This is the third and final post in our series exploring the potential benefits of same day ACH. You could also say this is the most nuanced post in our series since financial institutions and services provide the products and access needed to leverage ACH. And starting September 23, 2016, these same institutions will be called to integrate a new process into their system.
Benefits aren’t as black and white as they are for consumers or businesses…
In this post, we look at how Same Day ACH may impact financial institutions, the positives, negatives, impacts, etc.
First things first
Unlike its credit and debit card cousins (and for a variety of reasons), revenue from traditional ACH services has been marginal for financial institutions and services. Because of this, some banks and credit unions don’t even offer ACH origination services, or the ability to initiate ACH credits or debits.
Similarly, originating Same Day ACH won’t be required by banks and credit unions. That means those wishing to send transfers in (2016) or initiate debit payments (in 2017) are at the mercy of their bank’s business decision to offer a product that does so.
Now that you know that, what’s in it for the banks and credit unions?
Financial Institutions receiving credits (and eventually requests) on behalf of their customers will get paid by the originating bank or credit union. You can think of this interbank fee as a small, fixed per transaction cost of $.052 per entry or transaction. The fee was designed to compensate the built-in costs, like risk and operations, associated with receiving Same Day ACH credits and provide a “fair return” on their investments. Still, don’t expect it to be a cash cow for receiving financial institutions.
New or improved devices will drive revenue opportunities for originating financial institutions to compensate themselves. Same Day ACH enhancements will offer providers, like credit unions and banks, a new value proposition to build into the services and products they offer. We’ll save the complex discussion around monetization, compensation, and incentives of Same Day ACH for another day, but looking at NACHA’s April 2016 survey we can draw one big conclusion: the nation’s largest originating financial institutions see Same Day ACH origination as an opportunity to provide value (i.e. monetizable products, like payroll, treasury management services, etc.) to their customers—with 100% of institutions surveyed saying that they plan to offer Same Day ACH payroll and another 95% planning to provide same day B2B payments.
Happier customers. Don’t laugh. Financial institutions make a significant portion of their revenues off of the money, or deposits, we hold with them. It’s why losing an account balance to a fintech company or a new-age digital bank, which provides compelling digital experiences and options, makes financial institutions stay up at night. And it isn’t looking good. Research has shown that Millennials hate banks.
Payments are a valuable component of the banked experience. In our eyes, the 2 to 3 business day wait times aren’t ACH’s fault, they are the bank’s. Same Day ACH provides financial institutions a new tool in building products, experiences, and options that matter to a new generation of consumer. Expedited bill pay? Better P2P experience? Cheaper wire services? These aren’t just consumer pain points, but opportunities for banks and credit unions to make their product stickier and more attractive.
The proverbial question:
How will financial institutions and other legacy providers offer these services? Will it be through simple, clean, and robust APIs with painless on-boarding experiences? Or will it be like standard ACH with antiquated VPNs, XMLs, and painful user experiences? A flat, predictable monthly fee? Or a percentage-based fee, plus a fixed cost per transaction?
To us, the true power of faster payments isn’t about the speed, but it’s the business value it provides an end-user. At Dwolla, we provide the nation’s most dynamic on-ramp to the ACH network and its future improvements.
We’ve also explored these same ideas as applied to other parties in ACH:
Our flexible API, infrastructure, and expertise in bank transfers offers one of the nation’s most robust platforms. If you’re interested in Same-Day ACH (or standard ACH) we’d like to hear from you.