Nacha, the electronic payments association, is advocating security as a reason to adopt faster processing a move that would require a change in the association's rules that has thus far proven elusive.
"We know that when we increase the speed of a transaction flow it eliminates friction and vulnerability to interception," says Cindy Jenkins, a senior director at Nacha.
Nacha has been working for more than a year to get its members on board with faster processing, or same-day settlement, to accommodate the growth of mobile payments and other digital commerce. The change would require a 75% supermajority vote of the association's members. An initial vote in 2012 failed due to concerns over the cost of hardware upgrades, though same-day processing did garner a simple majority at that time.
"It's moving a little slower than we would all collectively like, but there are a lot of variables," Jenkins says.
Nacha already supports the FedACH SameDay Service, which provides same-day processing. However, a formal change in Nacha's rules is unlikely in the short-term.
"We're still looking at how we can move forward [on a faster settlement environment]" Jenkins says.
New technology that enables mobile payments also creates uncertainty when managing threats to payments data, Jenkins says. "There are some security disadvantages and vulnerabilities where you have wireless data in transit," she says.
The Federal Reserves district banks Financial Services Policy Committee has also said it is in favor of faster processing speeds as a way to mitigate security threats to the U.S. payment system, though its position is not related to Nacha's pending policy or the association's support for FedACH.
The Financial Services Policy Committee will accept input as it moves to define and prioritize U.S. payment system improvements that advance the speed, efficiency and security of payments, said June Gates, a spokeswoman for the Financial Services Policy Committee, in an email to PaymentsSource. The committee will publish these improvement initiatives in the second half of 2014, she says.
"[The Fed] wants to address end-to-end encryption to make sure that vulnerabilities are addressed along the value chain when there are a lot of third parties involved in a payment," Jenkins says.
Faster processing can be helpful in mitigating fraud for check and ACH payments, though it also comes with its own challenges, says Julie Conroy, a research director at Aite Group.
"Faster processing can be a double-edged sword when it comes to security. While a more rapid feedback loop is always valuable in terms of the ability to control risk, processes have to be put in place to take advantage of that [more readily available] data," Conroy says, adding that data has to be accompanied by controls that can accommodate the greater speed.
"As we have seen in other countries that have gone to faster payments, if that transition did not also include revamped fraud controls, then criminals took advantage of the gap," she says.
The U.S. payments industry has a mixed opinion regarding the need for faster payments, Conroy says, noting the failure of same-day ACH to advance among Nacha's membership. The banks, merchants and vendors that attended a recent Federal Reserve Bank of Chicago symposium did not consider faster payments a priority, she adds.