Same-day ACH vs. real-time payments: What banks need to know

2017 was a big year for ACH . It saw implementation of both the Clearing House’s Real-Time Payments (RTP) system and Phase 2 of NACHA’s Same-Day ACH (SDA) payments initiative. These developments accelerate settlement of ACH transactions, creating new payment product opportunities for financial institutions (FIs) and prompting them to reevaluate their current payment products. Although the RTP system and the SDA initiative perform many of the same functions (Figure 1), there are significant differences between them that FIs will to in considering their use.

Figure 1. Comparing Real-Time Payments and Same-Day ACH
Same-day ACH vs. real-time payments: What banks need to know fintech
Source: TCH and FIS Proposal to the Faster Payments Task Force

 

The Clearing House launched its RTP system in November 2017. Using Vocalink’s infrastructure, the RTP system enables FIs to complete clearing and settlement within five seconds.1 In its proposal to the Faster Payments task force, the Clearing House highlighted the system’s ability to support the complete payment cycle, including transmission of bills, invoices, and payment confirmations as a differentiator. To participate in the service, FIs are required to connect to a new ACH core system, which requires development and integration with all channels, including online and mobile. Integration also involves changes to operations, such as customer service and back office support, to respond to messages 24/7 and perform applicable fraud and AML screening. To lower implementation costs, the Clearing House has partnered with a variety of providers, including FIS, D+H, and Jack Henry and Associates, to streamline the integration of FI’s systems to the RTP core infrastructure. However, cost and operational support changes remain a consideration.

With the second phase of SDA payments complete, all FIs are now required to receive same-day credits and debit payments. Although SDA’s features differ from that of the new RTP system, (for example, SDA offers no bill/invoice transmission, instant settlement, and confirmation of payment), implementation of SDA requires less effort and is less expensive, since issuers do not need to connect to a new ACH core system. SDA also offers FIs the ability to support direct debits commonly used for one-time and recurring consumer bill payment transactions; RTP supports “requests for payment,” but does not support direct debit transactions.

Despite the first-mover advantage SDA has in faster payments, NACHA’s reported volume for SDA credits in 2017 was not substantial. There were only 56.8 million SDA credits2 (less than one percent of all ACH credit volume) during 2017 (its first full year after implementation).3 In contrast, the Clearing House projects that RTP will process close to 1 billion transactions within the first year after implementation, reach ubiquity in 2020, and by 2023 the system’s transaction volume will reach 8 billion (close to 30 percent of projected ACH volume).4 Looking at the mix of SDA credit and debit volume for the fourth quarter of 2017 (after SDA debits became available), however, 46 percent of NACHA’s SDA transactions were direct debits5; this may signal that same-day debits will be a significant differentiating factor between SDA payments and RTP.

While both services are still nascent, they have significant potential to change the way FIs and their customers think about ACH payments and the role ACH plays in the digital economy. With a comprehensive review of their product portfolio, FIs can clarify how faster ACH payments can meet the needs of their customers and identify products that will benefit the most from reduced settlement and clearing processing time. FIs should evaluate the functional and implementation differences between the RTP system and SDA payments, and consider how each of the new offerings would affect their unique operational setup. They should also evaluate how RTP and SDA would affect their existing product offerings (such as payment cards) and determine the optimal product suite to bring to market.

Discover more on immediate or real-time payments systems and infrastructures in our report, Real-Time Payments For Real-Time Banking: How banks can seize the full opportunities of immediate payments

1Faster Payments Task Force, Faster Payments Solution Proposal by the Clearing House and FIS, clearing and settlement time page 12
2NACHA, Infographic 2017 Same Day ACH Volume, Credit Volume
3NACHA, 2017 Quarterly Network Statistics, 2017 Total Network Volume
4Faster Payments Task Force, Faster Payments Solution Proposal by the Clearing House and FIS, TCH RTP Transaction Volumes (projected)
5NACHA, Infographic: 2017 Same Day ACH Volume, 4Q Same Day ACH volume

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