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Unpacking the ACH Network’s Significant Growth
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.
View all episodes
By The PaymentsJournal PodcastAs 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.