Don't call it ACH: A look at The Clearing House's real-time project
After more than two years of work on its real-time payments rail, The Clearing House senses it has the proper plumbing in place to make any new system hum.
And the one thing it wants to make clear: This isn't your father's ACH.
The Clearing House is an operator of the Automated Clearing House network, but its new system is unrelated to efforts to bring about same-day ACH capabilities, which Nacha and the Fed launched four months ago.
"There is some confusion out there and we get a lot of questions about which system a bank should use," said Steve Ledford, senior vice president of product and strategy at The Clearing House. "These systems are definitely different animals."
Even though banks will have specific use cases for either option, TCH's real-time payment rail represents an "immediate payout" on push payments. That is an important factor in many use cases that would not benefit from settlement that is only promised to happen sometime during the same day, Ledford said.
"The real-time payments system sends immediate notification of a successful payment, which is a big advantage in reconciliation, and it can be a tool for delivery of invoices and bills," Ledford added.
That's why The Clearing House, jointly with FIS, has a place at the Federal Reserve's table as the national bank continues to pursue a faster payments network in the U.S. It's also why any bank with products or services apps may eventually hitch that software to TCH's real-time network, which sends, acknowledges and settles payments instantly.
TCH enjoys an advantage that other faster payments systems have not. The real-time payments rail will always operate underneath what a bank, first and foremost, provides to its customers. It is not designed for one specific purpose or market, nor does it rely on geographic or demographic measures. Most importantly, it will not call for any major change in habits or technology for business owners, merchants or consumers.
"When we talk about innovations and services to build on top of the new rail, that is up to the financial institutions and gateway providers on what they want to put in there," Ledford said. "We are building this rail for the future."
As such, it is not out of the question that the bank-driven development of the Zelle person-to-person payment technology would be an example of one that might connect to this rail as a way to enhance that delivery, Ledford said.
"There is no reason that the RTP couldn't be the rail of choice to send and clear those payments," Ledford added. "But that would be a decision for the financial institutions using Zelle to make."
Last week, payments technology provider D+H Corp. announced it was enabling a cloud-based test of the new rail for its current and potential bank customers.
"We see the immediate payments rail as an extension of our payment services hub," said Francois Du Toit, head of North American payments sales at D+H. "For our customers looking at their wire and ACH business, this gives them another rail within that same hub."
Financial services technology providers are likely to find integration into the new rail fairly easy, Du Toit said.
"In hearing from our customers, it is just going to be a matter of making sure there is participation," Du Toit said. "We have show how the system generates value."
Regardless, it will take some time to get the real-time payments system in place. Initially, TCH had targeted the first quarter of 2017 to deploy the new system, but the New York-based payments provider and trade group is in the middle of ongoing tests with several banks and has no regulatory action or mandate pushing it to set a specific deadline.
Ultimately, TCH expects to roll out the new payments rail by midyear.
"We are not just mastering the technology, but also undergoing a lot of work that financial institutions are in the process of for building out other services [on the real-time rail]," Ledford said. "You don't just do the payment system, there is bill paying, receiving a paycheck, setting up special payroll, a lot of building out of products and services."