A subtle change to the U.S. banking system is about to help workers get paid quicker, and it should soon help consumers avoid last-minute bill paying fees.
The change goes by the less-than-sexy name Same Day ACH, but it could save a nice amount of cash for consumers living on a tight month-to-month budget. ACH stands for Automated Clearing House, which is the name of the network banks use to move money between one another. It’s in need of an update.
Banks tend to batch process such transactions once per day, which is one reason bill payments can be frustratingly slow. That’s also one reason some bill collectors charge a $10 to $20 fee to take an immediate bill payment over the phone when a consumer is about to pay late. (Remember, late or missed loan payments can wind up hurting your credit. You can see how your payment history is affecting your scores by viewing your free credit report summary, updated every 30 days, on Credit.com.)
NACHA, the nonprofit which oversees the ACH Network, and the Federal Reserve are out to eliminate these consumer-unfriendly pay-to-pay arrangements. Same Day ACH — and the same-day bill pay it promises — should help a lot.
How Same Day ACH Works
The Same Day ACH rules adopted by NACHA won’t enable immediate payments like wire transfers. But the new rules will set up a system that requires banks to process transactions multiple times during the day, which is the next-best thing.
The new rules say banks that receive a payment order by 10:30 a.m. E.T. must settle it by 1 p.m. Payment orders received by 2:45 PM E.T. must be settled by 5 p.m.
The rules will take effect in three stages: The first set of rules become effective this week, requiring banks to receive same-day payments starting now. In stage two, banks will be required to originate such payments, which will clear the way for various consumer bill payment use cases, NACHA says. The entire implementation is scheduled to be completed by March 2018.
A survey conducted by NACHA earlier this year found many banks are ahead of schedule, so consumers may see signs of Same Day ACH at their retail bank soon.
Who It Will Help
Initially, Same Day ACH will help workers more than bill payers. Starting this month, firms that use direct deposit to pay employees will be able to “clear” those payments more quickly as the first phase of Same Day ACH kicks in. Such payments are particularly crucial in certain situations, such as when an employee is fired. In nine states, discharged workers must be paid immediately. Same Day ACH will also enable quicker person-to-person transfers at banks.
Potential for Fraud
Not everyone is happy about the change. Some banks have expressed concern that with increased speed comes increased potential for fraud.
“We know from other markets, such as the U.K., that the launch of faster payments is aligned with an uptick in fraud attacks and losses,” Erez Zohar, NICE Actimize vice president and general manager of Fraud & Cybercrime Management Solutions, told the Credit Union Times. “This means that U.S. financial institutions need to be prepared with fraud strategies on day one.”
Same Day ACH payments are limited to $25,000.
There are also concerns about added costs for banks to implement the change.
“While it is an incremental improvement for consumers, it comes with a major expense to financial institutions, as it will affect both the basic transaction processes in place and the technology that supports them,” credit union lobbyist Carrie Hunt wrote in a comment letter to NACHA in February 2015. But NACHA says consumers will benefit from the change, and that it’s a natural 21st-century banking upgrade.
“Same Day ACH is a game changer as it will enable new options for consumers, businesses and government entities that want to move money faster,” said Janet O. Estep, president and CEO of NACHA. “And will serve as a building block for enabling payments innovation in the development of new products and services … the industry’s commitment to modernizing the payments system and enabling a ubiquitous faster payment option can be fully realized.”