There’s a lot of buzz about fintech, the future of money and the idea of innovation in the financial space. New companies and partnerships are emerging to bring added value to finance. However, the meaningful innovation sometimes is about finding ways to bring our old, established systems into the present, delivering modern functionality customers expect.
A prime example of modernizing an old system is with Same Day ACH. Before we dive into the value in this new service provides, first a quick overview of what ACH is.
The Automated Clearing House (ACH) is essentially the rails connecting banks and credit unions in the United States, allowing over $40 trillion to move between various accounts. (Think about how consumers receive their weekly salaries via direct deposit or repay their credit cards. How does that money get there? It’s not a check, it’s not a credit card—it’s an ACH transaction).
Similarly, businesses use ACH to move money on their backend to move billions every year.
While ACH is an affordable, ubiquitous, and dynamic underlying system connecting our banks and credit unions, there is always opportunity for improvement.
Everyone is familiar with painstaking 2-4 business day wait-time associated with ACH, but what you may not know is “Why?” As it turns out there are a couple of reasons why ACH takes so long, but one is that banks, today, have only one “window” in which they can submit their ACH file (i.e. a batch of the individual credit card payments, direct deposits, utility bill etc. at a financial institution). This means that if you initiate an ACH transfer after the daily processing window, it’ll have to wait until tomorrow’s window to be processed.
Another is that ACH is based on the assumption of good funds and correct data between financial institutions. When payment information is incorrect (e.g. fat fingered a routing number) or it turns out funds weren’t available from the sender, a bank can issue a Notification of Change or one of nearly 80 ACH Return Codes. These corrections can delay or cancel the payment entirely. To mitigate the risk of releasing the money to the receiver and then not getting those funds from the sending bank, ACH rules allows a receiving financial institution to hold the newly arrived funds for up to two business days after it’s received. (Dwolla has gotten really good at leveraging processes to further mitigate these concerns and will actually release funds to eligible customers next day.)
In a world where we expect everything fast—fast food, fast communication—this delay won’t fly.
Same Day ACH is a new rule adopted by NACHA, the “managers” of the ACH network, allowing for payments to be processed within 1 business day (rather than the next day or day after). Doing this, moves money in this ACH network in the same way, only faster.
Rule change does 4 big things:
- It creates a new ACH entry type for banks and providers to distinguish Same Day payments in a batch file.
- It will eventually open two additional “windows” for a provider or financial institutions to send an ACH file. Currently, the file is processed once in the afternoon each business day. Now, that frequency will double this year (see times chart below) and triple in 2018 when another window opens.
- It requires all financial institutions to receive Same Day credits (2016), and eventually Same Day Debits (2017)
- It requires all financial institutions to make eligible Same Day funds (i.e. sent before the cut-off window) available to the payee by end of business on the same day.
When will Same Day ACH roll out?
Likely, this is a big change that your financial institution has been preparing for for some time. Still, change is hard and a phased approach was established, the first of which goes live this September (2016). Take a look:
Phase 1 – September 2016 (for payouts): Ability to receive and process Same Day credits becomes mandatory, and additional processing windows are added. The two processing windows are at 10:30AM ET and 2:45PM ET, with new settlement times at 1:00PM and 5:00PM ET.
Phase 2 – September 2017 (payout and collect payments): Ability to receive and process Same Day debits—in addition to credits—becomes mandatory.
Phase 3 – March 2018 (a new settlement window): Must make Same Day ACH funds sent before the cut-off window available to the payee by end of business on the same day.
It’s important to note that while although all banks must be able to receive Same Day payments from other banks and credit unions, offering origination capabilities and products to customers is voluntary. In other words, all banks must accept Same Day transfers, but not all banks are required to offer services to send them.
Business use cases for Same Day
The folks at NACHA have done a great job at identifying a few use cases for Same Day:
- Same day payrolls, supporting business’ needs to pay hourly workers, and providing flexibility for late and emergency payrolls and missed deadlines; and enabling employees to have faster access to their pay in these cases;
- Expedited bill payments, using both ACH credits and debits, enabling consumers to make on-time bill payments on due dates, and providing faster crediting for late payments;
- Business-to-Business payments, enabling faster settlement of invoice payments between trading partners, and including remittance information with the payments; and,
- Account-to-Account transfers, providing faster crediting for consumers who move money among various accounts they own. [Great for ACH payouts.]
We’ve done a deep dive into benefits of Same Day ACH for:
If your business is looking for an easy-to-use on-ramp to the ACH network, and want to work with a thought leader in the network, reach out to one of our integration specialists to learn more.
We'll help you design your ideal payments experience. A Dwolla representative will reach out to you within one business day. There was an error and your the form was not submitted.
Get started with your own ACH integration
We'll help you design your ideal payments experience.
A Dwolla representative will reach out to you within one business day.
There was an error and your the form was not submitted.