Financial institutions across the country are in the final stages of readying for the same-day processing of electronic payments, which are scheduled to begin on Sept. 23.
Next month's milestone marks the first phase in a three-part timetable for modernizing the automated clearing house network, which dates back to the 1970s. All banks and credit unions in the United States — more than 12,000 in all — will be affected.
Here is what financial institutions need to know about the impending switch.
What is going to happen on Sept. 23?
Financial institutions will now have the choice of sending certain electronic payments on the same business day — rather than the following business day, which has long been the only option.
In the first phase of implementation, same-day service will be an option only for payments where the sender is crediting the account of the receiver. Examples of those types of payments include bill payments by consumers and the direct deposit of paychecks by employers. Payments of $25,000 or more will be ineligible for the service.
Under the new system, same-day payments that are submitted by 10:30 Eastern time will be settled at 1 p.m. Payments that are submitted for same-day service by 2:45 p.m. Eastern will be settled at 5 p.m.
Banks and credit unions will not be required to offer same-day payments to their customers; from that perspective, the service is optional for financial institutions.
However, when they receive same-day payment requests from other institutions that have chosen to offer the expedited service, they will have to honor those orders. This mandatory aspect of the same-day service — it will link every U.S. bank and credit union — is what is expected to make it useful.
What is the rest of the timeline?
On Sept. 15, 2017, banks and credit unions will start allowing the same-day debiting of funds. A monthly charge by a utility company is one example of this type of payment.
Lastly, starting on March 16, 2018, banks will have to make same-day payments available to customers by 5 p.m. local time. Between now and then, some banks may wait until late in the evening or even after midnight to make the funds are available even though the payments may have been settled earlier in the day.
Is the banking industry ready?
It's a mixed bag, according to Nacha, the industry group that oversees the ACH network.
A recent Nacha survey of 41 large financial institutions found that 32 of them plan to make same-day funds available to customers during the day, as opposed to later in the evening. That step goes beyond what the new rules require.
But other banks, including both small and large institutions, are not ready for the Sept. 23 deadline, Nacha CEO Janet Estep acknowledged.
Bob Steen, the CEO of Bridge Community Bank in Mechanicsville, Iowa, and a longtime champion of faster payments, said that his bank is ready to go. He also pooh-poohed the challenges involved.
"I think we're going to look back and wonder what all the fuss was about," Steen said.
Who will be the first big users of same-day payments?
In the beginning, observers expect that employers who want to make speedier payroll payments will be frequent users of same-day payments.
For example, the same-day service is expected to be used when an error prevents a next-day direct deposit from being processed, so that the employee can get paid without too much delay.
Same-day processing is also expected to be used to pay hourly employees whose compensation is highly variable — since the expedited service will allow employers to get a more accurate read on the number of hours the employee worked before they process the worker's paycheck.
In addition, the same-day service is expected to be used when workers get fired, because some states require employers to settle up immediately with terminated workers.
How much will same-day payment processing cost?
Pricing decisions are being left up to those individual banks that choose to offer same-day service to their customers. And banks are not revealing their strategies.
But the service will not be free for banks — for every same-day transaction that a financial institution sends through the system, the bank that receives the payment request will charge the originating institution 5.2 cents. So those banks will be looking to recover their costs.
Sarah Grotta, an analyst at Mercator Advisory Group, said that she expects banks will be able to charge consumers for at least some same-day payments. As an example of a situation where consumers will likely be willing to pony up, she cited last-minute bill payments to a utility company.
Steen of Bridge Community Bank said he expects banks to experiment with a wide range of pricing strategies.
"You'll see free, and you'll see people trying to charge too much," he predicted.