Nacha Pushes for Faster Processing, But No Change in Rules Yet

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Nacha, the electronic payments association, is working to get its members on board with faster processing to accommodate the growth of mobile and other electronic payments, though this would require a change to the association's rules.

These rules are not likely to change in the short-term, since the association's members must vote to adopt same-day settlement, and no vote is currently scheduled. In the interim, Nacha is offering an optional path to same-day settlement via a Federal Reserve program, though that will still not create an association-wide same-day settlement regime for Nacha.

"The Nacha rules are trying to strike the right balance between the benefits to the originators of the payment and the financial institutions that receive the payment," says Janet Estep, president and CEO of Nacha.

Nacha, which manages the automated clearing house (ACH) electronic payments network, recently announced support for the FedACH SameDay Service.  The service enables processing, editing, distribution and settlement for most ACH payments during the current processing day.

Nacha's members have not formally weighed in on rules enabling same-day transaction settlement in more than a year. The last vote to adopt same-day settlement fell short due to concerns over cost of upgrades required to handle faster settlement compared to the business benefit.

Even at that vote, there was support for a rules change—a majority of Nacha's members were in favor of change in 2012, though not the 75% super majority required, Estep says.

"[The optional Fed program] performs a lot of the same functions as the rules change proposal from last summer, and it would come a year and a half earlier than would have been accomplished by the original ballot," Estep says.

The Federal Reserve system is not required — it's an opt-in program. Nacha encourages financial institutions to adopt the Fed system while banks develop internal processes for same-day settlement in the future.

"It's a stepping stone where we don't have a current rule, but it gives a same-day option to banks and credit unions," Estep says. She would not name the institutions that have opted in to the Fed's same-day service.

Nacha has not scheduled a new vote on same-day settlement, but it is working to build support for one. Its recent conference in San Diego was dominated by talk of improvements in ACH technology, as well as the need for financial institutions to adopt digital transactions.  Nacha brought in Moven founder Brett King, who warned financial institutions about the risk of obsolescence in his address to Nacha's members. Nacha has also developed new technology to speed processing for business and check payments.

Nacha faces competitive pressure from alternative digital payment providers such as Square and PayPal, and independent bank-operated payment processing networks such as Wells Fargo, Bank of America and JPMorgan Chase's clearXchange.

The association's interim move does not provide a standard way of processing payments across all transaction types and institutions, says Arkady Fridman, a senior analyst at Aite Group.

"It's great to have an opt-in program, but unless you are doing it on a system-wide scale, what value are you really gaining?" Fridman says. "All participants would need to be on the program in order for it to make sense. Otherwise, how would you say 'this bank supports same-day settlement, but this other bank doesn't?'"

Clarification: The wording of the second paragraph was updated to clarify that the rules change would depend on a vote, not on adoption of same-day settlement.

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