How can We Create New Value through ACH Networks?

In 2013, ACH (Automated Clearing House) Network volume grew to almost 22 billion electronic payments, an increase of 4 percent over 2012, as per statistics by NACHA — The Electronic Payments Association. A total of $38.7 trillion was transferred over ACH Network in 2013, increasing almost 5 percent compared with 2012.

Started 40 years ago, ACH Network has grown into a robust payments system for the advancement of electronic payments. With the increasing movement toward an electronic, interconnected and mobile infrastructure, it’s critical that electronic payments work safely and efficiently for all users. NACHA has been the trustee of ACH Network, employing a collaborative, self-regulatory model to facilitate the expansion and diversification of electronic payments via ACH Network.

There is rising demand for payment settlements in a shorter time frame. Several use cases have shown how ACH networks have been used to enhance the payment experience. Some prominent ones are cited as follows:

Healthcare EFT Standard highlights ACH-network benefits:

The Healthcare EFT Standard, which took effect earlier this year, established enrollment, security and reassociation processes, making it easier, safer and more efficient for healthcare providers to receive EFT payments electronically. Each EFT payment includes a reassociation number, facilitating the matching of outstanding claims with payments for accounting offices. The cost of a claims payment using the Healthcare EFT Standard is, on average, $0.34. Other EFT payment types, such as wire transfers and credit cards, can cost $10.73 or more per transaction.

Paym leveraging ACH network in mobile payments:

Via an ACH network, Paym, a mobile payment system set up by the Payments Council in the UK, enables registered users to send money to each other by drawing funds from checking accounts. Mobile phone numbers activate payments through Paym. The receiver’s bank account must be registered to a mobile account number, and the sender need only have a mobile banking or payment app with any of the banks covered by the network.

Paym connects bank-account holders in the UK via an ACH network. Paym, in collaboration with the Payments Council, created the infrastructure, rules and platform to enable the use of ACH networks. Common use cases include P2P (peer-to-peer) money transfer and P2SMB, in which a user makes a transfer directly to the account of a small-business owner. This avoids constraints regarding card acceptance or mPOS solutions and also avoids network-mandated merchant acceptance fees.

Value to banks:

Banks own the DDAs (demand deposit accounts) and control them. Banks have the option of replicating the same functions provided by Visa/MasterCard networks, using ACH-powered networks they can own and control.

Also, banks have more mobile and online banking customers than anyone has registered digital-wallet accounts, even incumbent mobile networks, which have only recently adopted online/mobile wallet capabilities.

Taking a cue from Singapore G3 payment initiative:

In Singapore, the G3 system is replacing the eGiro payment system and bringing real-time payment processing and automation of direct-debit authorizations (eDDA). Payment-technology company Clear2Pay has established a real-time payment system under which it delivers reliable components within the Open Payment Framework. This framework combines global standard payment-processing features and functions, with support for local requirements and implementation resources. Customers can thus opt for Clear2Pay’s system-ready solution and deploy in a much shorter time frame within their environment. Banks adopting this will benefit from ongoing support and system updates in order to realize lower cost of ownership.

Small banks look forward to ACH Network adoption:

Independence Bancshares, a US-based bank, is creating its own real-time payments platform. The bank recently filed for several patents for mobile payments technology, and it plans to bring in a new method of settlement using infrastructure optimized for the mobile channel. A new payment infrastructure is being developed for mobile-based processing in which transactions happen in real time between accounts. With ACH and NACHA moving to intraday settlements, this looks positive. The bank is building a middleware system with the ability to connect to all kinds of other systems, manage that data and analyze and store it in a highly scaled, real-time environment.

NACHA increases efficiency of ACH Network:

NACHA – the Electronic Payments Association is taking steps to enable same-day ACH settlement capability. The association is using a phased approach to move ACH networks from today’s single, next-day settlement to multiple, same-day settlement options. The new capabilities will include multiple, new settlement windows and faster funds availability. The first phase of development would be to enable same-day ACH credits to cases such as payroll, person-to-person (P2P) payments and expedited bill-pay. The second phase would be integrating same-day ACH debits and consumer bill-payment cases, such as loan and credit-card payments. The third phase would be to improve service level across the network and reduce risks.

Value proposition of ACH Network in international payments:

Corporate One, a federal credit union, shows how international ACH is a cost-effective alternative to wire transfers and checks. ACH origination enables credit unions to become originating depositing financial institutions (ODFIs) that initiate electronic debits and credits for members within an ACH network while reducing payment-processing costs. On the other hand, ACH receipt enables credit unions to become receiving depository financial institutions (RDFIs). The entries associated with the transactions are processed together in batch files. A prominent benefit is that international remittances can be conducted in local currencies, for additional cost efficiencies. Templates can also be created for simplified sending of recurring payments.