By ALAN J. ORTBALS
More changes are on the way for the banking industry. Starting Sept. 23, banks will be able to make and will be required to accept same-day Automated Clearing House transactions.
Initially, same day ACH will apply only to transactions of $25,000 or less. But, more changes will be phased in over the next three years.
The ACH Network is at the center of commerce in the U.S., moving money and information from one bank account to another through direct deposit and direct payment via ACH transactions, including ACH credit and debit transactions; recurring and one-time payments; government, consumer and business-to-business transactions; international payments; and payments plus payment-related information. Each year it moves more than $40 trillion and nearly 23 billion electronic financial transactions, and currently supports more than 90 percent of the total value of all electronic payments in the U.S. According to the National Automated Clearing House Association, the ACH Network is now one of the largest, safest and most reliable payment systems in the world, creating value and enabling innovation for all participants.
The ACH Network is a batch processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing. Instead of using paper to carry necessary transaction information, such as with checks, ACH Network transactions are transmitted electronically, allowing for faster processing times and cost savings.
The ACH Network processes two types of transactions: direct deposits via ACH and direct payments via ACH. Direct deposit via ACH is the deposit of funds for payroll, employee expense reimbursement, government benefits, tax and other refunds, and annuities and interest payments. It includes any ACH credit payment from a business or government to a consumer.
Direct payment via ACH is the use of funds to make a payment. Individuals or organizations can make a direct payment via ACH as either an ACH credit or ACH debit. A direct payment processed as an ACH credit pushes funds into an account. An example of this is when a consumer initiates a payment through his/her bank or credit union to pay a bill. A direct payment processed as an ACH debit pulls funds from an account. An example of this is when a consumer establishes a recurring monthly payment for a mortgage or utility bill, and his/her account is debited automatically.
“This is really going to be helpful for businesses that are looking for a means of moving higher volume payments in a timely fashion at a lower price point,” said Susan Aiello, treasury services manager at Commerce Bank. “They’ll be able to use it for things such as emergency payroll, final pay checks and insurance claim payments — really with any type of vendor or customer payments that they need to make on an individual transaction basis that is under that $25,000 per transaction maximum threshold.”
ACH payments have some advantages over wire transfers, according to Aiello. While wire transfers are not subject to a dollar cap, once the originator sends a wire transfer through the system, it is effectively in the receivers account and cannot be easily recalled. With the ACH network, there are provisions in place to allow the originator within the rule guidelines to reverse an ACH transaction. ACH payments can also be made in large batches and at a lower cost per transaction.
Brian Weide, vice president of ACH product management for Commerce Bank said same day ACH payments would be great in emergency situations or when an insurance company needed to get money to people quickly.
“When there’s a disaster,” Weide said, “instead of the insurance company having to deliver a paper check and the recipient having to deposit that check in their local bank, which might be closed or destroyed, the insurance company could initiate that same day credit and it would be in the insureds account immediately so they could use their debit card at an ATM or to buy gas or to buy food. So there’s some great opportunities with it as we start going down the path toward faster payments. It’s exciting times in the electronic payments world because there are so many changes that will come down the path in the next five to 10 years.”
Aiello said that they’ve been reaching out to their clients to let them know about same day ACH and make them aware of how this could be a benefit to them.
“We encourage companies to reach out to their banks and see how this might be valuable,” Aiello said. “At Commerce, we can help them either make use of our same day ACH module or help them create a formatted file that they can directly transmit to us. Business owners should discuss it with their bankers and see how they can take advantage of it.”