Same Day ACH – but is there a Place for Real Time?
In my recent posts you’ll have noticed a recurring theme of moving from batch to real-time systems. Flying back from the NACHA payments conference last week I was thinking over the future of payments services, or products. Payments are being seen as an increasingly important contact point in the quality of a banking relationship, but just processing transactions cheaply, reliably and as quickly as possible isn’t a product differentiator, that’s the baseline for being in business. Of course, the phrase “as quickly as possible” can vary significantly from country to country based on local clearing and settlement mechanisms. At NACHA there was discussion (accompanied by a dose of skepticism) of moving to same-day ACH. This is essentially compressing next-day ACH into a tighter batch schedule. Apart from any operational challenges of what are predominantly mainframe operations in a complex back office environment, there must also be concern from payments product managers about low cost ACH transactions cannibalizing their higher margin Fedwire business. To put all that in perspective, let’s consider what happened in the UK.
Of course the UK has far fewer institutions, and there are no time zone challenges to deal with, but it is a good example of a more aggressive approach to payments network modernization that was implemented (at least according to various consumer advocacy groups) at delivering a better quality payments service to customers. In contrast to the US approach, the UK has implemented the 'Faster Payments' initiative to move from an archaic three day cheque clearing to a payment confirmation you can bank on (pun intended) in 20 seconds. Essentially this was achieved by taking features from both card and ACH networks. With a transaction limit of GBP 10,000, there is some overlap with the national high value system (CHAPS) for consumer payments, but that limit is low enough to allow CHAPS to handle interbank and corporate urgent payments.
From the payments product manager’s viewpoint, covergence of payment systems and cannibalization of revenue streams is inevitable as the trend to real time systems and risk continues. But it’s better to transfer revenues in-house than have another bank take it away altogether. The key is to add value to the customer at the point of service, and speeding up the availability of funds is an important part of that.