Editor's note: Hear Nacha's Janet Estep, Steve Ledford of The Clearing House and Celent's Gareth Lodge discuss "The Near Future of Faster Payments," today at 1:00 ET. Register now!
Two years after the demise of a proposal to speed up U.S. electronic payments, a revised measure now appears likely to be approved by the banking industry.
New details of the proposal emerged Tuesday. The nine-month-old concept, developed by the organization that sets rules for the automated clearing house system, would require any bank that initiates a same-day payment to pay 8.2 cents per transaction to the bank on the other end.
For example, if a consumer made a same-day bill payment to his cable TV provider, the consumer's bank would pay 8.2 cents to the cable company's bank. Over more than a decade, those payments would cover the technological investments that banks on the receiving end of same-day transactions would need to make in order to enable the speedier payments.
The interbank payments are designed to deal with an issue that helped derail the 2012 proposal: the fact that banks on the receiving end will be required to participate, and will have to invest in the upgraded ACH network, but won't receive many direct benefits.
The new details were released Tuesday by Nacha, the bank industry organization that sets rules for the ACH network, as part of a request for comment from banks, corporations and other stakeholders. Comments are due Feb. 6.
Importantly, the revised plan got a warm reception Tuesday from The Clearing House, the consortium of big banks that played a key role in killing the 2012 effort.
"This comprehensive proposal is a significant step forward in continuing to better meet consumer and business needs," Dave Fortney, senior vice president for product development and management at The Clearing House, said in a news release. "We look forward to reviewing the proposal in more detail and responding to Nacha's request for comment."
Nacha has spent much of the last year seeking input on the proposal, which would be phased in between September 2016 and March 2018.
"Overall, we received positive feedback on this new phased approach from large banks, small banks and businesses," Janet Estep, Nacha's president and chief executive, said in an email.
She added that both The Clearing House and the Independent Community Bankers of America, which represents small banks and has been supportive of same-day payments, offered public support for the proposal.
Cary Whaley, ICBA's vice president of payments and technology policy, said: "It appears from my vantage point that there's support for this, regardless of bank size or charter."
He added: "I don't really see this being a very divisive issue now."
Under the proposal, banks on the receiving end of an ACH transaction would be required to upgrade their systems so that the funds would be available to customers by the end of a business day. The current system, which is several decades old, processes transactions the following business day.
Nacha said that it may hold a vote on the proposal by the second quarter of next year, after making changes based on the feedback it receives. The organization's voting members include both banks, most of which are large institutions, and regional payment associations, whose members include banks and credit unions of varying sizes.
Mandating faster payments would provide a range of benefits for consumers, Estep said, citing industry research by a third-party consultant hired to evaluate costs to the industry.
Benefits could include providing hourly employees more certainty about when their payroll checks will clear; allowing consumers to make expedited bill payments; and enabling businesses to more quickly settle their invoices.
"Same-day ACH clearing and settlement is an essential step to move payments faster," Estep said in a phone interview.
The proposed rule contains an automatic method for adjusting the 8.2 cent interbank fee, based on the volume of transactions. If the volume of same-day transactions significantly exceeds the projected level, the fee would shrink.
"We wanted to make sure if volume went out higher than originally projected, there would be a natural mechanism for the fee to be reduced," Estep said.
The materials released by Nacha on Tuesday include projections of the additional costs that banks on the receiving end of transactions will absorb as a result of same-day processing.
For the 30 largest receiving institutions, the implementation costs were pegged at a total of $109 million, while incremental operating costs were estimated at $10 million annually. For all other receiving banks, the implementation costs were estimated to be $9 million, while incremental operating costs were tabbed at $39 million per year.
Nacha also projected that the number of same-day transactions will increase sharply from just 37 million in 2016 to 1.37 billion in 2027. The largest categories of same-day payments are expected to be business-to-business transactions, person-to-person payments, and e-commerce transactions.
At two regional payments associations, the initial response to Nacha's proposal was generally positive.
Dennis Simmons, president of the Southwestern Automated Clearing House Association, said that his organization supported the 2012 proposal for same-day payments. He added, "I think the changes that have been brought forth by the Nacha staff make it even better from our perspective."
Simmons said that he recently spoke about the plan with an executive at a bank that predominantly originates electronic transactions, and therefore would have to pay the 8.2 cent fee more often that it would receive the fee. "He said, 'I'm willing to do it,'" Simmons recalled.
The 2012 proposal met resistance from bankers on the West Coast, who would have had to submit their transactions by 11 a.m. Pacific time in order to squeeze into the same-day window. With the new proposal, Nacha has made changes designed to appeal more to West Coast banks.
"That is a very big issue," said William Schoch, president and chief executive officer of the Western Payments Alliance, or WesPay. "I think Nacha has done everything they can do."
"I think that generally our members believe that expediting the settlement in the ACH network is the right way to go," he said, though he noted that some of the organization's members have raised concerns about the cost of upgrading the current system.
Nacha's proposal is one of several ongoing initiatives designed to push the banking industry in the direction of faster payments.
A highly anticipated report from the Federal Reserve, which is expected to lay out a multiyear roadmap for a real-time payment system, is expected to be released later this month.
That proposal would involve building a faster payment option for a small subset of transactions approximately 10-12% of all U.S. payments, Dan Gonzalez, a vice president at the Federal Reserve Bank of Chicago, said at an industry conference in October.
Nacha's Estep, emphasized that the two approaches the Fed's real-time payments proposal and the same-day system will work in tandem to speed up consumer payments.
"Same-day ACH has its place with real-time payments in the United States because they are complementary," Estep said, describing her group's proposed rule as "a foundation for innovation."
In addition, The Clearing House recently announced plans to build a real-time system for settling payments. The Clearing House said in its statement Tuesday that same-day ACH transactions will "complement" its own real-time payments initiative.