Assessing Same-day ACH In The New Era of Real-time Payments
The pace of payments has risen sharply in the U.S. since the introduction of same-day ACH in September 2016. Following the global movement towards immediate payments, the pace is set to pick up as real-time speed arrives through schemes such as The Clearing House (TCH) Real-time Payments System and Zelle networks.
However, the introduction of real-time payments has left many bank executives wondering just how quickly their organization needs to respond; which use cases to target and whether real-time capability is even necessary in the short run. Isn’t the added speed of same-day ACH good enough?
Lipis Advisors in partnership with ACI published a white paper to demonstrate the unique roles that both real-time and same-day ACH play in the new U.S. payments ecosystem. The content also applies to Canada as the Canadian Payments Association presses forward with its modernization initiative. This blog summarizes a few of the paper's key takeaways.
Contrasting Real-Time Payments and Same-day ACH
The introduction of same-day ACH in 2016 resolved some of the demand for speedy payments. But the implications of real-time processing speed are much different than next day speed, especially when operability extends from traditional banking hours (like with same-day ACH) to 24x7x365.
Key real-time payments differentiators include:
- Support of Request for Pay (RfP): Both real-time and ACH systems support traditional credit transfers,[ 1 ] however only ACH supports direct debit (pull) payments due to fraud concerns.
Instead, TCH’s real-time scheme offers a new “Request for Payment” (RfP) instrument which paves a path to a new set of valuable use cases. The RfP enables the beneficiary to request a payment to the sender. Only few schemes across the globe include this capability, such as UK Faster Payments, and U.S. institutions stand to see groundbreaking business opportunity from it.
- Improved transparency: Senders receive a confirmation or rejection within seconds of initiating a payment; receivers have an up-to-the-second overview of available funds.
- Improved customer security
- Richer remittance data: Based on unlimited remittance data through IS0 20022 standard, real-time data can be leveraged with analytics, operate with other payment systems, and enable new and improved offerings such as for reconciliation services for corporate and small business customers.
Sorting Out Market Opportunities
Lipis Advisors drew on the report “Strategies for Improving the US Payment System,[ 2 ]” by the Federal Reserve to shed light on four use case categories that could benefit most from increased speed in payment processing: person-to-person (P2P), person-to-business ad hoc (C2B), business-to-person ad hoc (B2C), and business-to-business (B2B).
The categories are shown in Figure 1 along with the percentage of same-day ACH transactions they represented in Q1 2017. The low value of same-day ACH bill payments suggests ripe opportunity for value-added real-time offerings, especially considering the RfP capability in TCH’s new scheme.
According to a recent survey[ 3 ] commission by ACI, only 29% of small to mid-size U.S. enterprises (SMEs) said their bank account provider met all the needs of their business, while 65% said they would be willing to switch providers for the offer of real-time payments. While the business case for tapping into the unmet needs of this market with real-time services is strong, same-day ACH maintains important. A focus on the use cases and a comparison of their benefits can help banks navigate which systems and payment types to promote. For example:
C2B - Recurring payments such as utility bills are well suited for batch—based ACH systems, while real-time payments present an attractive opportunity for unplanned transactions such as paying a plumber or lawn service or other instances where amounts differ each billing period. Again, it is worth noting that RfP presents the potential to disrupt utility payment processes in the future.
B2C - It is expected that same-day ACH will continue to dominate recurring payments such as direct deposit paychecks, but there is still room for added-value through innovative real-time offerings. For example, while same-day ACH systems allow insurance companies to pay claims within hours, real-time could enable claims adjustors to disburse funds in the field directly from a mobile device, even on weekends.
Access our on-demand webinar to learn more about emerging RfP (bill pay) use cases and projected real-time volume growth in the U.S.
Think Strategically About Real-time Payments
“Real-time payments represent a fundamental change in banking and payment services. The implementation of real-time payments will continue this trend and help promote overall modernization of U.S. payments systems”, says Lipis Advisors. As real-time presents a paradigm shift, it is critical to consider its role in your long-term, competitive payments strategy.
For a more in-depth discussion of use cases and the strategic considerations of adding a real-time payments solution to your portfolio check out Same-day ACH and Real-time Payments — The increasingly diverse US payments ecosystem, by Lipis Advisors.
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