Same-Day ACH: A Worthy Experiment
Evolving the decades-old ACH network from next-day to same-day clearing and settlement is a reasonable objective. The way in which the FedACH service seeks to bring this about, however, won’t have much impact in the near term.
The new service introduced as the ACH’s growth engine for the past 10 years is running out of gas. The bulk of ACH network growth since 2001 has been at the hands of check conversion, clearing paper checks as ACH debits. In a new report, Same-Day ACH: A Worthy Experiment, Celent provides a detailed analysis of the Federal Reserve’s FedACH SameDay Service available beginning in August 2010.
Among check conversion mechanisms, accounts receivable conversion (ARC) has been responsible for most of the transaction growth, but ARC volumes are now sharply declining as consumers opt for online bill payments instead of check writing. Celent expects this trend to continue, with aggregate check conversion transaction volume to remain essentially flat for the next few years. Moreover, the ACH must now compete with image-based check clearing mechanisms that have become much less expensive than paper processing and often provide same-day clearing and settlement.
“The Achilles heel of the new service is fundamental,” says Bob Meara, Senior Analyst with Celent’s Banking Group and author of the report. “A significant number of financial institutions must opt-in to the service before originating depository financial institutions (ODFIs) will have anything meaningful to offer customers. The service stands in sharp contrast to what has been one of the hallmarks of the ACH, namely ‘universal’ accessibility among financial institutions.”
The report begins with a historical analysis of check conversion. It then provides an analysis of the likely rationale for the service followed by a short primer on same-day ACH. The report provides an analysis of value propositions among the various constituencies involved in the new service, and concludes with a discussion of how financial institutions can benefit from the FedACH SameDay Service even with the likelihood of sparse participation by receiving depository financial institutions (RDFIs).