strong year for Same Day ACH, and the ongoing adoption of it doesn’t seem to be slowing down any time soon. “We had nearly 350 million Same Day payments on the ACH Network in 2020, moving about $460 billion,” said Herd. “And there the interest is still in expanding the capabilities.”

In 2020, the ACH Network saw its first dollar limit increase for Same Day ACH payments, the allowable limit increasing to $100,000, four times the previous allowance of $25,000. “We saw an immediate impact of that change where the average amount of a Same Day ACH payment increased by about 40% in just one month,” explained Herd, leading to a quite large dollar volume increase for the calendar year.

On March 19, 2021, the ACH Network is set to implement some additional positive changes. It is expanding the operational hours for Same Day ACH, available on every business day. “And then looking further out into the future, we just closed out a public request for comment on further increases to the Same Day ACH dollar limit,” added Herd. Nacha received over 100 responses from various parts of the industry, a sign that there is interest in Same Day ACH. Herd is hopeful that it is possible for an increase to be approved during the first half of the 2021 calendar year and go into effect in 2022.

2021 outlook for the ACH Network

The ACH Network became the primary source for which the federal government made stimulus payments and provided assistance to individuals, homes, businesses, and hospitals, with a lot of aid flowing through the ACH after the passing of the CARES Act at the end of March 2020. There was an additional round of assistance approved in December (and distributed in January 2021) , which combined produced about 225 million economic assistance payments made by Direct Deposit, just in those two rounds alone. Most of the second round payments occurred via Direct Deposit over the course of one day, adding an extra day’s volume to the ACH Network.

“It really shows the industrial strength of the ACH Network to move massive volumes of payments to virtually any bank or credit union account, in a very, very short period of time,” admired Herd. And the experience was an overall success for nearly every American receiving funds, as well as those distributing them.

“We’re tracking what might happen with a new administration and a new Congress. They seem inclined to continue to provide assistance to the economy and to individuals with additional EIPs being one form,” added Herd. With their 2020 experience, the ACH is ready to take on similar challenges in 2021.

The post Record ACH Payment Growth in 2020 to 26.8 Billion Payments appeared first on PaymentsJournal.

Digital Transactions reported that PDI, Professional Data Solutions Inc., which provides software solutions for payment services in the convenience store market, signed an agreement with EG Group, a convenience store and gas-station operator with 1700 store fronts in the U.S under various brands including Cumberland Farms, Turkey Hill, Kwik Shop, Loaf ‘N Jug, Tom Thumb, Quik Stop, Minit Mart, Fastrac, and Certified Oil. While this sounds like a run-of-the-mill partnership announcement, the deeper implication is that this may signal growth in the private label debit card market. 

A quick refresher: Private label debit, sometimes referred to as decoupled debit is a card or an app that processes a point of sale payment using the purchasers’ checking account as the funding source, but using ACH, not the card rails to move money. 

Here’s more on the deal from the Digital Transaction article:

The agreement builds on PDI’s existing relationship with EG America, EG Group’s North American division, by expanding use of PDI’s payment technology beyond EG America’s 562 Cumberland Farms c-stores. Alpharetta, Ga.-based PDI, which currently provides technical and customer account support for EG Group’s SmartPay loyalty and rewards platform, began servicing Cumberland Farms in 2020 after acquiring Zipline, a provider of private-label debit payment services for convenience stores. Cumberland Farms launched the SmartPay app in 2013. The deal for ZipLine enabled PDI to add payments capabilities to its Marketing Cloud Solutions offering.

Consumers enrolled in EG America’s SmartPay loyalty program can earn up to 10 cents off per gallon, free food and beverage items, such as breakfast sandwiches, coffee and fountain drinks, as well as other rewards. The Smart Pay app also enables contactless purchases in-store or at the pump.

We’ve seen significant consumer adoption at the locations where we’ve implemented our SmartPay program,” Mohsin Issa, founder and co-chief executive at EG Group, says in a prepared statement. “We’re excited to extend our partnership with PDI so we can quickly offer this valuable service to an even larger segment of our loyal customer base.” 

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post PDI’s Expansion May Signal the Growth of Private Label Debit appeared first on PaymentsJournal.

Round two of the government stimulus payments have already landed in over two thirds of checking accounts and registered prepaid accounts. Data regarding this government-to-consumer disbursement was released by the IRS and reported on by the Wall Street Journal. This was much improved from the first round of Economic Impact Payments earlier in the year which had reached about 50% of recipients after two weeks. 

What has changed since the first go-around is that individuals have updated their account information with the IRS to insure faster delivery. Of course, there are those who don’t have an account, don’t have a prepaid card or simply are not comfortable sharing that with the IRS so the remaining third will be sent through checks or a prepaid card. Here are some details from the article:

The payments—$600 per adult and $600 per child—were estimated to cost about $164 billion in all. They are part of a broader relief law last month that also includes unemployment insurance and money for small businesses.

The pace of payments is faster than in the spring, when the government made the first round of payments of $1,200 per adult and $500 per child. Then, about half the payments reached bank accounts within two weeks. Now, more than two-thirds of the money has gone out within about one week after President Trump signed the law passed by Congress.

In addition to the $112 billion in electronic payments, the government is also mailing checks and prepaid debit cards. It hasn’t said how many payments have been made.

One unfortunate aspect of this article is that it perpetuates the misnomer that these electronic disbursements were slow to arrive based on the selected payment type. In actuality, the IRS determined the date that the payment should arrive in citizens’ accounts and that is when it was delivered.

Overview by Sarah Grotta, Director, Merchant Services at Mercator Advisory Group

The post Over 68% of Eligible Citizens Have Received Their Stimulus Payment Already through ACH appeared first on PaymentsJournal.

Forced to work from home during COVID-19, accounts payable departments have accelerated plans to move away from paper checks and pay more of their suppliers by ACH. That, in turn, accelerated another trend: fraud. Through social engineering, fraud attacks on ACH credits are most commonly known as Business Email Compromises or BECs.

According to the 2020 AFP Payments and Fraud Control Survey Report, for the first time, in 2019, BEC schemes were the most common type of fraud attack experienced, with 75 percent of organizations experiencing an attack and 54 percent of those reporting financial losses. ACH credits—outgoing payments from buyer to supplier—were targeted in 37 percent of BEC schemes.

The problem has only gotten worse in 2020. In the September edition of their Fraud in the Wake of COVID-19 Benchmarking Report, the ACFE reports that 90 percent of respondents have seen an increase in cyber fraud frequency from July through August. This included BECs.

Three-quarters of respondents said that preventing and detecting fraud has become more difficult in the current environment, and more than 90 percent expect attacks to increase. Organizations are under siege, and nearly one-third have received no guidance from banking partners about mitigating ACH credit risks.

What can organizations do?

Defeating BECs requires a multi-pronged approach. Ongoing anti-fraud training is important because these emails are getting more convincing every day. Fraudsters have become experts in user data and A/B testing, which reduces elements that alert their victims of illegitimate changes to their accounts. Strong internal controls are also important and network security, which prevents parties from gaining access to internal systems.  

Here are four ways to help reduce your risk of ACH credit fraud.

1. Handle with Care

Thwarting ACH credit fraud is all about handling supplier banking data securely, which accounts payable must have on hand to transmit their payment file to the bank. This data is often stored in the ERP system, or sometimes on an Excel spreadsheet, where AP staff has been recorded during supplier onboarding. Sometimes it’s stored when a supplier updates their information. Fraudulent change requests are one of the most frequent avenues of attack.

Let’s say you’ve got a new person in accounts payable who isn’t fully trained yet. This person gets an email from a supplier, asking to update their bank account information.

Your new hire, eager to please, fulfills the request, inputting a new routing number and bank account, unaware that a million-dollar payment to that supplier is going out the next day. Nobody realizes what’s happened until two weeks later when the real supplier calls, asking for payment.

By then, it’s too late to reel ACH payments back in. You can call the FBI and the bank. They may try to help you, but if the thieves are sophisticated enough, they’ve already moved the money to offshore accounts, and it’s completely gone.

2. Secure Information

You should never use an unsecured email for banking information updates, although a surprising number of companies still do. It’s too easy for a hacker to intercept one of those emails and use the information within it for their own means. If they get contact or bank account information, they can pose as legitimate suppliers and circumvent internal controls. Some businesses even keep information in spreadsheets or their ERPs, but systems like those aren’t designed to store data securely.

Some companies allow suppliers to update their own information in supplier portals. That might work, provided that companies manage secure portal access and verify all updates. However, if suppliers can log in and update information, it’s likely that hackers can access the same information with very little resistance.

The most sophisticated approach that I’ve seen so far includes a trained procurement team, who verifies and validates all changes that come through.

There are a couple of drawbacks to this approach. It’s a big IT investment with plenty of labor asks. Even then, it’s still prone to internal fraud. At the end of the day, even the best systems will still have their risks. The goal is to minimize them.

3. Look at Fees

Companies often try to shift the risk and time burden to others, with some success. For example, they may choose to pay their suppliers by card., which puts the risk on credit card networks. In cases of card fraud, it’s more likely that payments can be canceled or refunded.

Virtual cards offer even more security because they provide unique numbers, which can only be used by a specified supplier for a specified amount. The big drawback is that not all suppliers accept cards—there are fees to consider.

An organization I’m familiar with pays many of its suppliers with PayPal. Their supplier­­­­—most of them small businesses—are located around the world. AP doesn’t have the time or staff to verify payment information, validate bank accounts, and deal with ongoing updates. As the intermediary, PayPal handles all that and guarantees that the funds go to the right place. But, here again, suppliers pay a hefty fee—in the neighborhood of three percent.

4. Shift the Risk

There really is no perfect system in place, which is why we’re seeing ACH credit fraud rise in tandem with the rise in ACH payments. But there is a perfect way to shift the risk to companies that are built to withstand the verification and validation burdens. Today’s payment automation providers manage supplier information, so individual companies no longer have to spend valuable time on it. It’s similar to handing the reins to IT and procurement departments to lock down the database and institute controls. The difference is that working with a provider removes the time investment and liability.

Think of payment automation providers as a means to outsource risk. Their sole focus is to ensure secure, on-time payments to your suppliers without causing costly overhead. They have perfected the systems and processes for hundreds of thousands of AP departments across the United States, and in ways that businesses would be hard-pressed to replicate.

Businesses used to worry about check fraud above all else. While they still have to pay attention to that aspect, it’s become a low-tech form of fraud that’s easy to understand and plan for. As companies shift to electronic payment means, they’re increasingly experiencing sophisticated cyberattacks, which target much larger sums and are harder to defend against. With such attacks growing, businesses may find that outsourcing professionals is the best defense.

The post Here are the Top Tips for Preventing ACH Credit Fraud appeared first on PaymentsJournal.

Many are familiar with the ACH Network, which last year electronically moved 24.7 billion payments valued at nearly $56 trillion between accounts at different financial institutions for payments including large B2B transactions or payroll direct deposit.

Others may recognize the ACH Network as the payment system that funneled stimulus payments into millions of bank accounts upon the onslaught of COVID-19. But what some may not realize is that ACH is also growing quickly in a number of other industries as a secure and reliable payment method.

To learn more about three of these growth areas—donation payments, healthcare payments, and subscription payments—PaymentsJournal sat down with Brad Smith, Senior Director for Industry Engagement and Advocacy at Nacha, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

Using ACH for sustaining donation payments

Using ACH to make donations benefits both the donor and the charity or nonprofit receiving the funds.

Those that make donations through ACH make an average of 8.2 donations over a 12-month period. In contrast, those that rely on other forms of payment, such as checks or credit cards, make an average of just 3.5 donations in the same 12-month span. ACH donors also tend to donate more money, with an average of $1,700 in charitable donations over 12 months versus $650 for non-ACH donors.

Much of this is because ACH donors are significantly more likely to authorize recurring payments out of their checking account. While a mere 9% of donors using alternate payment types authorize recurring payments, 71% of ACH donors do.

“The goal of nonprofits is to secure sustaining donations, which are those given month after month,” Smith said. “It’s a significant benefit to a nonprofit when its donation becomes part of a consumer’s monthly bills.”

Further, debit and credit cards expire, while checking accounts typically stay the same for years or even decades. The small percentage of cardholders that do authorize recurring donations need to be contacted by nonprofits to update their credit card information, adding friction to the donation process.

A bonus for ACH donors is that because of the inherently lower costs associated with ACH payments, more of their donation goes toward the cause they care about.

Using ACH for healthcare payments

Another area that is experiencing growth in the use of ACH payments is healthcare. In 2010, Nacha began working with the Council for Affordable Quality Healthcare (CAQH), which Smith described as the rules owner for healthcare claims processes. “It needed assistance for the payment portion of those claims,” Smith explained.

Then in 2013, the Department of Health and Human Services declared that healthcare electronic funds transfers (EFTs) must be made using an ACH corporate credit or debit (CCD). “Using the ACH network to make these payments has helped the healthcare industry a great deal, and there has been substantial growth in those payments since 2013,” Smith added.  

In 2019, 343 million ACH payments were made between insurance companies and doctors, totaling more than $1.7 billion. While this is undoubtedly significant, it represents 70% of all healthcare claim payments, leaving room for growth. This is particularly true in the dental industry, where just 13% of claim payments are made by ACH.

Nacha is working on increasing the usage of ACH payments in the healthcare and dental industries to make those payments faster and more efficient through more industry engagement and awareness.  For example, ACH is also a great payment choice for post-encounter billing, just as with other industries that do consumer billing; and for disbursing refunds in an over-payment situation. 

Using ACH for subscription payments

Another great use case for ACH payments are recurring subscription payments. Grotta explained that subscription payments can be divided into two segments: box-of-the-month clubs and media purchases. The following chart breaks down the percentage of U.S. adults that have or had different types of subscriptions: 

As the chart reveals, 23% of consumers have a box-of-the-month subscription, which includes things like meal kits, home goods, clothing, and health and beauty supplies. Close to 60% have a subscription to some type of media streaming service or software. “On the payment side of subscription payments, it can be a little bit involved for the merchant,” said Grotta. “It’s not just about payment processing, but also disclosures for recurring transactions and communications.” 

Smith added that recurring ACH payments can benefit subscription companies the same way they do nonprofit organizations. “I’m amazed at the growth and the variety of products that one can get on a monthly subscription basis. We are all used to paying for streaming services, but you can also receive food, wine, beer and more,” Smith said.

“Some of these subscription companies are small businesses, and they want to focus on growing subscriptions and not the back office. By allowing consumers to use ACH for these recurring monthly payments, the subscription industry can see a lot of the same  benefits as the nonprofit industry, including more of the payment going to the bottom line,” Smith said.

The organization ProfitWell, a provider of subscription analytics, found that in the subscription industry, 20% to 40% of overall churn is due to delinquency. Much of this delinquency is caused by expired credit cards, and companies recover less than one-third of delinquent customers.

With ACH payments, these delinquencies could be prevented from happening at all. While credit cards work well for acquiring new subscribers, Smith said that converting them to recurring ACH after acquisition is a great way to retain them long term. 

Conclusion

ACH is a valuable payment method that can be used across all industries, including nonprofit organizations, healthcare organizations, and subscription services. These industries can benefit greatly when their customers are able to pay or donate using ACH.

The post The ACH Network is Not Just Payroll and B2B Transactions. It’s Branching Into New Segments, Too appeared first on PaymentsJournal.

In late March, with COVID-19 spreading rapidly and the economy coming to a grinding halt, Congress passed the CARES Act. As part of this enormous piece of legislation, the government sent nearly 160 million payments to Americans to help them weather the impending economic disaster. By the end of August, the government had distributed $270 billion in funds for these stimulus payments.

However, the process had several challenges. The government struggled to reach those eligible who had not filed taxes—as of September, an estimated 9 million people have not received their payment. Some payments were made to deceased people, while other payments accidently went to foreigners living overseas. Even a small number of those who eventually received funds had to wait months before the funds reached them.

As of late July, 120 million of the payments had been sent through the ACH Network. Some critics complained that ACH was too slow and that instant payments were needed. However, while there are valid arguments in favor of instant payments—criticisms about the speed of the ACH Network are misplaced. 

To understand how the ACH Network delivered stimulus payments on time, PaymentsJournal Editor-in-Chief Ryan McEndarfer sat down with Jane Larimer, President and CEO of Nacha, the organization that oversees ACH.

Direct Deposit worked as it should

The idea that the ACH Network is the cause of slow dispersals stems from confusion over the many steps in the process. Specifically, there is a conflation between the time it took for the IRS to determine eligibility and the time it took for payments to hit people’s bank accounts once eligibility was confirmed and the payments sent.

Larimer explained that it took a couple of weeks for the IRS to determine who was eligible based on income requirements stipulated by the CARES Act. To make electronic payments, the IRS also had to determine whether people had deposit account information on file. For those who were eligible and had account information on file, the IRS made Direct Deposit payments using the ACH Network (as all Direct Deposits do).

This extended verification process makes sense given how much money the government was about to discharge to people. “The government is not going to issue funds without knowing the individual on the other end,” noted McEndarfer.Once these payments were made, the ACH Network worked as expected, delivering an unprecedented 81 million stimulus payments on a single day. Crucially, this is exactly what the IRS had instructed.

“The IRS said that payday for Direct Deposit was to be April 15. And on the morning of April 15, citizens woke up and found the money available for their use, just as intended and as instructed by the IRS,” said Larimer.

Instant payments would not have provided funds faster

Since the payments were scheduled for April 15, an instant payments system would have delivered them on April 15, not sooner. This means even if the IRS had decided to disperse payments through an instant rail, the outcome for providing funds would have been exactly the same. As McEndarfer succinctly put it, “payday is payday.”

Further, the use of instant payments would not have addressed the other problems surrounding eligibility determination and the dispersal of stimulus funds. Consider all the funds that went to deceased people.

“The real-time payment systems operate, in some ways, the same way the ACH Network does in that they will not know before making that payment whether that person is deceased or not; that’s not an attribute of the system,” explained Larimer. McEndarfer agreed, noting that the type of information needed to make a payment through the ACH Network and any real-time alternative is relatively the same.

This is not to say America should not invest in real-time rails. Larimer explained that Nacha favors payment choice and believes payers should choose payment methods that best suit their unique needs. For its part, Nacha offers Same Day ACH, a service that enables payments to be posted and settled on the same day (regular ACH generally posts and settles on the next business day). Those who need to make payments even faster should have the ability to do so, said Larimer.

“The industrial strength of the ACH Network”

The criticism that the speed of the ACH Network slowed down stimulus payments, misguided as it is, misses the fact that the rail performed extraordinarily well. In a single day, the ACH Network supported 81 million payments without issue, in addition to its regular payment volumes.

While 81 million payments may seem like a staggeringly large amount, the ACH Network routinely handles such volumes. For example, Direct Deposit, one the most common ways for employers to pay employees, goes through ACH. Direct Deposit also handles almost all Social Security payments; of the 63.2 million Social Security payments made in August, 99.1% were through Direct Deposit.

On any given day, in fact, the ACH Network averages 100 million transactions. “That’s what we call the industrial strength of the ACH Network,” said Larimer.

The post The ACH Network Delivered Economic Impact Payments on Time appeared first on PaymentsJournal.

With paper check use declining and electronic payment methods on the rise, the ACH Network has grown tremendously in recent years. A recent PaymentsJournal podcast unpacked how this growth continued into 2020, even as the pandemic disrupted regular economic activity. In fact, the pandemic underscored just how reliable and valuable the ACH Network is to commercial and economic activity.

Part of the ACH Network’s continued success is tied to Same Day ACH, Nacha’s faster payment offering. First launched in 2016, Same Day ACH offers users the ability to compress the full cycle of an ACH payment into one banking day. This means that ACH payments can be initiated, cleared, settled and posted into the receivers account all on the same day, rather than over one or two banking days, as may be the case with  other ACH payments.

To better understand how and why Same Day ACH volumes have been growing and what use cases Nacha’s faster payment option supports, PaymentsJournal sat down with Michael Herd, Senior Vice President of ACH Network Administration at Nacha, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

Same Day ACH volumes have continued to grow through the pandemic

Similar to trends associated with other ACH payments, Same Day ACH volumes have continued to grow at a normal rate in 2020. In the first quarter, the ACH Network’s overall volume grew by 7.1% compared to the previous year, with Same Day ACH volumes rising by 42%. The second quarter was very similar, with overall ACH volume rising 7.9% year-over-year and Same Day ACH volumes climbing 37% compared to 2Q 2019.

These statistics show how the “ACH network was used extensively, particularly in the second quarter, to deliver assistance payments to businesses and to individuals,” noted Herd. Assistance payments included Economic Impact Payments, unemployment benefits, small business loans, and the variety of other stimulus payments made by the government in response to COVID-19.

Since Same Day ACH has a smaller base of transactions, its growth rate will be higher than the ACH Network’s overall growth rate. Overall, nearly 156.6 million Same Day ACH transactions were made in the first half of 2020. In contrast, the ACH Network as a whole handled almost 13 billion transactions. Nonetheless, considering that Same Day ACH has only been offered for the past four years, its growth has been robust and remarkable. 

Everything ACH can do, Same Day ACH can do… faster.

When Nacha went live with Same Day ACH in 2016, it was one of the first faster payments options available on the market. It allowed for regular ACH use cases—including payroll, bill payments, and B2B transactions—to be conducted faster; when made as a Same Day ACH payment, these use cases are posted and paid on the same day.

Another growing use case for both regular ACH and its faster payment alternative is B2C payments. For example, insurance companies are increasingly using the ACH to make payments to customers, including rebates and claim payouts.

In a similar vein, the government has relied on the ACH Network to make the myriad of assistance payments to citizens and companies across the country. Same Day ACH can allow the government to make these types of payments much faster, which can be very helpful in times of emergency.

Herd used Hurricane Laura as an example, explaining that the federal government and insurance companies could use Same Day ACH to swiftly send emergency or assistance payments to those affected by the storm. Such an approach is better than using paper checks because mailing a check is too slow, and those on the receiving end of the payment have often been forced out of their homes, meaning a check mailed to their address would not reach them.

Same Day ACH continues to evolve and expand

Since Nacha unveiled its faster payment option four years ago, it has kept improving the service based on feedback from ACH Network users. This has directly contributed to Same Day ACH’s remarkable growth.

One salient example pertains to the dollar limit on Same Day ACH transactions. At first, companies could only send up to $25,000 per Same Day transaction. For many businesses, especially those in the insurance industry, this amount was simply too low. Nacha listened to this feedback and in March 2020, raised the allowable per-transaction dollar limit to $100,000.

“We saw an impact immediately in terms of the Same Day dollars flowing through the ACH Network,” said Herd. Between 1Q and 2Q 2020, the average dollar amount of a Same Day ACH payment rose 33%. These numbers are “good evidence that there was demand for that type of capability and improvement,” he said.

Nacha will continue to look for ways to improve its service to meet industry needs. “Improvements that are ongoing and will continue into the future,” said Herd.

The next major rules change: Extended hours

Currently, the latest that a Same Day ACH payment can be sent to an ACH Operator is 2:45 p.m. ET. For those on the West Coast, these hours are   not optimal, as many businesses have a need to make payments beyond 11:45 a.m. PT.

In response, the two ACH Network operators are  adding a new Same Day ACH processing window. Beginning on March 19, 2021, Same Day operating hours will be extended by two hours every banking day.

“If you think about an employer in California that wants to originate Same Day ACH payroll on a Friday, the extended hours give them enough additional time that could make the difference between adopting Same Day ACH for those type of payments or any other core ACH use cases,” Herd said.

Long term, he added, there is still industry interest in additional increases to the dollar limit for Same Day ACH transactions. “I have no predictions about what might happen and when, but it is certainly a live discussion,” Herd said.

The post Same Day ACH in 2020: Constant Growth & Continued Improvements appeared first on PaymentsJournal.

From the humble beginnings of bartering and coins to today’s card transactions and programmable payment infrastructures, the finance world has consistently been an industry of innovation. This cycle of rapid innovation and continuous incorporation of ever-evolving fintech has created some common misconceptions about the state of modern payments, forcing business leaders to carry out the same payment processes as the business leaders before them.

The widespread acceptance of untrue information around online payments has muddied the waters—causing businesses to offer stress-inducing payment processes to their customers.

To help businesses navigate the world of programmable payments in a digital economy, let’s debunk three of the most common myths around modern payment methods. 

Myth 1: Digital payments take 2-3 business days to process.

As consumers, many of us understand that even though we can initiate a transfer with just a simple push of a button, it can still take a few days for the money to show up in our account. In a business setting, customers are increasingly expecting faster payments and transfer turnarounds.To keep pace with their requests, companies need to avoid these delays whenever possible.

Today, funds can be transferred in a matter of hours  through the Automated Clearing House (ACH) Network. ACH payments are electronic, bank-to-bank transactions that don’t require any lengthy approval process. With no wait time for approval, ACH transactions avoid the traditional delays usually caused by insufficient funds or unauthorized transfers, giving customers access to their money faster. Avoiding any inconveniences can make a big difference for a customer’s experience.

Myth 2: Debit card transactions come with pricey admin fees.

Debit and credit cards are consistently shown to be the preferred payment method among consumers. For businesses, those types of transactions come with an array of costs. Assessment and interchange fees may be non-negotiable, but processing fees allow for a bit more flexibility. A processing fee is charged every time someone makes a purchase, which serves as the commission the processor receives on each transaction. Customers can be in for a surprise when an assessment, interchange and processing fee appears during checkout.

Businesses can help customers avoid these surprises though. By offering ACH transactions as a payment option, the customer can connect a bank account and avoid the fees that come with traditional credit  card transactions—while still using their preferred payment method. At the same time customers are avoiding those previously unavoidable processing fees, ACH transactions only cost a business pennies to complete—it’s a win-win.  

Myth 3: Online payments have too many security risks.

Headlines canmake it easy to believe that digital payments are at a greater risk of security threats than hand-written check or paper money counterparts, but there will always be risk associated with any method of moving money. Risk isn’t directly tied to online transactions. In fact, online payments come with relatively low risk if done correctly.

Last year, the Federal Reserve conducted a survey and found that payments fraud “represents only a fraction of 1 percent of the total value or number of payments.” Businesses that offer an online payment option and stay up to date with security practices by regularly testing, assessing and improving their security measures are best prepared to deflect a potential threat. Preparing for worst-case scenarios at all times can help a company in the case that something does pose a threat.

Organizations looking at an online payment offering may face some difficulty, since there are a plethora of laws determining what a payments company is and isn’t allowed to do. But paired with the right practices,  programmable payment infrastructure is capable of taking all of these obstacles and simplifying them for both end-users and employees. These modern infrastructures can save businesses from implementing stress-inducing payment processes.

The post 3 of the Biggest Payment Myths Debunked appeared first on PaymentsJournal.

This article appears in PaymentsSource and is essentially a review of real-time payments initiatives both live and underway. The title of the article suggests that real-time cross-border payments are live, but that is not really the case, nor the actual article content. The point is that real-time payments are helping to facilitate faster settlement in-market, with one example being the back-end of a credit card transaction, which is typically settled between acquirer and merchant using ACH but now has real-time options.

‘With consumers and merchants alike sharing the need to be paid faster, the case for adopting real-time payments globally has quickly advanced during the COVID-19 pandemic….Banks and technology providers are more clearly seeing the benefits of real-time payments as the pandemic persists. But it’s an arena they have been laser focused on for several years now, with a goal of making real-time payments the norm. The pandemic hasn’t changed the strategy behind the need for real-time payments; it has just put a brighter spotlight on it.’

Mercator Advisory Group has been closely covering faster (and real-time) payments very closely so this piece reinforces our view that modernizing the rails and client offerings will bring greater flexibility to compete in the new world. The eventual connectivity between real-time systems across borders will also be coming to the fore in a matter of a few years. The use of ISO 20022 as a global payments messaging standard is also part of the modernization effect, and it facilitates better reconciliation, as well as new models for billers.

‘In the background, the ISO 20022 standard common in Europe, the U.K. and Australia has been embraced in the U.S. for real-time payments, making it possible for most networks to essentially speak the same language. ISO 20022 allows thousands of data fields to be attached to the payment as a communication tool that, in and of itself, helps move payments along faster….Banks in the Swift network are also finding it complements the Global Payments Innovation cross-border payment initiative — which orchestrates legacy banking networks to operate more efficiently and quickly, while also viewing technology advancements as a practice that all banks could embrace in the same manner and, if possible, timeframes.’

The article is a good, quick read for those seeking an overall summary scope view.

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Real-Time Payments Are Helping Facilitate Faster Settlement In-Market appeared first on PaymentsJournal.

With a pandemic raging across America and the globe, daily life for billions of people has been disrupted. Everything from normal economic activity to routine social behavior has been forced to change, as societies around the world respond to the public health crisis.

In America, lockdowns brought much of the economy to a standstill, and people largely shifted their activity online. In an effort to provide relief to families and businesses, the federal government infused trillions of dollars into various programs, including direct payments to individuals and loans to small businesses.

Against this backdrop, Nacha released data on the ACH Network volume over the first half of the year. The numbers offer valuable insight into the changes taking place in the economy. In addition, Nacha’s figures reveal how reliable and valuable the ACH Network is to commercial and economic life in the U.S.

To better understand these numbers and the broader trends in the economy, PaymentsJournal sat down with Michael Herd, Senior Vice President of ACH Network Administration at Nacha, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

ACH Network volume increased, even during the pandemic.

Anyone who has been following the payments industry is likely aware of how strong the ACH Network’s growth has been in recent years. With paper check use declining and electronic payments on the rise, the ACH Network has grown tremendously. Part of the growth was fueled by Nacha rolling out Same Day ACH in 2016, which allows payments to be posted and paid on the same day.

During the first quarter of 2020, the ACH Network continued to grow at its normal rate. The network’s overall volume grew by 7.1% compared to the previous year, and Same Day ACH volumes rose by 42%. In total, over 6.4 billion payments hummed across the ACH Network during the first quarter. 

 “We had a fairly normal pattern for things like direct deposit and internet-initiated payments,” explained Herd. Then everything changed during the last 10 days of March. “It was as if the volume fell off a cliff.”

During this time, areas around the country, especially where the outbreaks were more widespread, began to lockdown. Stores closed, shopping stopped, and people began quarantining at home. The rapid drop in ACH Network payment volumes reflects this sudden standstill to economic life.

Despite an initial drop, volumes surged back up again

Many expected the trend to continue as the pandemic showed no signs of abating. However, the numbers from the second quarter reveal that volumes picked back up again. Moreover, when one drills deeper into the data, some interesting trends emerge that reveal the impact of COVID-19.

The ACH Network handled a total of 6.6 billion payments during 2Q 2020, a 7.9% increase from the previous year. Same Day ACH also experienced remarkable growth, up 37% over 2Q 2019.

Herd and Grotta attributed this growth to a variety of factors. For starters, the slowdown in the economy was counterbalanced by “a massive flood of dollars and number of payments being issued primarily by the federal government,” noted Herd.

The federal government issued approximately 160 million direct payments to individuals, in what was termed economic impact payments. In one day, the IRS made about 81 million direct deposit payments. The ACH Network was able to accommodate this surge without issue, largely because the Network was designed to reliably handle massive transaction volumes:

At the same time, the government was also pumping hundreds of billions of dollars into companies so payrolls could be maintained. Those who lost their jobs received beefed up unemployment benefits, further adding to the amount of payments moving along the ACH Network.

Person-to-person  payments on the ACH Network also skyrocketed. Compared to the year prior, P2P volumes rose 48%, growth that Herd attributed to people being at home and unable to meet up physically to pay each other.

For all this growth, there were some areas that witnessed declines. Herd pointed out there was an 8% reduction in healthcare claim payments. While this may seem counterintuitive given the existence of a deadly pandemic, overall healthcare-related insurance payments declined because many people were putting off elective procedures and routine well visits.

Another area that saw a reduction in activity was check conversion (where paper checks are turned into ACH payments). It dropped by nearly 24% compared to the year prior, reflecting the flight away from checks in nearly all use cases. For example, with many retailers closed, retail-related check conversion payments dropped by a striking 45% compared to 2Q 2019.

Now is a great time to abandon checks

The drop in check conversion ACH payments speaks to a broader reality: Checks are an inefficient payment method in general, but even more problematic during a pandemic.

This is because checks are labor intensive, meaning that people are needed to physically write, send and process them. Therefore, it is difficult “to receive and process checks through a lockbox or in the mail when you don’t have personnel in the office, and that became a significant pain point for a number of companies,” said Herd. 

He shared one salient example of a company struggling to continue using checks. The company had to set up a drive-by check signing process, where one employee would prepare all the checks, put them in an envelope, and then let them sit out for a few days to (hopefully) kill any virus that might be present.

Next, the employee would leave the checks outside, at a table, perhaps, so the assigner could drive by, open the envelopes, and sign the checks. Then the checks would sit out for a day before the company would send them.

“That’s not an efficient process for making payments, and companies very quickly attempted to try to move activity as much as possible to electronic and remote forms, which certainly includes ACH,” said Herd.

So while checks may work for some people during normal times, the pandemic has furthered the shift towards electronic payment methods. Jane Larimer, President and CEO of Nacha, recently published a blog post covering the topic.

Conclusion: The ACH Network’s growth reflects broader trends in the COVID era

The numbers Nacha released show how the economy is changing. At first, payment volumes across the board dropped as people adjusted to quarantine and  closed businesses. But as activity shifted online and the federal government stepped in to keep the economy afloat, payment volumes surged in some areas, but dropped in others.

With all the uncertainty and change taking place, the ACH Network remained a steady and reliable rail for keeping economic life going.

The post The Tale of Two Quarters: What Trends in the ACH Network Tell Us About the Economy appeared first on PaymentsJournal.

Account validation is one of the most important, yet least discussed, aspects of the payments lifecycle. Having the ability to verify an account prior to approving the transaction reduces the likelihood fraud will occur. An effective account validation protocol can also decrease the amount of chargebacks and other costly mistakes that eat into a merchant’s revenue. Yet despite the benefits of being able to verify an account before approving a transaction, not all merchants have a protocol in place to do so. How will new ACH network rules affect this?

For merchants utilizing the ACH Network, this will soon change. Nacha, the organization overseeing the ACH Network, currently requires originators of WEB debit entries to use a “commercially reasonable fraudulent transaction detection system” to screen for fraud. But beginning on March 19, 2021, the rule will change to explicitly require “account validation” to be part of the fraud detection system.

Merchants relying on fraud solutions without account validation capabilities should learn more about the rule change and pursue ways to ensure compliance. For these merchants, GIACT’s white paper “Securing Faster Payments: Addressing the Account Validation Rule” is great resource to start with.

Faster payments create opportunities for fraudsters

GIACT’s white paper notes that Nacha’s rule change comes as faster payment services, including Nacha’s Same Day ACH, have seen a significant uptick in traffic recently. For instance, Same Day ACH volume grew 37% in the second quarter of 2020 compared to the same period in 2019. As Same Day volumes have grown, so, too, has the dollar amount of transactions, up 33% in the second quarter of 2020 compared to the year prior.

Experts point out that this increase in faster payment volumes increases the risk for fraud.

“With faster and real-time payments beginning to enter the mainstream of the U.S. payments industry, the risk of fraud is increasing in tandem,” said Sarah Grotta, director of Debit and Alternative Products Advisory Service at Mercator Advisory Group. “This is because bad actors are looking to take advantage of untested networks, processes, and the inherently shorter timeframes for identifying problematic transactions.”

All merchants will be impacted

Because of how critical account validation is when it comes to stopping fraud, Nacha is making it a mandatory capability for merchants. For those working to fight fraud, the change is a welcome one.

“The latest rule change from Nacha is a welcome step when it comes to strengthening fraud protections,” said Kimber Johnson, EVP, Strategic & Client Relations at GIACT. The change will specifically impact Article Two, Subsection 2.5.17.4 (Additional ODFI Warranties for Debit WEB Entries).

When the changes take effect, any payment originator (merchant) that processes WEB debits will need to have some form of account verification. All merchants using the ACH network will be obligated to do so, regardless of their size or industry. Everyone originating WEB debits, from insurance companies to loan providers, will need to comply with the rules.

Since such a large assortment of companies use the ACH network, a whole range of use cases may be impacted by the new rules. While the list is by no means exhaustive, here are some key payment examples that GIACT identified, specifically if account information is being collected by the originator:

• Insurance company payments
• Contributions to Individual Retirement Accounts, SEPs, 401Ks
• Point of sale purchases
• Utility payments
• Tax payments
• Charitable donations
• Installment loan payments, including car loans, credit cards, mortgages, HELOCs
• Membership payments

Some solutions are more effective than others

Fortunately for merchants who need to change their fraud evaluation platforms to comply with the rule change, there are many ways to do so. However, not all the solutions are equally effective at stopping fraud or working within a faster payments context.

One solution is an ACH prenotification, commonly referred to as a prenote. It is a zero-dollar transaction that an originator sends to the issuing bank prior to an actual debit or credit. It is meant to validate the routing and account number at the issuing bank before sending through the actual transaction.

While the prenote is effective at confirming the account number, it does not offer any information about the account itself, including the activity levels, status, or ownership. It also takes up to three days to complete, rendering it unhelpful for faster payments. Another salient problem is that the issuing bank is only required to respond to the prenote if the account does not exist, meaning that payments can still be sent to the wrong account so long as it’s a valid account number.

Trial deposits, also called a micro deposit, are another solution. The trial deposit approach consists of making a small deposit to the receiver’s account prior to the actual transaction in order to verify the account. However, there are issues that should be considered. First, it takes one to two business days for the trial deposit to be deposited in the account, making it incompatible with faster payments. Second, it only validates that the account can accept a payment, not who owns the account.

The white paper also explores solutions called account aggregators, which are third parties that are provided with the username and password of an account in order to login to the system and verify the account is open. When considering this solution, it is important to note that the account owner must trust a third party with their sensitive data. Furthermore, this approach can only confirm that an account is open; it does not determine the account’s standing with the financial institution.

So while these three solutions may result in a merchant being compliant with the new rules, they come with a range of problems. GIACT identified four areas that an effective verification system would validate:

1. Account status
2. Payment history, particularly NSF or chargeback history
3. Ownership, and matching ownership to the payment originator
4. Consistency of PII, including name, address, phone number, email and more

Merchants interested in having a robust fraud detection system should consider looking for solutions that meet these four criteria. One solution is offered by GIACT called the EPIC Platform. It can be implemented using a single API and covers these four areas. It also works in real-time, allowing merchants to provide a seamless experience to their customers.

If you’d like to learn more about NACHA’s rules or the EPIC Platform, you can read the white paper by filling out the form below.

The post ACH Network Rules Governing Account Validation Requirements Are Changing. Here’s What Merchants Need to Know. appeared first on PaymentsJournal.

One of the most buzzed-about trends in the payments industry is the rise of real-time and faster payment options. In recent years, more and more consumers and businesses have used novel payment methods to send and receive money faster than traditional payment options have allowed. Interest in real-time and faster payments grew further when the Federal Reserve announced last summer that it was developing FedNow, a real-time payment rail to provide an alternative to The Clearing House’s (TCH) RTP rail.

Despite all the news about faster and real-time payment methods, there is a lot of confusion on the topic. While many use the terms interchangeably, there are different payment types across the spectrum. Moreover, many people are unsure of how common faster and real-time payments are, or even what the use cases consist of. Finally, banks and other financial institutions are often unsure of how to approach using these emerging solutions.

To help the public better understand faster and real-time payments, PaymentsJournal sat down for a discussion with Sarah Grotta and Steve Murphy, two experts from Mercator Advisory Group. Grotta is the director of Mercator’s Debit and Alternative Products Advisory Service and Murphy is the director of Mercator’s Commercial and Enterprise Payments Advisory Service.

During the conversation, Grotta and Murphy discussed the difference between faster and real-time payments, the state of real-time payments in the U.S. by use case, and how banks should be approaching these payment methods.

Confusion in the market and the need for clarification: Faster payments vs. real-time payments

“Many in the industry will use the terms faster and real-time fairly interchangeably, and certainly I’m guilty of that,” said Grotta. “But I think that really just points to a bit of the confusion in the market and the need for clarification.”

Put simply, real-time payments are not the same as faster payments, but they are similar. According to Grotta, the best definition of faster payments is laid out by the Federal Reserve’s Faster Payments Task Force.

According to the task force’s definition, a faster payment solution is “a ubiquitous, safe, faster electronic solution for making a broad variety of business and personal payments, supported by a flexible and cost-effective means for payment clearing and settlement groups to settle their positions rapidly and with finality.”

In other words, a faster payment is a payment method that posts and settles payments faster than traditional payment rails. Examples of faster payment solutions include Nacha’s Same Day ACH, Zelle, and debit push payments. “They’re all fast, but they don’t necessarily settle in real-time,” explained Grotta.

In contrast, real-time payment solutions do settle in real time; payments are initiated and settled almost instantaneously. A prominent example of a real-time rail is The Clearing House’s RTP Network. The Federal Reserve’s FedNow will also be a real-time solution.

To summarize, while real-time payments are a form of faster payments, not all faster payments are real-time.

Over half of U.S. bank accounts are connected are accessible via real-time rails

Even with the confusion around terms, real-time and faster payment methods are rather common. Murphy explained that the latest information from TCH indicated that 28 banks are directly participating in the RTP network.

“What that means is that they are connected to the network and can at least receive real-time payments,” said Murphy. He also noted that there are 19 third party service providers (TPSPs) that are connected to RTP and are capable of providing some level of service to depository institutions. An additional 13 banks are accessing RTP through these TPSPs.

While these numbers may seem low, the amount of bank accounts involved is quite large. By the end of 2019, the RTP Network was reaching nearly 50% of all U.S. bank accounts, according to TCH. The organization predicted that by the end of 2020, almost all bank accounts would be connected.

However, Murphy reasoned that this goal may not be attainable due to COVID-related slowdowns. He estimated that only about 65% of bank accounts are capable of being accessed through RTP at this time. 

The many use cases of real-time and faster payments

The most common use case for faster payments is P2P transactions. Platforms such as Zelle and Venmo have been immensely popular among consumers looking to quickly send and receive money. In fact, P2P transactions had been growing around 50% year-over-year prior to the pandemic, said Grotta. Now with COVID-19 disrupting traditional ways of life, P2P volumes will likely rise further.

P2P payments are also becoming real-time as well. Grotta explained how Zelle has integrated with TCH’s RTP, meaning that financial institutions that have integrated into RTP can receive and settle Zelle P2P transactions in real time.

Another use case is in business-to-consumer (B2C) transactions. The most common B2C faster payment use case is insurance payments. Grotta also highlighted a growing number of rebates and refunds being made along faster or real-time rails, in addition to payroll solutions, especially for gig workers. Consumer-to-business (C2B) transactions along real-time or faster rails are much less common but on the rise nonetheless.

Similarly, business-to-business payments along real-time or faster rails is relatively uncommon. Back in March, Murphy and Grotta published a report detailing the different RTP use cases in the B2B space based on extensive interviews with product managers at various banks. They found that the use cases were limited, although some companies were using these rails to fund payroll accounts and make last-minute invoice payments.

Update on FedNow

The Federal Reserve recently provided an update on FedNow that offered more details about the proposed real-time rail. Grotta noted that based on this announcement and her own research on the topic, it appears as though FedNow will offer the same capabilities as TCH’s RTP network.

This is important because ideally, FedNow should be interoperable with RTP. While there are no plans to make them interoperable initially, Grotta is hopeful that the similarities between the two rails will make interoperability easier to achieve in the future.

When it first debuts, FedNow will offer features including simple fraud management tools and some liquidity management capabilities. The initial launch will not include a directory, though Grotta noted it could be added in the future as The Federal Reserve updates and expands FedNow.

FedNow is still on track to go live in 2023 or 2024.

Banks should start exploring faster and real-time payments now

“Many FIs are still really unclear as to what the various faster payment systems do,” pointed out Murphy. Many do not even know what the RTP rail entails. Therefore, “the first thing to do is make sure that you know what the RTP messages are and what capabilities the network provides; what can that bring to your institution on behalf of clients?” he continued.

Because faster and real-time rails are so new, it can be hard to determine the level of interest among customers. Grotta recommended that banks look at how many of their accounts are receiving payments from these payment methods to determine interest levels. For example, an uptick in Same-Day ACH transactions could be an indicator that a bank’s customers are interested in faster payment capabilities.

Then banks should consider how demand will change in the coming years as more fintechs and competitor banks offer real-time payment capabilities. If a bank decides to wait, it may miss out. As a result, Murphy recommended that banks try to stay up with the curve rather than fall behind.

Those interested in learning more about faster and real-time payments should register for Mercator Advisory Group’s upcoming webinar on the topic. You can register by filling out the form below.

The post The Distinctions Between Faster Payments and Real-Time Payments appeared first on PaymentsJournal.

One of the ongoing manifestations of the pandemic is the digitalization recognition factor, which has kicked in big time during the past few months. Companies that were experiencing inertia around modernizing analog systems and processes in the cash cycle have a new motivational force. Just like with online supermarkets and e-commerce, if you happen to be in that technology lane where demand has shifted due to exogenous reasons, there are clear benefits outside the lines of the broader recessionary effects that our self-imposed business shutdowns have wrought.

In this posting at Cision PR Newswire, we have an example of this digital shift in financial operations which has been underway for several years but is now accelerating given the pandemic’s kick in the pants around benefits available from modernizing systems and processes. Billtrust is a payments automation provider that specializes in making suppliers’ lives easier. 

The company partnered with Visa awhile back on the Business Payments Network (BPN), improving the acceptance of virtual cards by making it a straight-through experience. With a new release of BPN, Billtrtust is expanding payment tools and also seeing the pandemic digital effect.

‘…its Business Payments Network (BPN) has seen a 118% increase in payments volume in the first half of 2020 compared to H1 2019, surpassing expectations and indicating strong supplier adoption bolstered by significant new financial institution and fintech partnerships. Carrying strong momentum into the second half of 2020, Billtrust also announces that BPN 3.0 now offers support for ACH and wire, giving network participants the flexibility to automatically transact through the modalities they prefer….Visa Clients and Partners Fuel BPN Adoption…Since the beginning of 2020, the number of accounts payable providers and issuers processing payments through BPN has doubled, expanding its reach to suppliers wishing to receive touchless electronic payments while programmatically enforcing their payment policies. Visa clients including Heartland Financial USA, Inc., M&T Bank and Regions Bank have begun participating in BPN in the first half of 2020….In addition, Commerce Bank, which consistently ranks among the top commercial card issuers, is announcing expanded participation in BPN. Having previously enabled commercial card customers to achieve greater levels of electronic spend as payers into the network, Commerce Bank now enables its merchants to accept automated payments as suppliers in BPN. This marks the first time a financial institution will enable both its issuing and acquiring customers the ability to participate in BPN and benefit from the digital transactions offered through the network.’

The piece goes on to discuss the BPN and its attendant benefits, but the addition of ACH and wire expands the effectiveness of the network since most value in B2B e-payments is through these two payment types; combining remittance data with the payment allows for cleaner reconciliation. We expect that real-time payments would be next in line as the B2B use cases expand, especially ‘Request For Pay’, something suppliers should be excited about.

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post Billtrust Announces Improvements to Its Business Payment Network appeared first on PaymentsJournal.

It appears that there will be a second round of stimulus funding with the next few weeks for some citizens. I was waiting for someone to write an article about how real-time payments or a Federal checking account offering would solve the issue of quickly processing these payments. And here it is. 

The article outlines the issues that plagued the first round of payments back in April, including:

1. Millions of payments were made through checks since account details were unknown
2. Direct deposits transactions were sent to closed accounts and checks were mailed to old addresses
3. Payments made on a prepaid card were inadvertently thrown away by recipients

The article suggests that real-time payments could solve these issues:

One measure that could reduce the amount of time it takes for people to access their stimulus payments could be implemented by the Federal Reserve. It’s simply a matter of reducing the amount of time it takes for a check from the government to clear.

Some banks gave people early access to their stimulus checks, instead of waiting until the next business day. “After all, a Treasury check is not going to bounce,” Klein wrote. But that wasn’t the case across the board.

In addition, the Federal Reserve introduced in August 2019 its proposal for FedNow, a real-time payment system. But a September hearing in the House Committee on Financial Services demonstrated that support of these measures isn’t universal. A real-time payment system run by the federal government could stanch competition in the banking scene, opponents have claimed.

While real-time payments are already offered through The Clearing House and will eventually be offered through FedNow, these payment rails move funds quickly between accounts when account details or an established account alias is known. They will not speed up check clearing.

Another recommendation the article makes to solve the identified issues is the development of an account offered by the Fed through the Post Office:

Meanwhile, there is ongoing discussion about the possibility of having the Federal Reserve dive into the banking scene even further, by launching digital accounts to get funds to recipients more quickly.

In March 2020, in advance of the passage of the CARES Act, Rep. Maxine Waters (D-CA) introduced legislation that would create digital payment accounts for people without bank accounts. These digital accounts, called “FedAccounts,” would be maintained by Federal Reserve banks and charge zero fees for participants. The move would make it easier for underbanked and unbanked people to access their economic relief payments without having to pay check-cashing or other access fees. 

While the hardships faced by individuals without a bank account are very real, there is in fact an abundance of options. Many financial institutions offer free or very low cost account options. There are digital-only banks that offer cost effective solutions that can be opened anytime, digitally. If a person does not have internet access, general purpose reloadable prepaid cards that can be purchased at many retailers offer a wide variety of banking services including ATM access, bill pay and P2P transfers. 

So if these low cost options are available to the unbanked today and consumes choose not to acquire them, how would a post office account change that equation? The U.S. doesn’t lack solutions, it struggles with current and accurate data on each individual.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post With Another Economic Impact Payment Likely, How can the Payment Process be Improved? appeared first on PaymentsJournal.

Yesterday, Senate Republicans released their plans for the next pandemic-related economic rescue package. While the Republican proposal has some substantial differences from the plan laid out by Democrats back in May, there is one commonality: another round of direct payments to Americans.

Similar to the first round of payments, the Republican plan would send $1,200 to single filers making under $75,000 and $2,400 to joint filers making under $150,000 a year. Families would also get an additional $500 per dependent. With both Republicans and Democrats proposing another round of direct stimulus payments, it is likely that taxpayers will indeed receive a second check from the government.

While another round of payments seems inevitable, the timetable is still unclear. The Republican plan, totaling nearly $1 trillion, is far more limited than the Democrat’s $3 trillion proposal, meaning that much negotiating is needed before both sides can agree on a final proposal. In addition to the differing price tags, the major stumbling blocks revolve around unemployment insurance, funding for schools, contact tracing, and testing, and protections for employers against virus-related lawsuits.

Once the sides do overcome these differences, however, Americans can begin to receive the stimulus payments quicker than they did in the first round. The first round of payments was riddled with problems and delays, but now that the IRS has account information for millions of more Americans, the process should be expedited.

As Sarah Grotta, an analyst at Mercator Advisory Group, pointed out:

“The first time around, 81 million ACH direct deposit transactions were made and 14 million people used the portal on the IRS website to enter their account information or their prepaid card information so they too could receive a direct deposit. The IRS has retained this account information to expedite the potential second round.”

Therefore, when the final details of the proposal are agreed upon, Americans can expect to see the stimulus payments within a few weeks.

The post Americans Likely to Receive another Round of Stimulus Payments appeared first on PaymentsJournal.

Another round of stimulus payments may be sent to citizens to help weather the economic impact of the global pandemic that simply won’t retreat.  A decision on when and how much is still going through the political process so it will likely take weeks before a final decision is made. Another round will require financial institutions to staff up call centers and other customer support channels to field inquiries about their deposit. 

The Wall Street Journal reported that the IRS is in a much better position this time to deliver payments quickly. The agency now has account information for millions more individuals than with the first round:

Since the IRS has already assembled the data it needs to deliver the first-stimulus payment, they should be able to deliver a second payment fairly quickly and at a lower administrative cost,” said Jack Smalligan, a former Office of Management and Budget official.

Once Congress reaches an agreement and includes payments in a broader economic-relief package, the IRS and Treasury Department will start preparing to send out the money. The more complex the criteria and the more they differ from the first round, the longer it might take to get payments out.

The first time around, 81 million ACH direct deposit transactions were made and 14 million people used the portal on the IRS website to enter their account information or their prepaid card information so they too could receive a direct deposit. The IRS has retained this account information to expedite the potential second round.

Additional payments were sent through a prepaid card. It was widely reported that some consumers thought the prepaid card was a hoax and threw them away.  Hopefully that doesn’t repeat itself. 

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Get Ready for Another Round of Economic Impact Payments appeared first on PaymentsJournal.

With second quarter behind us, we are now beginning to get an understanding of the health of the payments industry and the initial impact of the global pandemic as banks, processors, and networks begin to report earnings and associated payment activity. Nacha just released its second quarter activity results, giving us insight into ACH. Here’s a summary of some of the key points from their press release. The full press release can be read here.

• There were 6.6 billion payments made on the ACH Network during the quarter, reflecting a 7.9% increase over the same period in 2019. The value of those payments was $14.7 trillion.
• Direct Deposit – up 12% over Q1; and 17% over a year ago
• WEB debit volume is up 15.8% – Consistent with “flight to electronic payments” and the use of online/remote payments
• Check conversion decline of 23.8% – Consistent with flight from checks in all scenarios/use cases

The double-digit direct deposit number is notable since payrolls were way down, but Federal and State benefits like the Economic Impact Payments (EIP), which totaled 114 million transactions and $197 billion through mid-May alone, contributed to that growth, along with the millions of state unemployment and other assistance payments.

The WEB debit volume is up as consumers go digital for purchases and for paying bills. The check conversion is a really interesting number. This means that consumers are using checks less at the point of sale, less for paying bills, and businesses are finding better means of making payments, too, as access to the office and the company checkbook becomes an issue. I suspect that many of these transactions which start off as check transactions do not return once they have been completed electronically.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post What Nacha’s ACH Volume Announcement Tells Us about the Economy appeared first on PaymentsJournal.

The effort required to deliver the hundreds of millions of economic impact payments totaling $267 billion to consumers with very little prep time must have been incredible. Payments averaging $1,680 were sent in the form of ACH direct deposits, checks or government prepaid cards. Here’s the breakdown:

Despite the herculean effort required, it is disappointing to hear from the New York Times that $1.4 Billion or 0.5% was sent to deceased individuals. Probably the most disappointing is that this was a known issue encountered back in 2008 when economic stimulus payments were sent to help with consumer spending during the great recession. A procedure to first run disbursement files to edit for death records was created but not used.  Here’s an excerpt from the Times’ story:

“The agencies faced difficulties delivering payments to some individuals, and faced additional risks related to making improper payments to ineligible individuals, such as decedents, and fraud,” the report said.

The G.A.O., a nonpartisan agency, said that officials at the I.R.S. and the Treasury Department were aware of the risk that payments could end up going to the deceased even as the legislation was being drafted in March. Lawyers at the I.R.S. determined that they could not legally deny payments to people who filed their tax returns in 2018 or 2019, even if they had since died. The improper payments were sent in the first three batches of distributions that went out through the end of April.

Treasury officials told the accountability office that because they were trying to deliver the payments “as rapidly as possible,” they used operational procedures that were last used for sending out stimulus money in 2008. That system did not use death records to prevent money from going to the deceased.

The G.A.O. noted, however, that the I.R.S. had put in place a system in 2013 to update tax accounts with death records to address concerns that tax refunds were improperly going to the dead. Because this control was bypassed to get the stimulus money out faster, “the risk of potentially making improper payments to decedents” increased.

Despite the fact that I.R.S. officials notified Treasury about its initial concerns, a Treasury official in the Office of Tax Policy told the G.A.O. that it was not aware that the money might go to the deceased. Lawyers at the agencies later determined that people should not be sent an economic impact payment if they were dead at the time the payment was made. They determined that would be an “improper payment” under the Payment Integrity Information Act of 2019 and started removing those payments from the system for the fourth batch of money that was to be distributed.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Dead Men Tell No Tales, but They Do Get Economic Impact Payments appeared first on PaymentsJournal.

The first couple of weeks of sheltering in place regulations saw finance and accounts payable organizations scrambling to set up remote operations and get payments out the door. Most were able to accomplish these goals quite well. Now we’ve moved into the next step–establishing efficient workflows and productive practices. It’s still challenging, however. Companies have to find ways to keep people safe while executing paper-based processes that keep their teams office-bound. For example, many companies still have to go into the office to pick up mail, circulate invoices for approval, and prepare checks for mailing.

They also must consider the best way to move forward and develop strategies for managing their teams through economic uncertainty. The Conference Board, a non-partisan economic think tank, recently sketched out three possible scenarios. Their best-case scenario predicts a 3.6% decline in US GDP for 2020, while the worst case would see a 7.4% decline. In other words, nobody knows what the next six to 12 months are going to look like.

That means AP needs to focus on conserving cash while keeping operations moving. They can expect more calls from suppliers since Accounts Receivable teams typically ramp up their efforts in tough times. They need to prioritize payments and capture early pay discounts. Procurement is going to reach out to try and renegotiate prices or terms. Treasury is going to be very interested in the timing of payments and managing working capital. It’s on the AP team’s shoulders to make sure they’re engaging with these teams and coordinating efforts.

At the same time, they’ve got to consider the efficiency and the productivity of their own team as we continue to work remotely. Among other things, that means coming up with a strategy for shifting to electronic payments at scale.

Many organizations have had this goal for a long time, but, depending on the research you look at, around 40 percent of business payments still issue by check. This number is down from a decade ago, but still problematic in a remote work environment. So why don’t businesses pay more of their suppliers electronically? Well, as everyone who rushed to shift suppliers to ACH payments when shelter at home orders took effect has learned, you can’t just flip a switch and move all your suppliers.

It’s easy enough to find a bank to handle ACH transactions for you. It also sounds a lot cheaper upfront than checks—if you only look at transaction processing costs, which are usually well below $1.

But with ACH, you have to enable your suppliers one by one, and then store and update their data securely. That becomes a fixed cost because there’s a constant churn of suppliers and their bank data–changes usually around once every four years per supplier. You should also expect to manage exceptions that arise with ACH file submissions and more nuanced supplier questions.

Thinking ACH is cheap or straightforward is one of the biggest misconceptions holding companies back from paying electronically. That’s not to say you shouldn’t make ACH payments. That said, they should be part of a holistic strategy that addresses the entire payments workflow, encompassing all forms of payment, including international wire payments.

What does that look like?

Card first

If you’re going to reach out to suppliers to enable them for electronic payments, you should first ask them to accept payment by credit card.

Virtual cards–sometimes known as single-use ghost accounts or SUGAs–are not as well-known as they should be in finance and accounting circles. Still, they can be an incredibly valuable part of your payment strategy. Unlike P-cards or company-issued credit cards, virtual cards exist to pay suppliers easily. Each card has a unique number that can only be used by the assigned recipient in the designated amount. That provides AP with substantial control and makes it one of the most secure, fraud-proof payment methods. You also should expect to receive rebates to offset some of your AP costs.

The main challenges are enablement and outreach, which don’t require significant effort on the part of AP teams since virtual card payment and remittance are relatively straightforward for suppliers. All that’s left is to structure your rebate program to support your team’s efforts and then some.

ACH for most

If a supplier declines to accept card, which often happens due to the interchange fee, your second request should be to enable them for ACH. Most vendors will say yes to this; in fact, they’d prefer it to check. Just be sure you have a realistic appreciation of the true ACH payment operating costs, including enablement and data management, as well as fraud support.

Check for holdouts

While the number is dwindling, there are some suppliers with a ride-or-die mentality who won’t accept anything but checks. For these suppliers, an outsourced payment provider can do a print check from an electronic file, so your team doesn’t have to handle all the paper.

Your payment strategy should include automating the payment workflow. Fintech ePayment providers wrap these disparate workflows into one interface so that all AP has to do is click “pay.” Then their payments will issue to their suppliers in the method they elected to receive. Because these platforms are in the cloud, payments can be approved and scheduled remotely, with visibility for multiple team members.

Heightened fraud protection

Your payment strategy should also include fraud protection. The pandemic, the move to remote work, and challenging economic conditions have created a perfect storm for a rise in all types of crime, including payment fraud. It’s essential to have strong internal controls, especially now that sensitive information is residing in your teams’ homes and on their personal networks. Preventing theft is a key component of cash management.

It used to be that organizations mainly worried about check fraud, and that’s still a problem, but it’s reduced quite a bit thanks to controls such as Positive Pay, Positive Payee, and watermarks on checks. So far, there aren’t similar controls for ACH. As businesses have gravitated towards ACH solutions, such payments have become more of a target for fraudsters. That’s a problem because the funds move faster, making it much harder to recover a fraudulent ACH.

Business Email Compromise (BEC) schemes are the most common type of attack. These involve fraudsters masquerading as suppliers, company executives, or other high-ranking personnel, requesting that funds route to a new, fraudulent bank account. We’re already seeing that the pandemic has provided BEC scammers with new material to convince an overwhelmed AP to comply with these requests.

To protect your team, you need a partner who can support your enablement and fraud protection goals, so your team can stay focused on cash management.

Finance and AP have long intended to go electronic, but the transition has been slow. It’s not just the flip of a switch or the sudden addition of a new payment type. Very few businesses realize how strategic the shift is until after they’ve committed to an update. Many companies that don’t plan accordingly have had to revert to check payments when they realized the actual cost and effort it takes to switch suppliers over. Rather than trying to attack a single pain point, you have to address the whole process from top to bottom.

Now we are going to see an acceleration of this shift with the remote workforce and challenging economic conditions. There is a new imperative, and there is also new technology. Interestingly enough, a lot of the fintechs providing B2B payments technology got their start during the great recession, when the financial system collapsed, and cloud technology was being born. These are now mature companies, ready to “cross the chasm” and transition their partners to 100 percent electronic payments.

Written by Josh Cyphers, Vice President of Product & Strategy and Derek Halpern, SVP of Sales for Nvoicepay.

The post How to Make Important Adjustments to Your Payment Strategy appeared first on PaymentsJournal.

“The modern ACH Network has achieved new transaction volume records as the preferred payment type in a diversity of use cases,” said Jane Larimer, Nacha President and CEO. “Even now, the ACH Network is operating normally and stands ready to serve America’s people, its businesses and nonprofits, and the government.”

The white paper, sponsored by Nacha, also highlights several key attributes of the ACH Network that position it for the next generation of payments, including its ubiquity and efficiency, the Same Day ACH capability, and Nacha’s governance.

“The broad usage of ACH for consumer, small business, and large corporate payments, among others, fuels the staying power of ACH,” said Sarah Grotta, the Director of Mercator’s Debit and Alternative Products Advisory Service, and author of the white paper.

“ACH meets a variety of use cases in an established and mature market, even as Same Day ACH continues to take a leading role in the continuum of faster payments,” Grotta said. 

Mercator is hosting a complimentary webinar featuring Grotta and Michael Herd, Nacha’s Senior Vice President of ACH Network Administration, on Thursday, June 4, at 1 p.m. EST to discuss the white paper’s findings. 

Register for the webinar here. Download the white paper here.

The post The American Economy Runs on ACH, Says Mercator Advisory Group White Paper appeared first on PaymentsJournal.

The Expanding Role of ACH in the Area of Faster Payments

Contents

The American Economy Runs on ACH... 3

ACH Excels in a Diversity of Use Cases for Large and Small Transactions ... 4

Business-to-Business Channels .... 4

Government Channels ... 5

Business-to-Consumer Payroll Direct Deposit ... 5

Consumer-to-Business Bill Pay ... 6

Several Key Attributes of ACH Position It for the Next Generation of Payment Form Factors ... 7

Ubiquity or the Network Effect ... 7

Transaction Speed Through Same Day ACH ... 7

Efficiency ... 9

Nacha Governance ... 10

Never Standing Still ... 10

Supporting the Future of Payments, ACH Moves to an “Always On” Mode ... 12

Endnotes ... 11

Download the Report

The post The Expanding Role of ACH in the Area of Faster Payments appeared first on PaymentsJournal.

With faster payments gaining popularity across the payments industry, Nacha—the organization that oversees the wildly popular ACH Network—will make a significant rule change to further enhance its faster payments solution. Beginning March 20, Nacha will increase the Same Day ACH per-payment dollar limit to $100,000, up from the current $25,000 limit.

To understand the reasoning behind this move and what other innovations Nacha has planned, PaymentsJournal sat down with Michael Herd, senior vice president of ACH Network Administration at Nacha, and Sarah Grotta, director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

During the conversation, Herd and Grotta also discussed the state of the ACH Network, the use cases the new rule change will enable, and the areas where Nacha plans to spark innovation going forward.

The tremendous growth of the ACH Network

No matter how you assess the numbers related to the ACH Network’s payment volume and value, one thing is clear: The ACH Network is rapidly growing. Overall, the volume of payments humming along the Network increased by 7.7% from 2018 to 2019. In addition, $55.8 trillion transacted across the ACH Network, an 8.9% increase in value from 2018.

With the overall ACH Network growing, it is no surprise that the volume and value of Same Day ACH transactions also grew. Between 2018 and 2019, the volume of Same Day ACH payments grew by 41% and the value of transaction went up 55%.

“Same Day ACH volume in 2019 saw over a million transactions processed per day and a billion dollars in value every day,” explained Grotta. “These are pretty interesting statistics.”

She attributed such impressive growth to the fact that businesses can send and receive Same Day ACH payments without having to retool their back offices or create new procedures, “since it works very similarly to standard ACH.”

Grotta also noted that although Same Day ACH may be considered a premium product, and is thus priced a little higher by financial institutions, use of the ACH rails is still economical and efficient when compared to similar faster payments types. The last reason she identified for Same Day ACH’s increased use is that the faster payment option has many use cases.

Why is Nacha increasing the per-transaction dollar limit?

If the ACH Network is growing at a healthy rate, it may come as a surprise that Nacha is changing its rules. Even more surprising, the current dollar limit covers roughly 98% of the transactions moving along the ACH rails.

However, the reason for the change is simple. “We listened to what the users of the ACH system were asking for,” explained Herd, “and the increase in the dollar limit for Same Day ACH transactions was number one on their list.”

Nacha came to this determination after attending numerous forums and conferences where Nacha officials would solicit feedback from ACH users. Since so many corporates, businesses, and other end users routinely requested a higher per-transaction limit for Same Day ACH payments, Nacha decided an increase was appropriate.

The use cases for Same Day ACH

Herd noted that once the change goes into effect on March 20, there will be specific use cases that “will be greatly enhanced by having a higher dollar limit. For example, B2B payments will be improved by the move.

“B2B is the area where we have the greatest volume of outstanding payments on the ACH Network that are above $25,000,” explained Herd.

Now with the limit going up to $100,000, Herd expects that more B2B payments will make use of Same Day ACH capabilities, compounding a trend that was quite evident in 2019 as Same Day ACH B2B payments increased by 45%.

He also pointed out that insurance claim payments and other types of disaster assistance payments can now move along as a Same Day ACH faster payment. Many of these payments total over $25,000 because they are often covering the value of people’s cars, homes, and other valuable assets.

Another use case is for small businesses and merchants to secure quicker funding, “particularly for items like their payment card transactions or even short-term lending arrangements,” said Herd. Raising the dollar limit helps these entities quickly secure up to $100,000 at a time.

What other rule changes are on the horizon?

Next year on March 19, Nacha plans to make another announced rule change official. Nacha will expand its hours for Same Day ACH by two hours a day, every banking day that Same Day ACH is available.

“That’s another area where, quite simply, we’re just listening to what the market is asking for: The ability to transact Same Day ACH payments later into the day,” said Herd. Such a move aids businesses further west, including in the center of the country and the coast.

As Herd put it: “Providing extra hours in the day will enable a lot of those institutions and their customers to take much greater advantage Same Day ACH.”

In addition to expanding the operating hours, Nacha is currently working to understand how businesses and consumers are interacting with and using new technologies to initiate commerce. As more people make payments using their personal voice assistants, such as Alexa and Siri, Nacha wants to learn how to better accommodate these use cases.

“We want those that want to use the ACH Network for these kinds of conversational commerce transactions to be able to do so and to understand how the Nacha rules apply to them and those transactions,” explained Herd.

This is only one of a set of rules proposals and other concepts collectively referred to as Meaningful Modernization. The overarching purpose of the proposals to help reduce barriers to use of the ACH; provide flexibility and increasing consistency related to the authorization of consumer ACH payments; and reducing certain administrative burdens. Nacha is requesting industry feedback by May 1. Whether it’s through increasing its per-transaction dollar limit or expanding operating hours, Nacha is working to ensure that more business and consumers can take advantage of Same Day ACH and the benefits that come with faster payments.

The post Nacha to Raise Same Day ACH Dollar Limit Amount appeared first on PaymentsJournal.

In becoming a Preferred Partner, Azimuth joins a select group of partners that Nacha recognizes for offering products and services that increase or enhance the use of secure ACH payments, information and messaging by financial institutions and end-user entities.

“Compliance is a critical component of keeping the ACH Network safe and secure,” said Nacha President and CEO Jane Larimer. “We are pleased to welcome Azimuth as our newest Preferred Partner for ACH compliance solutions.”

Azimuth enables users to stay abreast of evolving laws and regulations and Nacha Rules; empowers teams to ensure compliance; and acts as a system of record for regulatory reviews. Through its cloud-based platform OMNIA™, Azimuth digitizes Nacha Operating Rules and regulations into data, and data into business action.

“We help organizations turn compliance into a strategic advantage,” said Rohin Tagra, founder & CEO of Azimuth. “As a Nacha Preferred Partner, we will support organizations to more efficiently and effectively manage compliance with Nacha Operating Rules as well as federal and state laws, which, in turn, helps strengthen the ACH Network.”

Nacha’s Preferred Partner Program is open to any technology solution provider whose offerings align with Nacha’s core strategies to advance the ACH Network. Learn more about Nacha’s growing community of Preferred Partners and how they can support your payments needs. For more information, visit: http://www.nacha.org/Preferred-Partner.

About Nacha

Nacha is a nonprofit organization that convenes hundreds of diverse organizations to enhance and enable ACH payments and financial data exchange within the U.S. and across geographies. Through the development of rules, standards, governance, education, advocacy, and in support of innovation, Nacha’s efforts benefit all stakeholders. Nacha is the steward of the ACH Network, a payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information. In 2019, 24.7 billion payments and nearly $56 trillion in value moved across the ACH Network. Nacha also leads groups focused on API standardization and B2B payment enablement. Visit nacha.org for more information, and connect with us on LinkedIn, Twitter, Facebook and YouTube.

About Azimuth

Azimuth offers the leading compliance system for regulatory data and compliance analysis in the banking industry — OMNIATM. A cloud-based platform that provides end-to-end connectivity from source laws to an operating environment, OMNIA was developed to help financial institutions better understand and comply with the myriad of changing federal and state laws and regulations, improve communication internally and with regulators, and better serve customers. To learn more about Azimuth, visit azimuthgrc.com and follow on LinkedIn and Twitter.

The post Azimuth is now a Nacha Preferred Partner for Compliance Solutions appeared first on PaymentsJournal.

The ACH Network saw a remarkable year in 2019 as the annual growth rate reached a 12-year high.

There were 24.7 billion payments on the ACH Network, an increase of 7.7% over 2018. The value of those payments was $55.8 trillion, up nearly 9% from 2018.

It was the seventh consecutive year in which ACH Network value increased by more than $1 trillion, and the fifth straight year to notch a volume gain of more than 1 billion payments.

Business-to-business (B2B) payments continued to be a solid growth area for the ACH Network, increasing 12% last year to 4 billion payments. Direct Deposit of payroll and other payments to consumers was up 6% to 7.2 billion payments, while internet payments rose more than 13% to 6.7 billion. 

“These outstanding results continue to show that the modern ACH Network plays a vital role in the nation’s payments system,” said Nacha President and CEO Jane Larimer.

Same Day ACH continued its impressive rise, finishing the year with a record 250.4 million Same Day ACH payments with a total value of $247 billion. Those are increases of 41% and 55% respectively.

“Same Day ACH is an important part of the modern ACH Network, and it is being embraced as the demand grows for faster payments,” said Larimer. “The next enhancement to Same Day ACH arrives in March, when the dollar limit per payment will quadruple to $100,000. This will make Same Day ACH even more attractive to consumers and to businesses of all sizes.”

Use of Same Day ACH for Direct Deposit soared 117% from 2018, with 77.6 million payments last year. Additionally, 2019 saw 51.7 million B2B Same Day ACH payments, up 47.5%.

About Nacha

Nacha is a nonprofit organization that convenes hundreds of diverse organizations to enhance and enable ACH payments and financial data exchange within the U.S. and across geographies. Through the development of rules, standards, governance, education, advocacy, and in support of innovation, Nacha’s efforts benefit all stakeholders. Nacha is the steward of the ACH Network, a payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information. In 2019, 24.7 billion payments and nearly $56 trillion in value moved across the ACH Network. Nacha also leads groups focused on API standardization and B2B payment enablement. Visit nacha.org for more information, and connect with us on LinkedIn , Twitter , Facebook and YouTube .

The post ACH Network Annual Growth Rate Reaches 12-Year High appeared first on PaymentsJournal.

With the emergence of challenger banks and big tech companies, traditional financial institutions are facing a rising number of competitors in the increasingly crowded payments space.

These competitors have begun to address some of the unmet needs of consumers, such as those of the largely underserved gig economy workers. However, traditional banks can find opportunities for themselves in big tech companies’ payments endeavors and through the utilization of API digitalization to streamline customer experience.

To talk more about the rise of challenger banks and what to expect in 2020, PaymentsJournal sat down with Eric Brandt, Senior Market Analyst at NCR Corporation, and Aaron McPherson, VP of Research Operations at Mercator Advisory Group.  

Digital and challenger banks took off in 2019 and are predicted to grow

2019 was defined by a combination of big tech companies—like Google, Apple, Amazon, and Uber—entering the financial services space, and the take-off of digital-only brands created by challenger banks.

In 2020, Brandt anticipates the challenger banks that are “doing it right” will rise: “I don’t think that these traditional financial institutions can just create a digital-only bank and people are going to flock to it. They have to provide value and give people a reason to come and join the bank.”

Big tech companies will continue growth in the space as well, especially because they are particularly good at utilizing data. This could mean trouble for traditional financial institutions because they struggle to do the same.

Citing Mercator Advisory Group’s 2020 Outlook document, McPherson noted that another major emerging theme is the rise of virtualization. “We’re studying something we call ‘banking as a service,’ which is something that some of the legacy prepaid platform brands like Green Dot, Blackhawk, and Galileo are providing because many of these challenger banks are virtual brands—there are no physical assets.”

McPherson added that “this has also been accelerated by the open banking regulations in the European Union, which have enabled challenger banks to gain traction and grow rapidly to the point where they are looking to expand into the United States.”

He noted that while the U.S. doesn’t have an open banking rule, “it does have a lot of APIs and platforms that can be leveraged. That’s what is making this a big deal for 2020.”

Traditional banks aren’t meeting the needs of gig workers

Gig workers make up a growing portion of workers, with the Bureau of Labor Statistics forecasting that they will constitute 43% of the U.S. workforce in 2020, up from 35% in 2019. Gig workers have similar payment and financial needs as small business owners, who are largely underserved by traditional banks. As a result, said Brandt, “gig workers are absolutely underserved by traditional banks, and it will likely be awhile before these traditional banks catch up.”

Thanks to the advancement of open banking and API platforms, some companies have been able to step in to accommodate these underserved gig economy. A great example of this happening is Uber’s launch of Uber Money, a new Uber team responsible for financial products that support Uber drivers. Essentially, Uber saw the financial needs of its drivers and decided to provide them with money almost instantaneously, all while more or less bypassing the bank. 

Due to the evolution of faster payments systems, such as the ACH processing that P2P networks like Venmo and PayPal rely on, a growing number of companies, including Uber and Google, can provide these services.

Another category of underserved gig economy worker is freelancers, who typically get paid through online payments systems like Venmo and PayPal—meaning banks aren’t seeing these deposits. To address this issue, “banks have to find niches to help serve some of those gig workers in particular,” said Brandt.

Small business bankers should be seeking out niches as well, he added, noting that “there have been new features making business banking tasks easier, which traditional banks continue to progress towards, but some of the technology and household companies may continue to better serve those skilled workers more quickly.”

Tech companies in the payments space provide opportunities to banks

Tech companies branching into the payments space isn’t all bad news for banks. In fact, some traditional financial institutions can actually enable non-banks to get into the banking and payments services in a way that benefits them. For example, there have been reports that Google is working with Citi Group and Stanford Federal Credit Union to begin offering checking accounts.

When speaking on the issue, McPherson commented that “Citi Group is about as traditional as financial institutions come, but clearly it sees this as a major opportunity to leverage its platform to enable Google, a non-bank, to use banking services and to see revenue from that.” 

API virtualization has streamlined the consumer experience

Banking technology has historically operated in siloed “channels,” where legacy systems held data such as member profiles without sharing that data organization. This resulted in an un-personalized banking experience where each banking “channel” provided a separate consumer experience.

But now, the emergence of APIs and the “digital first” approach have streamlined consumers’ banking experience and allowed banks to focus on their strengths. “Some banks may want to focus on face-to-face customer experience and operate branches, but then they don’t necessarily need to operate their own systems,” noted Aaron, who added that “it’s becoming easier and easier for businesses to specialize and become superior in particular areas, rather than having to do everything.”   

Mid-sized banks can use API-driven platforms to push back against being squeezed on both sides–right now, they are forced to compete with both “too big to fail” big banks and smaller institutions with more intimate customer knowledge and relationships. In what Brandt referred to as “what could become no man’s land,” regional-sized banks need to find ways to personalize interactions with customers.

He offered a simple example of how a regional-sized bank’s intimate knowledge of its customers’ interactions with a digital banking app can enable the bank to customize user experience: “Maybe the bank knows you get paid every other Friday and that you check your account between 8 to 9:30 a.m. Knowing this, they can simplify the experience by notifying you of a large deposit and updating you on your current balance.”

Customer experience and security are top priorities for consumers and retail banks 

While customer service is a top priority for banks and customers alike, trust and security cannot be overlooked. Banks and credit unions in particular continue to be more trusted by consumers than fintechs and challenger banks, so it must remain a top priority to maintain that trust.

Brandt added that while it is true that “more Millennials and Gen Z consumers are willing to switch banks for a better customer experience, they will just as quickly switch if their data is compromised.” Thus, financial institutions must strike a balance between convenience and ease of use on one hand and trust and data security on the other.

Takeaway

In 2020, expect to see digital-only challenger bank brands and tech companies continue to grow in the payments space. With that continued growth, “business as usual” is no longer an option for traditional financial institutions wanting to stay competitive.

Banks must take advantage of opportunities that come with the emergence of tech companies in the payments space, like Citigroup’s partnership with Google, and also utilize the digitalization of API platforms to meet their customers’ needs and streamline the customer experience. At the same time, banks need to uphold their reputation as more secure than non-traditional options to avoid losing customer trust.

The post The Rise of Challenger Banks in the Payments Space: How Can Traditional Banks Keep Up in 2020? appeared first on PaymentsJournal.

Nacha reported transaction growth figures for 4^th quarter, 2019. As DigitalTransactions reported, the growth numbers over 2018’s ACH volumes in total were healthy:

All told, fourth-quarter volume for the ACH totaled 6.4 billion transactions, up 8.1% year-over-year, Nacha reported. That performance continues a recent streak in which the ACH has logged a better than 5% growth rate each quarter. Total dollar volume came to $14.7 trillion, a 10.6% increase from the same quarter in 2018. “With this impressive performance in the fourth quarter, it’s evident that the modern ACH network is thriving,” said Larimer, who took over as head of Nacha last year.

Same Day ACH (SDA) played a big part in the growth trajectory.  Nacha summarized overall growth and SDA activity in Q4 in this infographic:

Nacha is driving continued growth in SDA with pending changes including another same day ACH processing window that goes into effect on March 19, 2021.  Nacha is also expanding the per transaction limit this year to $100,000 from the current $25,000.  This particular change takes place effective March 20, 2020. 

The increase allows same day ACH to cover additional higher dollar use cases like large insurance settlements, real estate transactions and more general business-to-business activity.  It is no coincidence that real time payments provider, The Clearing House just announced today that they will be increasing their transaction.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Predictions for Continued Growth in Same-Day ACH appeared first on PaymentsJournal.

Understanding the payments industry in the U.S. can be a complex endeavor. The landscape is a crowded place, comprised of thousands of banks, credit unions, fintechs, and other organizations that offer a variety of products and services tailored to different aspects of the payment experience.

Then there is the issue of compliance. Companies must obey the myriad of regulations and laws governing how and when payments should be made, and what information needs to be requested, provided, recorded and stored. These rules can vary by payment rail, further adding to the complexity.

To navigate these challenges, many companies hire consultants to access their needed expertise. One such group is Nacha’s Elevation Consulting, which works with both national and global organizations – including startups, corporations, financial institutions, fintechs and more – to help them understand how to successfully utilize and optimize payments.

To learn more about Elevation, PaymentsJournal sat down with Samantha Carrier, senior director of Advanced Payment Solutions at Nacha. Joining us in the conversation was Aaron McPherson, vice president of Research Operations at Mercator Advisory Group.

During the conversation, Carrier and McPherson discussed the type of consulting work undertaken by Elevation and for whom, as well as Elevation’s payment calculator tool, and the challenges and opportunities posed by the ISO 20022 standards.

Elevation consults on more than just the ACH Network

Given that Nacha is the steward of the ACH Network, you would be forgiven for thinking its consulting arm would focus exclusively on questions related to ACH. However, Elevation’s offerings go well beyond the Network.

“While we certainly have quite a bit of depth on the team when it comes to ACH expertise, [many of whom have the] Accredited ACH Professionals credential to offer clients, our portfolio of businesses is actually pretty diverse,” said Carrier. “With so much going on in the industry, our team has really had an opportunity to work with a lot of different players in the banking system.”

Banks, businesses, technology providers, and others hire Elevation for a variety of reasons. Some seek payments advisory and strategy, while others seek custom education and even custom rulewriting. Additionally, Carrier explained how Elevation often helps smaller financial institutions develop their digital strategy as it relates to payments.

“With those engagements, we’ve been working with financial institutions to look not only at how to better leverage and expand what they’re doing with ACH, but also to look at things like RTP and Zelle,” said Carrier. “We’ve even done work for clients in the wires and card space. People may be surprised that Elevation helps companies from a broader payments perspective.”

Carrier noted that due to the high volume of innovation currently going on in the payments industry, Elevation often works with fintechs as well.

Elevation also helps foreign clients

Elevation’s clients aren’t confined to the U.S. “When we first launched Elevation, we had assumed that our primary focus would be on U.S.-based businesses,” said Carrier. “And while that does comprise the vast majority of engagements that we work on, we’ve seen growth in terms of our clients that are based outside of the U.S.”

For example, a foreign company looking to bring its product to the U.S. market might work with Elevation to better understand which of the available payment rails is optimal for a specific use case. A foreign company can also rely on Elevation to better understand compliance rules.

Elevation currently has clients in Europe and Latin America, and Carrier predicts that the number of foreign clients will continue to grow.

Education is key for Elevation

Another part of Elevation’s engagement portfolio is customized education and training offerings. “It’s very targeted training for a specific client and perhaps a specific product that they’re looking to work on or expand,” said Carrier.

For instance, perhaps a company had high turnover in its ACH operations group and wants to get the new recruits up to speed. Or perhaps a company recently invested in new technology that impacted its payments system. In either case, the company can hire Elevation to provide highly specialized training.

For one recent engagement with a fintech, Elevation provided training opportunities for the company’s product managers, sales team executives and others. “The training covered quite a bit of content inclusive of ACH, but also emerging payments technology such as helping them with how APIs are driving change in the industry, payment speed, interoperability, cross-border payments and more,” Carrier said.  

Elevation’s emphasis on education comes as no surprise, as Nacha offers a wide variety of educational resources, both online and in person. In a sense, Elevation’s custom-made educational approach complements Nacha’s broader educational resources.

The online payments calculator

When you visit Elevation’s website, you will find a helpful tool: the Cost Calculator. Once you input information related to your company’s payments mix, the calculator will point out potential areas where you can achieve savings. For example, perhaps there is an opportunity to save money if the company switched more of its payments to the ACH Network.

“It will give you a gut check on how payments mix have cost implications,” Carrier said. Elevation also offers a more sophisticated calculator. In that case, the Elevation team meets with the client and conducts a deep dive into their payments mix.

Working to help clients understand ISO 20022

As the consulting arm of Nacha, Elevation is well-versed in the ISO 20022 standard. Nacha remains deeply involved in the ISO 20022 community, explained Carrier. “We’ve actually worked on developing [payment] messages that are part of ISO 20022.”

Specifically, Nacha has recently done work leveraging the ISO 20022 standard in the development of APIs.

Against this backdrop, Elevation is well-positioned to help financial institutions and other organizations understand how the format can be useful, and how it can be used for specific business use cases. “There’s an education gap there in some cases where Elevation has been able to offer support,” explained Carrier.

While Nacha’s Elevation Consulting does provide a lot of expertise related to ACH, its value doesn’t end there. From helping businesses create payment strategies to providing education on the newest regulations, Elevation is helping diverse organizations get a better handle on the payments industry as a whole.

The post Meet Elevation, Nacha’s Consulting Arm appeared first on PaymentsJournal.

In an increasingly cashless society, the way many of us interact with our money is primarily digital, online payments. In fact, the Automated Clearing House (ACH) Network volume reached nearly 23 billion payments in 2018, a number that accounts for nearly 70 payments for every person in the U.S. As consumers and businesses alike use the internet to manage money in increasingly sophisticated ways — think automated savings technology, real estate investing tools and blockchain-backed platforms that enable multiple parties to share high-value assets — currency is more global, instantaneous and accessible than ever before.

But the introduction of these new applications for financial transactions, as well as new  completely digital currencies like bitcoin, only highlight the inadequacy of the internet to handle them. Why is the internet in its current state so ill-equipped to support the very innovations it has created?

It’s true that while most of our financial interactions occur online, much of our currency itself is not designed for the internet. While at the surface it may seem to be functioning effectively, the lack of a unifying structure around payment types, payment providers, currencies, APIs and more creates real challenges for anyone moving money around online. The answer to this problem lies in the value layer.

What Is the Value Layer?

Dwolla, the company I work for, spends a lot of time talking about the value layer, which is meant to connect all the disparate factors that make up an online financial transaction into one single layer. These factors — what I call “value types” — include:

• Currency types (think USD, euro, bitcoin, etc.)
• Transfer types (the American ACH network or the U.K.’s Faster Payments system or Canadian EFT, for example)
• Financial regulations (like the widely debated Revised Directive on Payment Services, or PSD2)

This unifying layer was originally built into HTTP protocol that runs the web as 402 Payment Required, but was never fully completed because of the complexity of such a project. Now, the 402 Payment Required message often appears when a transaction cannot be completed for a variety of reasons — whether a store’s Shopify account is disabled or when fraudulent payments are blocked in Stripe. If the value layer were in place, problems like these would be accounted for already.

While the industry has found ways to work around this missing layer until now, it’s becoming clearer that the loopholes and challenges created by a lack of a value layer are unsustainable.

Without the Value Layer, We’re Stuck in the Past

Leaders in the payments industry need to work together to build a value layer through which money can move instantaneously on a global scale, regardless of currency or transfer type. This requires businesses and experts across functions of the industry — banks, payment providers, financial regulators, cybersecurity firms and more — to collaborate on standardized solutions that eliminate or bypass existing hurdles for online payments.

That process will require navigating the legal and regulatory jurisdictions unique to each currency and market, as well as creating the actual infrastructure that, on a technical level, allows all of the currencies to interact and transact over the internet. On another front, it requires trust in the security of the value layer, consumers, regulators and solution providers. All of these efforts to build the value layer can’t be executed by one or two companies alone, but through the combined efforts of leaders across the financial industry.

For Innovation to Occur for Online Payments, Collaboration Is Key

At Dwolla, we’re working alongside experts from across the industry to enable payments on the value layer. We’ve collaborated with innovative companies like Plaid to let customers streamline bank verification and more easily connect to the banking system, and with Sift to enable customers to use machine learning for real-time ACH fraud monitoring. We’ve also partnered with Apto Payments so our customers can issue branded payment cards and instantly transfer funds on the ACH Network to a branded card, bypassing a bank account.

But the value layer is bigger than Dwolla or any of our partners. Stakeholders across the industry need to team up to work toward a reality in which billions of people around the world  are connected — free to effortlessly interact and transact with one another. As the possibilities in the fintech industry look more promising than ever, the value layer is the only way to make these innovations happen.  

The post Building the Long-Missing Value Layer of Online Payments appeared first on PaymentsJournal.

As a payment system that universally connects all U.S. bank accounts, the ACH Network supports a tremendous amount of transactions. Between Same Day ACH and core ACH payments, the transaction volume on the ACH rails has been steadily rising.

To learn more about the ACH Network’s growth, and to better understand the difference between faster payments, real-time payments, and Same Day ACH, PaymentsJournal sat down with Michael Herd, senior vice president of ACH Network Administration at Nacha.

Joining us in the conversation was Sarah Grotta, director of the Debit and Alternative Products Advisory Service at Mercator Advisory Group.

Defining the difference between payment types

Before delving into the growth of the ACH Network, Herd and Grotta began by explaining the differences between faster payments, real-time payments, and Same Day ACH. Too often, the media and public use these terms interchangeably, leading to confusion.

“Same Day ACH is the easiest to define and understand because it is an ACH payment that settles on the same day that it is initiated,” began Herd. In contrast, the typical ACH payment—sometimes referred to as core ACH—would settle on the next day or even two days after being initiated.

Defining faster payments proves to be a little harder because it’s a general term that can encompass a lot of different payment types. Herd described how faster payments can be understood in three ways. First, and in the broadest sense, “faster payments can be anything that’s faster than a paper check,” he explained.

Second, faster payments can refer to a method that has accelerated processing in an existing payment system. A prime example of this is Same Day ACH because it is processed quicker than its traditional counterpart.

Finally, faster payments could refer to an entirely new payment type that did not exist a few years ago. For example, Zelle would be fit this definition, as would Same Day ACH.

Herd described that because of these differing definitions, faster payments “can be a term that means different things in different contexts, and this can be confusing.”

Real-time payments can also be confusing because it can refer to two different things. One is the payment rail run by The Clearing House, known as the RTP network (for Real-Time Payments). This is distinct from the generic term that refers to any rail that moves in or near real time. To tell them apart, The Clearing House’s Real-Time Payment is capitalized since it is the actual trade name of the product, whereas the other is lowercase.

The growth of ACH

With the terms now defined, Herd and Grotta discussed the volume growth of the ACH Network. Put simply, the ACH Network is doing phenomenally well.

In the third quarter of 2019, the ACH Network volume reached 6.2 billion payments, growing 9.5% from the same quarter the year before.

 “We’re in record territory for growth on the ACH Network,” said Herd.

These numbers include both Same Day ACH and core ACH transactions. But when you break it out and look just at Same Day ACH, the numbers are even more impressive.

“Growth for Same Day ACH is up over 50% on a year-over-year basis,” Herd said. Part of this tremendous growth can be explained by how new the payment method is, having just become available in September 2016. Even with this growth, Herd noted that Same Day ACH amounts to about 1% of overall ACH Network volume.

“We’re still on the very early end of the adoption curve for Same-Day ACH,” he said.

The causes of ACH growth

Strikingly, ACH payments is experiencing growth across a variety of use cases. Herd said this was indicative of where the overall marketplace is moving, as paper check use is declining in both consumer-oriented use cases and B2B transactions.

Grotta said the growth across all the various channels shows that different organizations are finding utility for many different use cases.

Herd agreed, highlighting one particularly interesting use case involving charitable organizations. Organizations that frequently receive recurring donations, including charities, nonprofits and religious institutions, are increasingly turning to the ACH Network to receive the transactions.

How the FedNow announcement will impact ACH

Herd noted that since FedNow will not be rolled out for up to five years, it’s hard to forecast how ACH volume will be impacted in the future.

“I think one of the big unknowns collectively for the industry is what else [could] be different four to five years from now that [could] affect the ecosystem and the payments industry,” he said.

Grotta agreed, noting that it will be fascinating to see how everything will unfold. She speculated that the FedNow announcement could actually prove beneficial for the ACH Network, at least in the short term.

Her reasoning is that since the FedNow solution won’t be available for a few years, businesses might explore Same Day ACH

In addition to discussing how FedNow might impact ACH volume, both Grotta and Herd spoke about interoperability between the faster payment rails.

Grotta said that the question of interoperability is one that Mercator Advisory Group will be focusing on in the coming years. Herd noted that there exists a template for how to implement interoperability: the ACH Network.

“We almost forget when we call it the ACH Network, singular, that it’s actually two interoperable networks,” Herd said. Since it’s completely seamless to end users, they don’t realize it’s actually two networks, operated by The Clearing House and the Federal Reserve.

The Network works so well because there’s a defined governance model, consisting of business rules, formatting standards, definitions of liability, warranties and the responsibilities of all the parties. These are known as the Nacha Operating Rules, a topic PaymentsJournal has covered before in an earlier conversation with Herd.

The upcoming improvements to the ACH Network

Herd described a number of recent and upcoming improvements that will enhance the ACH Network.

In September 2019, Nacha implemented a faster funds availability standard. The next improvement will come in March 2020 when the transaction dollar limit for Same Day ACH will be increased fourfold to $100,000.

Herd explained that this is one of the biggest requests from corporates, so Nacha is excited for the change to take effect.

“It certainly expands the realm of use cases and transaction volume that will become eligible for Same Day ACH, particularly within the B2B space,” he said.

Another forthcoming change is extended hours for Same Day ACH, which is planned for March 2021. The change will add an additional two hours to the window in which Same Day ACH payments can be initiated. Such a change will prove especially beneficial to businesses on the West Coast due to the time zone. However, Herd said it is important to note that the change is contingent on the Federal Reserve approving a request to extend its settlement service hours.

If the request is granted then the National Settlement Service (NSS) would stay open one hour later until 6:30 p.m. ET, which in turn means Fedwire would keep running another 30 minutes until 7 p.m. ET. It wouldn’t be the first change in hours. The Fed extended the NSS closing time by 30 minutes to support Same Day ACH back in 2016.

By continuing to improve upon the ACH Network, Nacha is ensuring that an already popular payment rail will stay competitive and useful in the shifting payments landscape.

The post Unpacking the ACH Network’s Significant Growth appeared first on PaymentsJournal.

The hottest topic in the payments industry is the rise of faster payments. The widespread expectations for speed and seamless experiences from both consumers and businesses, coupled with innovations such as cloud, digital payments technology, and ISO 20022 messaging, are positioning faster payments to reshape the industry.

The most promising type of faster payment is called real-time payments. These are account-to-account transactions that clear and settle within seconds of being initiated. At the moment in the U.S, there is only one rail, operated by The Clearing House (TCH), that supports this type of transaction. The rail, known as Real-Time Payments (RTP), is seeing increased volume growth.

To understand how RTP fits into the faster payments landscape, PaymentsJournal sat down with Vinay Prabhakar, Volante’s vice president of product marketing, and Steve Ledford, The Clearing House’s SVP of Products and Strategy.

Joining us was Steve Murphy, director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.

During the conversation, they discussed the state of faster payments in America, how the FedNow announcement is impacting RTP, the challenges and benefits of joining RTP, and how Volante and TCH are collaborating to make joining RTP easier and more cost-effective.

Faster payments: “It’s about time”

With improved processing speeds and advances in mobile technology, the world is undergoing a digital transformation. At the same time, societies are changing as people expect faster and more dynamic service throughout their lives.

Murphy said that these twin trends are coming together to make the rise of faster payments seem inexorable. It’s about time, he said, that faster payments have taken off.

Not wanting to miss out, many companies are now exploring ways to connect to the world of faster payments. “This is a great time, actually, to be in the payments industry because there are a number of faster payments options available today,” said Prabhakar.

One popular product is NACHA’s Same Day ACH, which allows receivers to see funds clear in as little as a few hours, depending on when the transaction is initiated, said Prabhakar.

Another popular product is Zelle, which has about 250 financial institutions directly transacting across its network. Zelle is primarily used for P2P transactions and often, from the consumer’s perspective, feels as if it’s a real-time rail.

However, Zelle transactions are still settled at the end of the day via regular ACH, explained Prabhakar.

In fact, until the Federal Reserve’s recently announced FedNow goes live in a few years, there is only one truly real-time payment rail in America: The Clearing House’s Real-Time Payments (TCH RTP).

The state of TCH RTP

As the only current real-time rail, TCH RTP is experiencing healthy adoption. Part of its success is because RTP is “not set up for a specific purpose,” said Ledford. Instead, TCH’s job “is to efficiently and effectively move data and payments and money between financial institutions for their customers.”

Since RTP was not set up for one specific use case—only P2P transactions, for example—customers are able to leverage the rail for a variety of purposes. From B2B invoice payments to digital wallets, RTP is facilitating a range of transactions. The unifying factor is that businesses are able to become more efficient and solve unique pain points by using RTP.

Moreover, the number of transactions is rising, as is RTP’s reach. “In terms of overall network, the reach of the network is expanding every week,” said Ledford. He noted that just this week, RTP signed up two more large banks.

Companies such as Volante are enabling this growth, as they are making it easier than ever to plug into TCH RTP.

FedNow’s impact on The Clearing House’s RTP network

When the Federal Reserve announced in August that it would be rolling out its own real-time payments platform as early as 2023, many in the industry speculated on the impact this could have on The Clearing House’s business.

At face value, one might expect that since FedNow will compete with RTP, it would slow down RTP’s growth, but Prabhakar, Ledford, and Murphy all offered a more nuanced and optimistic forecast.

Prabhakar pointed out that the Federal Reserve’s announcement underscored the importance of real-time payments in general. This has had the effect of encouraging banks to accelerate their plans to adopt real-time solutions.

And at the end of the day, Prabhakar reasoned that end users—be it consumers or businesses—don’t actually care about FedNow, RTP, or any product name. All the end user cares about is that the transaction happens safely, reliably, and swiftly.

“So what banks need to do is really focus on what services they’re bringing to market, and then look at making sure that those services are cross network compatible,” he said.

Ledford agreed, noting that after the Fed’s announcement, he’s witnessed an almost immediate uptick in interest from financial institutions. Sure, some will wait for FedNow to go live, but many will instead explore more immediate solutions, he said.

The challenges of adopting RTP

In order to understand the challenges of adopting RTP, Prabhakar said it’s important to differentiate between large banks and smaller banks.

For the former group, they’ve taken a “build it and they will come approach,” said Prabhakar, meaning that the large banks are embracing RTP with the expectation that customers will follow. And since it’s the first time that many of these banks have implemented real-time infrastructure of any type, going live has been a pretty substantial project.

These banks have multiple legacy systems—Wire, ACH, SWIFT—and numerous channels, so the process is complicated because the banks need to ensure “they’re providing RTP services in a channel agnostic way, across all of their customer segments and channels,” explained Prabhakar.

There’s also the issue of pricing. Large banks need to determine appropriate pricing for all the different market segments they serve.

As a provider, Volante has worked to make connecting to RTP easy, but for all the above reasons, challenges remain.

Smaller banks have other challenges, namely customer demand, market readiness, and cost. Unlike the large banks who can just build the infrastructure with the expectation that customers will readily use them, small banks aren’t as sure what their customer uptake or transaction volumes will be.

These banks are also not entirely sure what customers are willing to pay for the service. However, this is starting to change as more banks enter the RTP network and the market becomes more defined.

Murphy pointed out that fraud is another major area of concern. With faster payments comes faster fraud, so companies need to explore the many robust fraud protection offerings available in the market.

With so many moving parts, Ledford stressed the importance of planning.

“You need to make sure you’re doing things like getting your risk management organization and your legal team involved earlier,” said Ledford. And since customers invariably have questions about the new product, “when you go live, you want to make sure that folks in your branches, in your call centers, in your commercial business, they understand what this new capability is.”

How Volante and TCH are helping companies cope with these challenges

Volante has been helping financial institutions hook into RTP from the beginning.

The very first TCH RTP was initiated between BNY Mellon and US Bank, and was made possible by Volante’s VolPay technology

Volante’s chief concern is making RTP available to banks of all sizes. To do so, Volante has made its RTP processing solution available as a service in the cloud, enabling banks to directly connect to RTP directly without needing to invest heavily in new infrastructure.

As a further incentive, Volante is offering the service completely for the first three years. There are no service fees and no transaction fees for typical mid-size bank transaction volumes. In addition, there are no onboarding fees, and customers can be onboarded in 60 days or less.

Prabhakar noted that while Volante can’t solve all the challenges, the company is eliminating provider cost as a barrier to entry, and making it really easy for banks to connect quickly to RTP—allowing them to focus on their customer value propositions rather than lengthy implementation projects.

For its part, TCH is focusing on educating the public about its RTP network. Through podcasts, webinars, and articles, TCH is explaining to the public what real-time payments are, how you can connect, and what the benefits are of doing so.

“Our job is to make sure that folks understand the network and understand how to work with it well,” said Ledford. With the number of banks signing on accelerating, and RTP transaction volume steadily rising, it appears that both Volante and TCH are achieving their objectives.

To learn more about the cloud-based real-time payments service mentioned in the podcast, visit https://www.volantetech.com/freertp. For Mercator’s take on where payments hubs and payments technology are headed, read the white paper “From Payments Hubs to Digital Ecosystems”.

The post How Volante Technologies and The Clearing House Are Making It Easier to Benefit From Real-Time Payments appeared first on PaymentsJournal.

Following the Federal Reserve’s announcement that it will create a real-time payment network named FedNow, it became clear that there were misconceptions about how faster payments impact the speed with which people receive their paychecks.

Faster payments does not mean payday will come earlier or that paper checks will clear in an instant. This belief was refuted in not one, but two PaymentsJournal articles by Sarah Grotta, director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.

But it is important to make the distinction that not all paydays are created equal. With direct deposit, your money is available faster than with a paper paycheck. And there is a significant distinction between a “paycheck” which arrives electronically via direct deposit for 93% of American workers and a “paper” paycheck, which may take days to clear.

To understand where the misconception comes from and why it is wrong, PaymentsJournal sat down with Bill Sullivan, the senior director and group manager of Government and Industry Relations at Nacha, and Bill Dunn, the director of Government Relations at the American Payroll Association (APA).

During the conversation, Sullivan and Dunn also dispelled other misconceptions around direct deposit and Same Day ACH, which is Nacha’s faster payments solution.

“No one complains that their direct deposits didn’t arrive on time”

Sullivan explained the root of the misconception was the belief that “the current pay system in the United States has a negative impact on those in our country that live paycheck to paycheck.” While he granted that living paycheck to paycheck is exceedingly difficult, the current payment system is not making it worse.

Since people believe that the current system is flawed, there’s the erroneous belief that the creation of faster payment rails will result in people getting paid faster. However, Sullivan pointed out this was simply not true.

If an employee is slated to get paid on the 15^th of the month, they will get paid then regardless of which rail is used, he said.

Sullivan traces the origin of the misconception to a recent Senate bill that urged the Federal Reserve to create FedNow. In the bill’s talking points, it called out how too many Americans are paying expensive fees because their paychecks are taking days to clear. According to Sullivan, the problem is that the talking points made no distinction between direct deposit and a paper paycheck.

Dunn agreed, noting that almost no one complains that their direct deposits didn’t arrive on time. He pointed out that APA surveys consistently show that over 90% of employees use direct deposit via ACH. This means that a switch to real-time payment rails won’t make them get paid faster.

While payday wouldn’t come sooner, Dunn did say that the push for real-time payments would benefit companies trying to move away from paper checks, as there would be faster settlement of B2B payments. But he said this would benefit the accounts payable and accounts receivable departments, not payroll.

Some background on the ACH Network

To alleviate any confusion about the ACH Network, Bill Sullivan of Nacha offered some details on how the Network operates, explaining that the Network is open for processing for just over 23 hours every business day.

“Files can be submitted to an ACH operator, which would be the Federal Reserve or The Clearing House until 2:15 a.m. Eastern Time for settlement at 8:30 a.m. Eastern Time that same day,” he said. However, the Network can only settle payments when the Federal Reserve Settlement service is open, which is between 7:30 a.m. and 5:30 p.m Eastern Time.

Since this limits the Network, Nacha has worked with others in the industry to encourage the Fed to extend its settlement hours.

Despite the Federal Reserve Settlement service restrictions on when settlements can occur, Dunn asserted that ACH payments still clear very quickly, especially when it comes to normal payroll.

He said that Same Day ACH would be helpful in times of emergency, when making a quick payment is necessary, a fact the Fed highlighted when it made the FedNow announcement. For example, 10 states have laws mandating that when an employee is terminated, they must receive their last paycheck by the end of the day.

In these situations, it’s often hard for companies to cut a paper check for the employee by the end of the day. Same Day ACH makes it easier, because most employees are already set up for direct deposit. The company simply needs to make the payment along the faster rail.

“The ACH Network is thriving”

As Sullivan mentioned at the beginning of the interview, many people have the faulty belief that there’s something wrong with the current payment system in the U.S., and that it’s somehow outdated and ineffective.

When it comes to the ACH Network, the data proves otherwise.

“The ACH Network is thriving,” said Sullivan. In 2018, there were over 23 billion transactions, totaling over $51 trillion in combined value. These numbers are the continuation of steady growth: the volume of ACH transactions has increased by 1 billion each year for the past four years.

As the numbers show, the ACH Network continues to grow and evolve, said Sullivan. He explained how the Network has added new capabilities and transaction types, improved processing speed, and expanded operating hours.

Dunn agreed that more people are turning to ACH. “Overall, we are absolutely seeing employees move away from paper checks and into direct deposit via ACH,” he said.

Same Day ACH has also witnessed remarkable growth. Between the second quarter of 2018 and the second quarter of 2019, Same Day ACH volume grew by 46%.

Getting paid by check is more expensive than ACH

Another misconception about direct deposits through ACH is that it costs the consumer money. Sullivan promptly refuted this idea.

“Banks, credit unions, and employers do not charge employees to receive a direct deposit to a bank account,” he said. He cited a 2016 study that found that 95% of Americans who receive direct deposit via the ACH Network are happy with it. A major part of favorability is that there is no associated fee with getting paid this way.

Dunn said that while it can be difficult to calculate the cost of individual transactions due to economies of scale (companies often make payments in large batches, thereby securing cheaper rates), it is clear that getting paid by check is more expensive, for both employer and employee.

It costs employers far more to write and mail checks than making payments electronically. And if an employee loses a physical paycheck, it can cost the employer up to $20 to replace it, according to an APA study.

Given that the ACH Network is thriving, and millions of employees are happily receiving direct deposits through it each month, any misconceptions around the Network are easily dismantled.

The post Not All Paydays Are Created Equal: How Same Day ACH and Direct Deposit Move Money Faster appeared first on PaymentsJournal.

We recently released member research on B2B faster payments in which we discussed Same Day ACH, RTP and other forms of near real-time payment tools that have been launched in the past couple of years.

In the same piece, we forecast expected growth over the next five years as well. This referenced posting appears in Payments Source and points to a rapid rise in SDA usage during the past year, in part attributed to the decline in U.S. check usage:

‘Same-Day ACH B2B payments through the first nine months of this year generated 37 million transactions, up 50% over a year earlier, according to Nacha. During the same time period, routine ACH-powered B2B payments reached nearly 3 billion transactions, up about 12% from a year earlier…..Same Day ACH payments, which launched three years ago, still account for less than 2% of all ACH payments. But Same Day ACH payments’ growth rate is accelerating, recently surpassing 1 million daily transactions. Same Day ACH B2B payments account for about 20% of that volume, according to Mike Herd, senior vice president of ACH network administration at Nacha.’

Since the 2016 AFP e-payments study, which suggested a flattening out in the decline of B2B paper checks as a payment tool, many industry observers assumed this would carry forward. The implication, of course, was that the ‘don’t fix what’s not broken’ process inertia would result in a continued slow adoption of digital payments.

For the past several years, we have been predicting the start of a more rapid decline in B2B check usage, most recently in another paper on commercial credit cards in North America.  The Nacha reasoning coincides with the more recent 2019 AFP e-payments study, which showed a 9% total decline in check usage during the measured period into 2019.

Use cases for same day ACH in B2B scenarios to date are closely associated with managing working capital opportunities, including taking advantage of invoice discounts in a more predictable and advantageous fashion, at the last minute.

Some also point to the gig economy, which in one sense is B2B (contractors are indeed supposed to be, or should be, registered LLCs) but most tend to interpret payroll as B2C.

‘Same Day ACH is more commonly used by companies paying contract or gig economy workers, and its use in these scenarios is growing, he said…“There are many use cases for Same Day ACH, but in payroll it comes into play when specific payment types are required for temporary workers or emergency payroll — that’s one area where we’re seeing strong demand for Same Day ACH,” Herd said.’

As we expected, the surge in available tools for better management of the cash cycle (new and better payments rails and network options, payables/receivables automation, APIs and so forth) is starting to have the intended effect.

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

The post B2B Payments Lift Same Day ACH, Even as Checks Persist appeared first on PaymentsJournal.

Envestnet | Yodlee is a new Nacha Preferred Partner for Account Validation.

In becoming a Nacha Preferred Partner, Envestnet | Yodlee joins a select group of innovators contributing to Nacha’s strategic efforts in support of the payments ecosystem by removing friction, increasing ease, improving cash flow accessibility and efficiency, as well as supporting sound risk management and security for ACH payments.

“The ACH Network has a vital role to play in the nation’s smarter, faster and safer payments environment. Account validation solutions are an important part of that, and so we are happy to welcome Envestnet | Yodlee as a Nacha Preferred Partner,” said Jane Larimer, Nacha President and CEO.

“Yodlee is thrilled to team up with Nacha and continue our mission of offering proven solutions for safer and faster processing of ACH debits using our account verification products,” said Brandon Rembe, Envestnet | Yodlee’s SVP of Product. “In this rapidly transforming industry, we know that a secure ACH Network is the key to a bright future. Simply put, partnering with Nacha affirms Envestnet | Yodlee’s commitment to a stronger ACH payments ecosystem.”

As a Preferred Partner for Account Validation, Envestnet | Yodlee joins a select group of Nacha Preferred Partners working to better support the payments ecosystem including:

• AeroPay Express for B2B Electronic Payment Enablement;
• Alacriti for Electronic Bill Presentment and Payments;
• BillGO for Instant Credit;
• Finastra for Enabling Innovation in Payments;
• Fiserv for Payments and Financial Services;
• GIACT for Account Validation;
• High Radius for Cash Application Automation;
• MACH1 for ACH Enablement of Micro Businesses;
• MicroBilt for Bank Account Verification;
• Plaid for Account Validation;
• Transactis for API Enablement of Electronic Bill Payments;
• Treasury Software for ACH Enablement and Integration;
• SWBC for ACH Facilitated Lending Services; and
• Volante for Payments as a Service.

To learn more about Envestnet | Yodlee and Nacha’s Preferred Partner Program, visit http://www.nacha.org/Preferred-Partner.

About Nacha
Nacha is a nonprofit organization that convenes hundreds of diverse organizations to enhance and enable ACH payments and financial data exchange within the U.S. and across geographies. Through the development of rules, standards, governance, education, advocacy, and in support of innovation, Nacha’s efforts benefit all stakeholders. Nacha is the steward of the ACH Network, a payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information. In 2018, there were 27 billion ACH payments, and more than $51 trillion in value moved across the ACH Network. Nacha also leads groups focused on API standardization and B2B payment enablement. Visit nacha.org for more information, and connect with us on LinkedIn, Twitter, Facebook and YouTube.

About Envestnet | Yodlee
Envestnet, Inc. (NYSE: ENV) is a leading provider of intelligent systems for wealth management and financial wellness. Envestnet’s unified technology empowers enterprises and advisors to more fully understand their clients and deliver actionable intelligence that drives better outcomes and improves lives.

Envestnet Wealth Solutions enables enterprises and advisors to better manage client outcomes and strengthen their practices through its leading Wealth Management Operating System and advanced portfolio solutions. Envestnet | Tamarac provides portfolio management, reporting, trading, rebalancing and client portal solutions for registered independent advisors (“RIAs”). Envestnet | MoneyGuide provides goals-based financial planning applications. Envestnet Data & Analytics enables innovation and insights through its Envestnet | Yodlee data aggregation platform.

More than 99,000 advisors and more than 4,100 companies including: 17 of the 20 largest U.S. banks, 43 of the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs and hundreds of internet services companies, leverage Envestnet technology and services. Envestnet solutions enhance knowledge of the client, accelerate client on-boarding, improve client digital experiences and help drive better outcomes for enterprises, advisors and their clients.

For more information on Envestnet, please visit http://www.envestnet.com and follow us on twitter @ENVintel.

The post Nacha Announces Envestnet | Yodlee as a Preferred Partner for Account Validation appeared first on PaymentsJournal.

With faster payments becoming more popular, Nacha and the U.S. Faster Payments Council (FPC), two major players in the payments space, have announced that they will be collaborating to ensure that financial institutions, businesses, and other stakeholders have the information they need to adopt the right faster payments solutions for their organization.

At Nacha’s Smarter. Faster. Payments 2019 event in May, the two groups revealed that they will be partnering to create the Faster Payments Playbook, an educational resource intended to aid financial institutions and other audiences as they develop a faster payments strategy.

PaymentsJournal sat down with Scott M. Lang, senior vice president, Association Services at Nacha, and Kevin Christensen, a current board member and former acting executive director of the FPC, an organization launched out of the Fed’s Faster Payments Task Force, to discuss these developments.

Since the conference, the FPC’s Board of Directors elected its inaugural officers and, separately, payments industry expert Kimberly Ford joined the organization as its first executive director.

“A perfect partner”

A look at Nacha’s involvement in faster payments through its Payments Innovation Alliance, as well as the goals of the FPC, reveals why a partnership between the two is a natural development.

Nacha’s Alliance, with its broad understanding of the payments environment, is playing a crucial role in helping organizations gain clarity on the topic of faster payments. Its Faster Payments Project Team was formed in June 2018 and currently consists of more than 60 organizations.

“The Payments Innovation Alliance is a membership group supported by Nacha that brings together diverse industry stakeholders,” explained Lang. He noted that these stakeholders range from credit unions to government agencies, and everyone in between, including processors and consultants.

All of these diverse players “work together, collaborate and develop tools or other initiatives that can help create opportunities for the [payments] marketplace, to move it forward or remove some barriers that [may be] hindering progress,” described Lang.

The wide breadth of experience and expertise represented in the Alliance, and its desire to improve the payments industry, attracted the FPC.

“The U.S. Faster Payments Council is a new industry association that was formed in November 2018, and its mission is to allow anyone to pay anyone at any time, with near-immediate funds availability,” explained Christensen. “So to that mission, we’re really trying to make sure that we have ubiquity, or create ubiquity, within the faster payments system.”

To realize this goal, the FPC decided to collaborate with Nacha.

“I think Nacha is just a perfect partner,” explained Christensen. “What they’ve been able to do within the Alliance [and] with some of the other things that they’ve done, it just seemed like a real, natural fit for us to work together.”

In addition to the Faster Payments Playbook, another project developed by the Alliance is the ACH Quick Start Tool. The tool is designed to help small and medium-sized businesses learn how to use the ACH Network to pay or get paid by other businesses.

The ACH Quick Start Tool “demystifies ACH payments,” said Lang. “[It] lays out the options for [businesses], explains [the ACH process], gives them tips [of] things they need to consider, and then points them to resources.”

Lang believes that helping businesses make the transition to making and receiving payments via the ACH Network will occur as people learn more about the Network’s many benefits, ranging from improved control over the timing of payments to increased security compared to paying by a paper check.

The Playbook: “A decisioning and educational tool”

Meanwhile, according to a May press release, the Faster Payments Playbook “will be a co-branded industry resource” developed by Nacha and the FPC “that will address faster payments developments and opportunities for stakeholders.”

Put simply, “It’s a decisioning and educational tool,” explained Lang. “The idea is that you first set a foundational level of education. There are a lot of different types of faster payments solutions — a lot of different types of providers.”

To set that foundational level of understanding, the Alliance released in March the Faster Payments 101, an educational primer designed to impart foundational understanding of faster payments and the momentum behind its adoption in the U.S. The 101 resource is an updated version of the document originally developed by Nacha and various other stakeholders in 2017.

The Playbook “walks an organization through the different, various steps to not only identify and understand what the different faster payments solutions are, but how to develop a strategy around that, and selecting which solution, or solutions, you may or may not want to support,” continued Lang.

Although helping an organization develop a faster payments strategy might seem rather elementary, it’s actually a much-needed service.

“We found that only 34% of [institutions] even had a payment strategy,” said Christensen. “And so really the work that the Alliance has already done on creating the [Faster Payments 101] educational piece is very timely to help educate the financial institutions, and then the tools themselves will really help build on.”

The first iteration of the Playbook is focused on informing financial institutions, specifically these regional and community banks, and also credit unions — while a later version will be designed to educate business end users.

“I think it’s going to be just a fabulous resource for institutions to utilize,” said Christensen.

With the potential of faster payments ubiquity on the horizon, all of the players involved want to help hasten the transition, and ensure that the interests of all sides get factored into the equation.

“We’re early in the [financial institution version of the] Playbook right now, and it seemed like the right opportunity to partner, to collaborate, with the Faster Payments Council, so we can get it right,” said Lang.

The post The Playbook to Faster Payments: Nacha Partners With the FPC to Provide Faster Payments Education appeared first on PaymentsJournal.

Triple-digit growth in a single year shows you’re on to something. Such is the case with Same Day ACH.

Since its 2016 debut, businesses small and large, financial institutions from Main Street to Wall Street, and consumers have embraced the benefits of Same Day ACH. Volume jumped 137% from 2017 to 2018, with nearly 178 million transactions last year.

But it’s still a work in progress. In fact, we have an enhancement coming in September, making funds available sooner in the day for many ACH credits. And next March, the dollar limit for Same Day ACH transactions jumps fourfold, to $100,000.

Then there’s another enhancement that Nacha and its members have approved: adding a third Same Day ACH processing window every business day.

When Nacha issued a request for comment on the idea, the industry welcomed it. They plan to use it to support all sorts of Same Day ACH transactions, not just one specific use case.

The third window would come at 4:45 p.m. ET—1:45 p.m. PT—two hours beyond the current deadline for submitting same-day transactions. That would be of particular benefit to folks in the West—many of whom would effectively have their first opportunity to actually use Same Day ACH and experience the benefits for their customers and clients with its myriad use cases.

Sounds good, right? But in order for it to happen, the Federal Reserve needs to keep the National Settlement Service (NSS) open one hour later until 6:30 p.m. ET. That, in turn, means Fedwire will need to keep running another 30 minutes until 7 p.m. ET.

It wouldn’t be the first change in hours. The Fed extended the NSS closing time by 30 minutes to support Same Day ACH back in 2016. And even then it wasn’t a new idea. Three years earlier, when the Fed released its “Payment System Improvement – Public Consultation Paper,” Nacha and several other industry stakeholders noted that longer NSS hours were an important component of improving the payment system.

The payments industry didn’t rush into the idea of a third window. We gave it very careful, deliberate consideration. Nacha and its members realize the complexities involved in shifting NSS and Fedwire hours. There are other processes and systems involved, and the Fed has responsibilities to all payment system stakeholders. We don’t take those lightly. But we believe in the necessity of improving the payment system for all U.S. financial institutions.

The world is moving toward a faster payments environment. With 10,000 financial institutions, and corporates with their established processes, it’s going to take us a while to get there. But we need to support our customers and clients longer into the day, and it’s imperative to be taking the steps that we can.

Opening a third window for Same Day ACH is an important move in that direction. With the Fed’s help it will be a reality come March 19, 2021.

To comment on the request for a modification of NSS hours, visit the Fed website.

The post Extended Hours for Same Day ACH: The Time Has Come appeared first on PaymentsJournal.

ACH transactions are electronic funds transfers (EFT) that are processed by the network. This network is overseen by the National Automated Clearing House Association (NACHA). Transactions typically take one to two business days to process, but same-day transactions are also available for an additional fee. ACH transactions are used for a variety of purposes, including direct deposit of payroll and government benefits, bill payments, and peer-to-peer payments.

NACHA announced significant transaction growth in second quarter.  Two stand-out categories were web initiated transactions and B2B transactions.  Digital Transactions reported:

Total volume for the quarter came to 6.1 billion transactions, an increase of 7.7% from the same three months last year, according to Nacha, the Herndon, Va.-based organization that administers the 45-year-old network. The system has been steadily posting 5%-plus quarterly growth rates in recent years as new features such as same-day ACH processing have been introduced.

Contributing to the growth for the latest quarter were transactions Nacha classifies as Internet-initiated payments. These totaled 1.6 billion, up fully 13%. Also helping out were B2B payments, which rose 12% to 995 million.

Since the number of transactions in total rarely increases much, this growth is likely to have come from checks and in the case of internet initiated payments, some card transactions were likely displaced.

Same day ACH also saw real growth in 2^nd quarter:

Same-day volume, which is part of the faster-payments trend and has been closely watched since the ACH introduced same-day credits in 2016, jumped 46% to 59.8 million. This volume includes both credits and debits, which were added in 2017. Nacha expects to add a third processing window in March 2021 as part of its years-long effort to facilitate same-day processing.

This volume is likely to be replacing wire transfers and “slow” ACH.

As real-time payments start to grow and get closer to matching the ubiquity of ACH, we will want to watch if same day ACH turns out to be a stepping stone to real-time payments or if the two payments, with notable feature differences, are distinct and operate in specific use cases.  We still are a long way off for this type of activity to be noticed and in the meantime, same day ACH and ACH generally is enjoying great growth.

Here’s a link to NACHA’s infographic outlining the details around second quarter’s growth.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post ACH and Same Day ACH Have a Great Quarter appeared first on PaymentsJournal.

As the steward of the ACH Network, the payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information, Nacha is responsible for setting the rules that govern the system. The Nacha Operating Rules direct how the ACH Network is operated and ensure that millions of payments occur smoothly and securely each day.

To learn more about the Rules, PaymentsJournal sat down with Michael Herd, senior vice president of ACH Network Administration at Nacha. During the conversation, Herd discussed the Rules, ACH messaging, and his favorite innovations changing ACH today.

The 4 Rs: Rules, roles, rights, and responsibilities

At Nacha, Herd is responsible for the Nacha Rules – both maintaining old ones and developing new ones.

The Rules, officially called Nacha Operating Rules & Guidelines, establish the roles, rights and responsibilities of all the parties participating in the ACH Network. From the type of information required in each transaction to the protocol for disputes, the Rules direct how the ACH Network is operated.

“It’s really the Rules that make the ACH Network the truly ubiquitous and standardized Network that it is in the U.S. today,” explained Herd.

However, even though the Rules bind everybody together under a common framework, there is still room for freedom. This flexibility, coupled with the requirements of the rules, enables innovation.

“There [are a lot] of parties out there that are figuring out new ways to use the ACH Network,” said Herd. They are aided by knowing that all the parties using the ACH Network are meeting a minimum level of requirement to one another. As such, there is a level of trust in place for innovators to build off of.

ACH messaging can solve current areas of friction

With millions of transactions humming across the ACH Network each day – in fact, in 2018 ACH moved nearly 23 billion electronic payments – countless companies are also sending and receiving reams of information. This constant communication creates a space for innovation.

Nacha is entering this space with ACH messaging, or messaging between financial institutions.

“The basic idea is to leverage the existing Network that we have to enable financial institutions to communicate with each other about initiating and resolving exception cases,” outlined Herd.

He explained that financial institutions are often requesting documentation or additional information about transactions, but are frequently unsure of how to find another bank, or who to actually call, or sometimes even fax.

“We think the [ACH] messaging concept is a way to put all that dialogue [and] inner bank communication onto the system that already connects them, and is already relating to payments,” said Herd.

Instead of navigating a myriad of different communication options, ACH messaging would allow financial institutions to send messages in standardized formats at designated times.

Same Day ACH: “A good news story”

When asked his thoughts on what were some of the greatest innovations Nacha has been involved with over the past few years, Herd had an immediate answer: Same Day ACH.

“It certainly has been an important strategic initiative [that] the Nacha organization [focused on] over the last several years,” explained Herd. It took a significant amount of work, not just from Nacha, but from financial institutions and the wider payments industry as well.

Despite challenges, and after years of toil, the effort paid off and now Same Day ACH exists for end users to take advantage of. And take advantage of it they are.

“Our Same Day ACH payment volume last year increased [by] triple digits,” said Herd, adding that overall Same Day ACH volume jumped 137 percent from 2017, a large amount that reflects the popularity of the faster payment option. “I think that’s a good news story,” he said.

However, Herd is quick to point out that Nacha is not just going to bask in its achievements; the organization will continue to improve Same Day ACH.

“We have additional enhancements that are going to be implemented over the course of the next couple years,” said Herd. Specifically, he mentioned that Nacha will increase the dollar limit for same-day transactions, up to $100,000 per transaction. After traveling around the country and soliciting feedback from industry members, Herd said increasing the limit was the most common request from corporates.

Other enhancements include allowing Same Day ACH transactions to be submitted to the ACH Network for an additional two hours every business day. Additionally, the speed of funds availability for certain Same Day ACH and next-day ACH credits will be increased.

“It will be a game changer,” said Herd.

The post Nacha Rules and Innovation: A Conversation with Michael Herd appeared first on PaymentsJournal.

Banks in Australia are considering shutting down their direct debit (ACH-like) network. Now that their real-time, New Payments Platform (NPP) is up and running, the idea of reducing support costs by retiring the direct debit network is gaining support.  I don’t know of another payment rail in modern history in the U.S. at least,  that has ever been shut down. The industry always seems to have a need for all payment types, regardless of how little incremental capability they hold in comparison to new rails. With the arrive of real-time payments, ACH, wire transfers and cash will certainly co-exist. Checks will see a further decline, but here too, unlikely to disappear in the foreseeable future.

Australia, with its national, mandated real-time network and a manageable number of financial institutions is thinking differently about supporting two separate payment rails. This excerpt from ITNews:

Australia’s big four banks and their nimble mid-tier competitors face the prospect of being stuck supporting billions of dollars in legacy infrastructure under a looming fork in the road between the existing direct debit system and new real-time payments under the New Payments Platform.

A paper from the Reserve Bank of Australia-supported platform released this month cautions that as consumers and merchants increasingly move towards real-time payments, institutions sticking with the direct debit system will likely have to support two sets of rails as consumers transition.

The hydra-headed transaction systems scenario is in large part caused by the shift from data skinny “pull” payments requests under veteran the direct debit system and data-rich “push” requests-for-payment (RfP) under NPP enabled services.

Many real-time payments markets are starting to move away from traditional debit style ‘pull’ payments, towards a ‘push’ payment type, or credit transfer. This allows the customer greater control over the timing, the amount and the regularity of payment. Direct debit is still being used in countries where it is a common payment method, e.g. the UK, however the trend is for real-time payment rails to support RfP as a viable alternative,” the NPP paper observes.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

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ACH Alert, an award-winning provider of electronic payments fraud prevention technology for financial institutions of all sizes, released its latest white paper, “Modernizing Current Processing Methods to Achieve Faster Payments Now.” In this white paper, ACH Alert examines the industry’s existing systems and processing methods, along with noting the challenges accompanying each and effective ways to improve these processes.

To keep up with the industry’s shift to faster and real-time payment options, financial institutions should consider modernizing existing systems rather than rushing to replace them. While the market’s payment systems are still perfectly viable, proven and trusted by account holders, the processing methods must be updated to appear more real time. The industry needs solutions that can make processes far more efficient, effective and appealing to clients through automating paper-based and labor-intensive activities. Rather than discarding their systems in place, financial institutions can invest in new solutions for less money than it takes to maintain legacy support systems.

ACH Alert’s white paper dives into the current challenges facing treasury services and payment protection processes – specifically check positive pay, ACH debit blocks and filters, wire transfer protection, and EDI translation. ACH Alert offers solutions to automate these inelegant processes that have been known to impede efficiency, damage the client experience and curtail profitability. The white paper also outlines next steps for financial institutions striving to improve their bottom line by implementing readily available solutions that will reduce costs, generate new revenue, enhance the customer experience and automate the backroom.

“Financial institutions could reap significant value from improving the services they have been accepting as ‘good enough’ for years,” said Deborah Peace, chief executive officer of ACH Alert. “Doing so would make these services much more marketable to today’s clients, who are constantly demanding more from their financial institutions. Implementing news tools would remove barriers to adoption, make check and ACH payments more useful to clients, and bring a plethora of new efficiencies to financial institutions. Payment reconciliations would improve, paper would be eliminated, fraud would decrease, and profitability would rise.”

To download the white paper, visit ACH Alert’s website.

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BillGO is a new Nacha Preferred Partner for ACH Solutions for Instant Credit. Nacha Preferred Partners are a select group of innovators that contribute to Nacha’s strategic efforts in support of the payments ecosystem by removing friction, increasing ease, improving cash flow accessibility and efficiency, as well as supporting sound risk management and security for ACH payments. BillGO was selected as a Preferred Partner because of its BankUp solution that automates the bill payment process for billers while providing real-time credit to the consumer’s account at the biller.

BillGO’s BankUp offering enables billers to easily accept ACH payments with a real-time payment confirmation, creating a strong customer experience. BillGO guarantees the transaction for the biller, thus eliminating exceptions while also enabling immediate credit for payments via the ACH channel. Merchants are provided with a simple, easy-to-use interface to add to their existing bill pay offering.

“Biller direct represents a significant portion of electronic bill payments in the U.S. and both billers and consumers desire low-cost and efficient options that are seamless,” said Jane Larimer, COO of Nacha. “Innovative solutions such as those developed by BillGO provide the industry with options and alternatives that leverage the capabilities of the ACH Network.”

“BillGO’s newest solution enables billers to simplify the payments experience for their customers,” said Mike Pinto, COO of BillGO. “As a Nacha Preferred Partner, we are excited to bring innovative experiences that help the industry continue to evolve towards satisfying consumer and corporate expectations for on-demand, fast payment options.”

BillGO, as the Preferred Partner for ACH Solutions for Instant Credit, joins a growing list of Nacha Preferred Partners working to better support the payments ecosystem. To learn more about BillGO and Nacha’s Preferred Partner Program, visit www.nacha.org/Preferred-Partner.

About Nacha
Nacha is a nonprofit organization that convenes hundreds of diverse organizations to enhance and enable ACH payments and financial data exchange within the U.S. and across geographies. Through the development of rules, standards, governance, education, advocacy, and in support of innovation, Nacha’s efforts benefit all stakeholders. Nacha is the steward of the ACH Network, a payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information. In 2018, there were 27 billion ACH payments, and more than $51 trillion in value moved across the ACH Network. Nacha also leads groups focused on API standardization and B2B payment enablement.

About BillGO
BillGO constantly creates and innovates past what exists. That drive powers the BillGO team to relentlessly advance payment systems to accelerate speed, efficiency and security. BillGO’s technology, currently used by 8,000 banks and more than 30 million consumers, provides a simple integration into any existing system that gives payment providers access to a proven, faster and more secure bill payments engine. Learn more: https://www.billgo.com/.

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When it comes to owning a business of any size, making payroll, managing invoices, and overall bills and payments can be one of the biggest headaches. Whether it’s an issue on the bank’s side of not releasing funds on time, or internal problems of facilitating that payment, there are several things that can go wrong. These issues even plague the relatively simple process for direct deposits, and there are still companies that are utilizing paper checks or relying on a hybrid of payment options that further complicate the issue.

From the costs involved to the approval process to keeping vital documents such as paystubs and invoices attached for tax, auditing and other purposes, there are updated ways that can improve the process of disbursing a fund and even platforms available to allow multiple options and allow the payee to decide what form of payment best suits them.

Traditional Disbursement Options

While the paper check may still be appealing to some people, there are more efficient and cost-effective solutions to distributing funds. While the paper check may seem the easiest, there are a reasonable amount of costs involved such as the cost to produce the physical check, which can vary in cost between $4 and $20 per check. One of the biggest draws of the physical check, however, is the paper trail to keep tabs on the check itself and proof of payment.

For companies moving beyond paper, they have turned to ACH funds disbursement. ACH is certainly more cost-effective, with the max amount being around $3, but comes at a different price, delay. For an ACH disbursement, it takes anywhere between three to five business days. This requires submitting payroll several days in advance of the actual payday to ensure timely disbursements.

As businesses adapt to a changing economy – especially for those in the gig or contractor economy – ensuring accurate, reliable and secure payments for the services provided becomes even more challenging since these workers are not entered into a traditional payroll relationship.

Choosing Disbursement Options Suitable for Your Organization

Paper checks, ACH, Prepaid cards, real-time payments, the list goes on for ways organizations can disburse funds. With the help of fintechs, funds disbursement has become more tailored to organizations to offer a multitude of ways they handle payments. As companies seek to provide a better customer experience, they can even offer the payee more control in how they request to receive funds through robust disbursement platforms.

These capabilities have worked their way into multiple industries such as healthcare, insurance, airline and more to be able to quickly and efficiently issue rebates and rewards to customers. Real-time payments especially have received an increase of interest due to the lack of waiting period for a payment to process. Money can be accessed within seconds without an additional cost involved, because it is available through such platforms.

In addition to being more efficient and timelier for disbursements, robust disbursement platforms are more accessible and easier to manage than traditional paper documents. For businesses, it is common for executives to be on the go and tracking down a piece of paper is harder to do when away. With an accessible platform, it is easy to manage disbursements, access documents, approve transactions, etc. The data for each transaction can be retained digitally, providing an audit trail for future needs.

Incorporating an all-inclusive platform also enhances the relationship between payor and payee. Both parties have access to each disbursement in a siloed and secure environment. This capability especially helps organizations keep track of invoices, payments made, and official documents from a tax and regulatory standpoint, reducing the need for additional headcount to manage paperwork.

From a potential mix up in the mail to an account being compromised, there are several roadblocks to keep a disbursement from being completed. From a security standpoint, it is best for organizations to keep their account and transaction information siloed and in a secure environment.

In addition, keeping these transactions in a siloed environment makes organizations like financial institutions protected from both a security and regulatory standpoint. When it comes to arduous audits, auditors can focus on the information important to them while organizations are able to easily and quickly access the data necessary.

What should a company look for in a payments disbursement platform? The first thing that is important in a disbursement platform is variety, whether its ACH, virtual cards, debit or credit,  faster payments methods such as Mastercard Send and Zelle. Such a platform needs to be able to accept and facilitate both. Another important option needed is a siloed secure environment that can include data to a transaction for better customer management and audit purposes.

Disbursements have long been limited to one or two methods that required attention from multiple individuals. However, with the advancements of payments and disbursements, the process has become seamless with the help of robust platforms. When it comes time to cutting your next check weigh out your options and see if this method is the best fit for your organization.

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Orlando, Fla., May 7, 2019 – Today, Nacha and its Payments Innovation Alliance launched the ACH Quick Start Tool, an online educational resource designed to help small and medium-sized businesses more readily understand and use ACH to make and receive payments for an array of use cases.

The Alliance is comprised of a diverse membership of corporates, third-party processors, fintechs and financial institutions that has a broad understanding of the payments environment. The ACH Quick Start Project Team was launched to develop actionable tools to help businesses learn more about and adopt ACH as their preferred payment method.

“The ACH Network electronically moves money and data seamlessly and securely. It is the ideal payment method for small and medium-sized businesses to use to pay supplier invoices, bills and other business expenses, as well as get paid for the goods and services they sell ― instead of by check,” said Scott M. Lang, AAP, senior vice president, Association Services at Nacha.

“The ACH Quick Start Tool leads businesses through everyday scenarios ― using easily understandable language ― on how they can make payments to and get paid by other companies. We encourage banks, credit unions, fintechs and other payment processors to link to the tool as a complementary educational resource for small and medium-sized business customers,” Lang said.

The ACH Quick Start Tool was unveiled at Smarter. Faster. PAYMENTS 2019, which continues through May 8 in Orlando. This year’s conference also coincides with National Small Business Week, which recognizes the critical contributions of America’s entrepreneurs and small business owners as they work to grow small businesses, create 21st century jobs, drive innovation, and increase America’s global competitiveness.

Visit the ACH Quick Start online tool at ACHQuickStart.org. For more information on the ACH Quick Start initiative or to join the Alliance’s ACH Quick Start Project Team, visit www.nacha.org/payments-innovation-alliance.

About Nacha’s Payments Innovation Alliance

The Payments Innovation Alliance is a 200-plus membership organization that brings together diverse, global stakeholders to support payments innovation. Through collaboration, discussion, debate, education, networking and special projects, the Alliance seeks to grow and advance payments and payments technology to better meet and serve the needs of the evolving industry. For more information and to learn how to join, visit www.nacha.org/content/payments- innovation-alliance.

About Nacha

Nacha is a nonprofit organization that convenes hundreds of diverse organizations to enhance and enable ACH payments and financial data exchange within the U.S. and across geographies. Through the development of rules, standards, governance, education, advocacy, and in support of innovation, Nacha’s efforts benefit all stakeholders. Nacha is the steward of the ACH Network, a payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information. In 2018, there were 27 billion ACH payments, and more than $51 trillion in value moved across the ACH Network. Nacha also leads groups focused on API standardization and B2B payment enablement. Visit nacha.org for more information, and connect with us on LinkedIn, Twitter, Facebook and YouTube.

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ORLANDO, Fla., May 6, 2019 – Today, Nacha introduces the Nacha Corporate Experience, a new way of demonstrating how businesses can more effectively exchange payments and information. Through a pairing of standards and advanced technology, the Nacha Corporate Experience shows how to simplify the pre-payment and post-payment processes for businesses, allowing for a fast, simple and standard end-to-end transactional experience.

“With B2B payments, oftentimes it is not the payment itself that serves as the point of friction, but the ‘pre-payment’ and ‘post-payment’ processes that are most challenging,” said Jan Estep, president and CEO of Nacha. “With the Nacha Corporate Experience, we are highlighting standardized and comprehensive offerings that solve for these challenges, improving the overall corporate payments experience for today’s businesses.”

The Nacha Corporate Experience is comprised of different solutions that when used together improve the end-to-end electronic payment and remittance process for businesses-to-business payments. Currently, the Nacha Corporate Experience includes the Business Payments Federated Directory, which leverages blockchain technology to address supplier onboarding challenges. Through the Directory, businesses can obtain, maintain and exchange accurate and compliant payment information improving confidence for buyers and cash application processes for suppliers.

The Nacha Corporate Experience also includes the Nacha Remittance Validator. The Remittance Validator, developed in collaboration with HighRadius, allows buyers to validate the accuracy of B2B payment remittance formatting for each of their suppliers, improving the supplier’s cash application process and the rate of straight-though processing.

Additionally, the Nacha Corporate Experience leverages Afinis Interoperability Standards application programming interfaces (APIs). Afinis is Nacha’s member-led organization that is advancing financial industry standards, including API standards and other financial services standards, across the U.S. and globally. By leveraging a standardized API, businesses can minimize the number of proprietary connections to different financial institutions or networks, reducing costs and resources and ensuring certainty and consistency for all participants.

“We’ve worked diligently with industry partners to develop and deliver the Nacha Corporate Experience to the financial services industry,” said Estep. “Solutions like these help meet the needs of the industry and serve as powerful tools to improve efficiency, automate processes, and advance interoperability.”

To learn more about the Nacha Corporate Experience, visit nachacorporateexperience.org.

About Nacha
Nacha is a nonprofit organization that convenes hundreds of diverse organizations to enhance and enable ACH payments and financial data exchange within the U.S. and across geographies. Through the development of rules, standards, governance, education, advocacy, and in support of innovation, Nacha’s efforts benefit all stakeholders. Nacha is the steward of the ACH Network, a payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information. In 2018, there were 27 billion ACH payments, and more than $51 trillion in value moved across the ACH Network. Nacha also leads groups focused on API standardization and B2B payment enablement. Visit nacha.org for more information, and connect with us on LinkedIn, Twitter, Facebook and YouTube.

About Afinis Interoperability Standards
Afinis is a membership-based governance organization supported by Nacha that brings together diverse collaborators – through innovative and agile processes – to develop implementable, interoperable, and portable financial services standards across operating environments and platforms. Afinis brings together thought leaders and leading technologists from financial institutions, fintechs and solution providers, businesses, governments, and nonprofit organizations to rapidly develop API products through use of Afinis’ platform for standardized API product discovery, application testing, and developer collaboration. For more information and to learn how to join, visit Afinis.

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Larimer as the next President and CEO of Nacha effective July 1, 2019. The Board thanks Janet O. Estep, Nacha’s current President and CEO for her successful 11 years of leadership of Nacha and within the payments industry, and welcomes her assistance in the transition before she retires at the end of 2019.

Ms. Larimer brings three decades of experience in financial services and payments to her new role, with twenty-three years of service in various roles at Nacha. She currently serves as Chief Operating Officer of the organization, leading the association’s initiatives in support of a variety of payments topics, education and accreditation programs, along with responsibilities for ACH Network rules and risk management. She also served as General Counsel of Nacha.

The Nacha Board formed a committee earlier this year to identify its next CEO, a position focused on guiding Nacha in its long-term direction, governance and administration of the ACH Network while providing superior value and a breadth of services to its members and the payments industry. The Committee developed its desired attributes for Nacha’s next CEO while also assessing both internal and external individuals. The right fit was important as the CEO works closely with many stakeholders, including financial institutions of all sizes, to support both innovation and superior risk management, and further the Board’s goal to ensure that Nacha continues to support and adapt with industry needs over time. This combination has allowed for the strong growth of the ACH Network, which processed over 23 billion transactions in 2018.

“The Nacha Board feels that it has been very fortunate in finding a new CEO with Jane’s background in the industry, coupled with her leadership ability, experience and values,” said Nacha’s Board Chair Laura Lee Orcutt. “Jane is the best person to lead Nacha in collaboration with its Board, Members and the industry. The unanimous selection of Jane Larimer reinforces the Board’s commitment to
finding an individual who can help the organization sustain its leadership in the payments space and build productive dialogue with the entire industry.”

As CEO, Estep has provided steady guidance to Nacha and elevated its position as an organization supporting payments and financial services in so many ways. “Jan’s tenure has strengthened Nacha’s role in the payments ecosystem,” stated Orcutt. “We want to thank Jan for the tremendous investment she has made in Nacha over the years. In addition to her industry leadership role, Jan has sustained an exceptionally solid executive team that will benefit from Jane’s future leadership.” Under Estep’s tenure, Nacha has expanded its paymentswide support with the launch of the Afinis Interoperability Standards membership group, the ACH Network has grown 61% with new capabilities, new education, accreditation and certification programs have been launched, and new partnerships and tools have been brought to the industry.

“Nacha is an amazing organization whose work is instrumental in building consensus and supporting the creation of rules, standards and education that enhance and enable payments and financial data exchange to benefit all stakeholders,” said Ms. Larimer. “Nacha is well positioned for the future, and I look forward to working with our talented team, our great members and industry to further strengthen the leadership position of the ACH Network within our nation’s payment system.”

Nacha also unveiled a revamped visual identity to better express the single purpose that unites all of the organization’s programs and initiatives: engaging diverse stakeholders to develop rules and standards to continue advancement of the ACH Network and further a digital future of financial services interoperability.

The brand refresh incorporates a new symbol that reimagines the bi-directional arrows of Nacha’s former logo as a fusion of a multiplicity of ideas, points of view and participants in creating the future of payments. The revitalized visual identity also updates typography, iconography and formats to improve access to information across all media types through better readability and navigation for Nacha and its sub-brands. To see Nacha’s new identity in action, visit www.nacha.org.

About Nacha
Nacha is a nonprofit organization that convenes hundreds of diverse organizations to enhance and enable ACH payments and financial data exchange within the U.S. and across geographies. Through the development of rules, standards, governance, education, advocacy, and in support of innovation, Nacha’s efforts benefit all stakeholders. Nacha is the steward of the ACH
Network, a payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information. In 2018, there were 27 billion ACH payments, and more than $51 trillion in value moved across the ACH Network. Nacha also leads groups focused on API standardization and B2B payment enablement. Visit nacha.org for more information, and connect with us on LinkedIn, Twitter, Facebook and YouTube.

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Today’s financial institutions are deploying top online and mobile banking systems to offer their customers a wide range of capabilities, from opening an account to setting up automatic bill payments, mobile check deposits and more. Despite these comprehensive feature functionalities, the fraud detection and dispute process remains rather outdated for many financial institutions.

PwC’s 2018 Global Economic Crime and Fraud Survey reports that 49 percent of organizations across the globe have experienced fraud, with an increase from 36 percent the previous year. As fraudsters increase and evolve their attacks on the financial services, it’s apparent that fraud isn’t going away any time soon. With that being said, financial institutions must take steps to up the dispute process to protect customers and their hard-earned funds.

Most financial institutions are meeting their customers’ expectations by offering a traditional online cash management system that allows account holders to view transactions; however, this is the extent of its ability. To exceed these expectations, financial institutions must change the role of the customer.

Modern-Day Consumers and Traditional Banking Systems Don’t Mesh

The modern consumer desires an equally modern banking platform, packed with automated features, coupled with an active role in monitoring their finances. It’s clear financial institutions are aware of this, with almost 80 percent of bank operations leaders believing that “their organization’s existence could be threatened if they don’t update technology to be more flexible and capable of supporting rapid innovation,” according to Accenture.

Existing legacy systems do not provide the level of automation needed to keep up with the constant attacks from fraudsters, often leaving customers to be the ones to detect fraud after it’s already happened. Without basic functionalities that allow account holders to take action when fraud occurs, customers are falling victim to these attacks.

Customers need a platform that shares customized actionable alerts and can accept or reject suspicious ACH, check and wire transactions in real-time. Financial institutions should start by enhancing traditional treasury management systems with a solution that empowers account holders with the ability to detect and respond to suspicious activity – before the funds leave their account.

Updated Cash Management Leads to Improved Customer Experience

Ultimately, it is the account holder who can best determine whether a transaction is credible or not, so financial institutions should be offering tools that let customers take the reins on disputing fraud. With an actionable banking system, customers can easily dispute questionable transactions as soon as they happen, right from their phone or office – offering the ultimate convenience and flexibility.

With an actionable online banking system that does not simply offer visibility over transactions, but instead goes beyond by enabling customers to take action against unauthorized activity, financial institutions are equipping account holders as they protect themselves against suspicious activity – resulting in an improved customer experience.

With a transparent customer experience in place, financial institutions can not only protect their account holders, but also support stronger customer retention efforts as well. Happy customers that credit their financial institution with protecting their funds will most always return and stay loyal to their bank.

Balancing security needs with convenience may seem daunting but leveraging the right technology with a modern online banking system that supports single sign-on capabilities and fraud prevention tools that utilize technologies like out-of-band authentication and voice biometrics, will ensure a seamless customer experience without compromising security.

From Sitting Back to Stepping Up: Changing the Role of the Customer

While financial institutions give account holders the tools to combat suspicious activity, they can also reduce internal costs and yield significant new, non-interest fee income.

Legacy systems have been known to involve incredibly time-consuming, labor-intensive and costly processes, requiring additional back-office employees to take time to manually manage fraud. By implementing technology that grants account holders the control in determining which transactions should be authorized enables institutions to focus on revenue generating opportunities and scaling their services to a larger number of customers. Partner this with automated out-of-band alerting and verification, minimizes the time spent by employees shuffling through potential attacks from fraudsters.

By shifting the controls from the institution to the account holder in detecting and responding to fraud, fewer full-time employees are needed to manage the manual transaction dispute and return process. Formally a lengthy process that includes time spent manually communicating a suspicious transaction to customers through phone calls or recorded messages, employees’ time is freed up to handle other tasks and assist customers.

Putting the power in the hands of the customer and automating fraud prevention is crucial to ensure banks can grow most efficiently. With the majority of customers already paying for fraud prevention services that are grossly outdated, offering an updated and convenient, real-time solution that empowers the customer is a valuable opportunity to tap into a new revenue stream.

To scale back the amount of attacks and keep up with the evolving fraud tactics hitting the industry, give account holders what they want and need – an actionable online banking system that offers both visibility over transactions and the tools to detect and dispute unauthorized activity. Banks that do this will better protect their customers against suspicious activity.

By replacing existing legacy systems with an all-encompassing fraud prevention platform, financial institutions can reap the benefits: prevent financial loss due to fraud, minimize liability, meet important compliance objectives, reduce internal cost, retain existing relationships, attract new clients and yield significant new, non-interest fee income.

Deborah Peace, AAP, is Chief Executive Officer of ACH Alert, a provider of patented, innovative fraud detection services to financial institutions ranging from community banks to top tier financial institutions. Relying on more than 20 years of industry experience, ACH Alert assists financial institutions in mitigating the risks associated with electronic payments. ACH Alert is the 2012 recipient of the Kevin O’Brien ACH Quality Award, the highest award for quality in the ACH Network industry.

The post How Financial Institutions Can Hit Back at Fraudsters appeared first on PaymentsJournal.

NACHA today released its Top 50 rankings of originators and receivers of ACH payments for 2018.

The Top 50 originating financial institutions accounted for volume of more than 19.7 billion ACH payments, an increase of almost 7 percent from 2017. Nearly 93 percent of ACH Network commercial origination volume is attributable to these financial institutions.

On the receiving side, the Top 50 financial institutions accounted for volume of over 13.5 billion ACH payments, up nearly 8 percent from 2017. These financial institutions constitute 59 percent of the receiving volume on the ACH Network.

“From Direct Deposit to charitable giving to bill payments and more, the ACH Network increases its value to the U.S. economy every year,” said NACHA Chief Operating Officer Jane Larimer.

NACHA also updated the 2018 total ACH payments volume to 27 billion transactions. This includes the 23 billion ACH Network payments, plus an additional 4.1 billion “off-Network” transactions, consisting primarily of on-us ACH payments, with a small volume of ACH direct-send payments.

Download the Top 50

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2018 was a milestone year for the ACH Network. Payment volume climbed by almost 1.5 billion payments, the fourth straight year the ACH Network has added more than 1 billion new payments.

ACH Network volume reached nearly 23 billion payments in 2018, a year-over-year increase of 6.9 percent and the highest growth rate since 2008. That’s nearly 70 payments for every person in the U.S.

The value of ACH payments in 2018 was $51.2 trillion, a 9.5 percent increase over 2017. It marked the sixth consecutive year in which ACH payment value has risen by at least $1 trillion. For perspective, the value of last year’s ACH payments was more than 2 1/2 times that of the nation’s 2017 gross domestic product.

Same Day ACH volume soared in 2018, the first full year with same-day debits as well as credits. There were nearly 178 million Same Day ACH payments last year: 98.3 million credits and 79.7 million debits. Overall Same Day ACH volume jumped 137 percent from 2017. Total Same Day ACH value in 2018 was $159.9 billion, up 83 percent over the year before.

“The results for 2018 make clear that the ACH Network is vibrant and continues to be a vital component of the nation’s economic engine,” said NACHA Chief Operating Officer Jane Larimer. “With more enhancements to Same Day ACH being rolled out this year and next, the experience for businesses and consumers will only get better.”

Several core ACH use cases saw substantial growth in 2018 including:

• Business-to-business (B2B) payments, up 9.4 percent to 3.6 billion, total value $34.9 trillion
• Direct Deposit, up 4.4 percent to 6.8 billion, total value $9.7 trillion
• Internet payments, up 14.2 percent to 5.9 billion, total value $2.9 trillion
• Payments from health plans to medical and dental providers, up 11.5 percent to 306.7 million, total value $1.59 trillion
• Person-to-person (P2P) payments, up 32.2 percent to 128.7 million, total value $209.6 billion

About NACHA

NACHA is the steward of the ACH Network, an electronic payment system that safely and reliably moves tens of billions of payments annually. NACHA sets and enforces the NACHA Operating Rules and works to continuously enhance the ACH Network through innovation, education and advocacy. In 2018, the ACH Network moved 23 billion payments and more than $51 trillion over a wide range of transaction types, including Direct Deposit of salaries and benefits, bill payments, business-to-business (B2B) and person-to-person (P2P) payments, and claim payments to healthcare providers. As a nonprofit organization, NACHA convenes hundreds of diverse organizations to enhance and enable electronic payments and financial data exchange within the U.S. and across geographies. Through development of rules, standards, governance, education, advocacy, and in support of innovation, NACHA’s efforts benefit the providers and users of those systems. NACHA leads groups focused on API standardization and authors the Quest Operating Rules for EBT.

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Since the 1980s, the momentum behind real-time payments (RTP) – also known as faster or instant payments – has grown at an accelerated pace, because of its benefits to both consumers and businesses. Estimates currently suggest approximately 35 countries, including Switzerland, Taiwan, India, China and the UK, have implemented or are developing RTP schemes.

With the European Central Bank also suggesting that cash payments cost up to €65 billion across its 27 member-states (data predates the joining of Croatia in 2013),  the attraction of RTP becomes more evident.

But it can’t be that straightforward, can it?

Challenges facing Real-Time Payments

In a word, no.  As where money goes, fraud follows. The ability to move money quickly allows criminals to circumvent traditional checks like the identification of out-of-pattern activity, ACH block services and manual reviews.

For example, manual reviews exist in a world where payments are governed by a three-day approach to clearance. Since RTP exists to execute transactions in seconds, this protocol has been made redundant. Fraudsters recognize this and are ready to exploit any vulnerabilities when RTP schemes go live.

All of this makes invoice, account-take-over and application fraud, that much easier.

Fraud from around the world

In 2008, ‘Faster Payments’ was launched in the UK. The objective of the scheme was to reduce payment times between different customer accounts, from three working days to typically a few hours. In the three years following the scheme’s introduction however, fraud tripled with a 132 percent spike in the first year alone.

Reasons for the rise include a combination of criminals being innovative, organized and prepared; and banks trying to play catch-up.

High levels of associated fraud are not restricted to the UK. In the USA, for example, PwC noted that some of its clients experienced a 90 percent fraud rate following the introduction of Zelle in 2017.

Mitigating the impact of fraud

Central banks and clearing houses must be proactive in mitigating the impact of fraud in-line with their adoption of RTP systems. To achieve this, they should consider payment account tokenization.

Tokenization is the process of replacing unique sensitive information or data with a non-sensitive equivalent, otherwise known as a token. As it cannot be used by fraudsters if stolen, it reduces the impact of data breaches and protects transactions, without consumers or businesses having to alter their behaviour.

Fundamentally, it removes the need to store the raw data of sensitive account information, reducing potential fraudulent returns.

What’s more, tokenization provides additional security for payments via set control parameters. If a token can only be used with a particular merchant, for a specific purpose, or has a set value limit; they become even less appealing to fraudsters.

Tokenization has already been successful in mitigating in-store and retail fraud and has been embraced by all major payment systems and digital wallets. These successes can be transferred to RTP schemes.

Faster and safer payments

As with any new payment initiative, there are going to be teething problems. RTP have experienced their fair share of fraud to date but by integrating tokens into the RTP process, banks can mitigate the impact of fraud, saving them money while protecting customer and business confidence.

To learn more about real-time payments and how to secure them, download the Rambus eBook.

The post When Real-Time Payments Go Wrong appeared first on PaymentsJournal.

Payment technology for consumer based payments has changed immensely in the last 10 years.  We now have prepaid debit cards, mobile wallets, mobile remote deposit capture and faster payments via the ACH system fulfilling the need for immediate funding.  Technology is now focusing on providing the same types of benefits for a business to streamline their payment capability.  Two companies have recently announced their enhanced disbursement services for businesses.

“Atlanta-based Repay said its Instant Funding service enables organizations to send funds directly to eligible Visa Inc. debit and prepaid cards via Visa Direct, the network’s real-time debit service. Repay’s lending clients, for example, can use Instant Funding to push funds to a Visa card instead of issuing checks or submitting an automated clearing house transaction, Repay says. 

“Instant Funding will enable our clients to gain efficiencies and to provide a more customer-friendly experience,” Chris Arnette, Repay vice president of product management, said in a statement. “In today’s fast-paced world, it’s all about immediate gratification—and that’s what Instant Funding can provide.”

Push payments utilized the payment rails of existing brand networks to facilitate payments that are in real-time or almost real-time. Many businesses have cash flow problems which often cause them to fail or take out business lines of credit.  With push payments a small business/or any business could receive their funds in hours/days completely changing cash flow problems of having to wait days/weeks for payment.  Not to mention the cost saving associated with not having to issue checks.

“For San Antonio, Texas-based Payment Data Systems Inc., push payments are a component of its new money-disbursement platform that offers automated clearing house payments, push to debit cards, and virtual and physical card issuance. The platform also enables disbursement to Apple Pay, Google Pay, and Samsung Pay mobile wallets. The platform is part of a customizable card-issuance service.  Businesses can now offer contractors, employees, and other payment recipients the ability to choose among the issuance of a prepaid debit Mastercard, real-time deposits to checking accounts, traditional ACH or direct deposit, or paper check, Payment Data Systems said. “There is a lot of excitement about virtual card issuance and real-time payment disbursements. Consumers want options when it comes to how they get paid—most are seeking a faster way to receive pay and some simply don’t have access to an account that can retrieve real-time disbursements,” said Louis Hoch, Payment Data Systems chief executive, said in a statement.” 

Virtual payments are the wave of the future, businesses no longer want to deal with paper checks when it relates to accounts payable as it is a time-consuming task.  An additional benefit for businesses or employee’s, is the benefit of still being able to receive funds electronically even if the recipient does not have a formal bank account, as the funds can be provided on a prepaid debit card which spends just like cash.

“This forces complexity on businesses tasked with making these payments and often requires them to partner with multiple providers and/or integrate with multiple systems. By combining our traditional payment services with our card-issuance platform, we now offer a solution that can disburse funds in a variety of economical ways.”

Expect this wave to continue with new innovations and products directed at businesses to assist in reducing a major pain point!

Overview by Sue Brown, Director, Prepaid Advisory Service at Mercator Advisory Group

The post Push Payments … are they the New Solution for Business Accounts Payable? appeared first on PaymentsJournal.

NACHA reported fourth-quarter 2018 growth figures for ACH at rates not seen in over a decade.  As DigitalTransactions reported, much of the growth came from the appeal of same-day ACH often used for last minute payroll transactions and payroll corrections, plus other use cases where a payment is needed within a day and meets the $25,000 per transaction threshold:

The massive network linking nearly all of the nation’s financial institutions tallied 5.97 billion transactions, up 8.7% from 5.49 billion a year earlier. It was the network’s fastest growth in 11 years, according to NACHA, the ACH’s governing body. Volume consisted of 3.5 billion debits and 2.4 billion credits.

Same-day ACH transactions—credits and debits combined—grew 46% year-over-year to 51.3 million from 35.2 million in 2017’s last quarter, Herndon, Va.-based NACHA reported this week

ACH also benefited from the industry growth in Person- to-Person (P2P) transactions which uses ACH to settle funds for some product types.  Venmo, Square Cash and other P2P apps will transfer funds between users via ACH, unless the consumer wants faster transaction and is willing to pay for it:

Growing slightly faster are P2P payments, which in ACH terminology are dubbed WEB credits. Popular P2P services such as Venmo from PayPal Holdings Inc. and the bank-backed Zelle service generate ACH credits. Such transactions totaled 37.9 million in the fourth quarter, up 46.9% from 25.8 million a year earlier.

Seems like the venerable ACH platform continues to prove its relevance in a changing payments industry.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Fast and Slow Versions of ACH See Solid Growth appeared first on PaymentsJournal.

The UK has been in the planning stages to update and upgrade their national payments systems in an initiative called the New Payments Architecture (NPA).  This includes (or initial included) their Bacs system which is equivalent to the U.S. ACH system, the now 10-year-old Faster Payments platform and the clearing system for checks, or cheques if you prefer.  The complexity and enormity of this undertaking cannot be understated and may have led to the dropping of support for check clearing in the up-grade project.  This may not only reduce the project scope, but also hasten the already dwindling use of checks.  From a blog on Finextra:

Once again cheques in the UK are facing their demise, this time as a consequence of their being excluded from the New Payments Architecture project, or “NPA”.

This time it will be a slow and lingering death over a 10-15 year period, as investment is channeled into other services and the cheque service withers on the vine.

But worse than this is the self-awarded de-scoping: up to now NPA was meant to take over the processing of all non-card retail payments, including cheques.

 Cheques would be cleared and settled through NPA without any need for exchange of the paper cheque itself, because cheques were supposed to have been de-materialised long before NPA came into existence, via the project to clear cheques as images. This is Pay.uk’s Image Clearing System project. Thus it was accepted that NPA would not clear and settle paper cheques, because the clearing and settlement would be via image anyway, but it would clear and settle the images. 

Now even that has been thrown into doubt and this is serious: with all the money and resources being channeled into NPA, the exclusion of a service from the project scope is tantamount to reading the last rites over it.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post Hastening the Demise of Checks appeared first on PaymentsJournal.

Don’t miss another episode of Truth In Data! Click on the red bell in the lower left corner of your screen to receive notifications as soon as the episode publishes.

Data for this episode of Truth In Data provided by – The Federal Reserve Payments Study: 2018 Annual Supplement

About this report

This Federal Reserve Payments Study (FRPS) brief updates data on core noncash payment
types and systems that support everyday payments by U.S. consumers and businesses. The
data show faster growth in electronic payments from 2016 to 2017 compared with previous
years. Remote payments continued to grow as a share of general-purpose card payments, and
the value of in-person chip-authenticated general-purpose card payments exceeded the value
of those without chip-authentication for the first time. Meanwhile, partial data from large
banks indicate the number of check payments and cash withdrawals from automated teller
machines (ATMs) continued to decline.

The post According to the Federal Reserve How to ACH Payments Fair in 2016 to 2017? appeared first on PaymentsJournal.

NACHA, keeper of the governing rules for ACH (among its many roles), reported strong growth in third quarter.  The growing economy contributed to the growth in B2B transactions and higher employment created more direct deposit activity:

More than 3.3 billion ACH debit and nearly 2.3 billion ACH credit payments were made in the third quarter of 2018. During this same period, B2B payments increased nearly 10 percent with over 896 million payments completed.  Healthcare EFT payments, a healthcare industry standard for claim payments from insurers to providers, also increased by 10 percent to 77 million payments. In addition to B2B growth, online ACH payments increased by 14 percent and totaled 1.5 billion. 

“The ACH Network is thriving,” said Jane Larimer, chief operating officer of NACHA. “Governments, financial institutions, businesses and consumers are all reaping the benefits the ACH Network provides.” 

The use of ACH to facilitate person to person transactions also grew 32% in the last year.

NACHA reported 192% growth in same day ACH (SDA), which is somewhat expected since SDA was relatively new last year.  NACHA also reported SDA growth of 5.6% over last quarter’s volume.  With the approval by its membership to increase the per transaction limit to $100,000 and to open more processing windows, the forecast calls for more growth:

As the ACH Network’s growth accelerates, NACHA, its members, and the ACH Network operators continue to enhance the Network’s capabilities to meet the needs of businesses and consumers. Over the next two years, Same Day ACH will be expanded, with faster funds availability, a higher dollar limit, and later processing hours.

Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

The post ACH Keeps Growing Along appeared first on PaymentsJournal.