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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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April 4, 2016


Same-Day ACH: A Call to Action

As my colleague recently blogged, there were standing-room only crowds during four sessions related to same-day ACH at an annual conference sponsored by EastPay and the Atlanta Fed. I moderated two of the sessions, which focused on operational and product opportunities available to financial institutions (FIs) in supporting faster payments.

My suspicion is that attendance was so heavy because many FIs still have a lot to do to get ready for faster payments. I was already aware of the lack of readiness among some of the processors that these FIs rely on so heavily. During one session, only a few hands were raised among 60 attendees when they were asked if they had been contacted by their processor about preparing for the September 2016 rollout. Of course, engagement is best when it's a two-way street. On the other side of things I have heard that processor training sessions devoted to supporting same-day ACH have been poorly attended. Additionally, FI session attendees indicated that no efforts were under way to educate corporate account holders about the looming service changes to ACH.

If my suspicions are right, the current state of things is troubling; the window of time left to prepare for Phase 1 is shrinking. September is less than six short months away.

Not being ready has some potentially serious, but avoidable, consequences for FIs and their account holders. Here are a few of the risks:

  • The two same-day submittal windows, which narrows the time between payment submittal and settlement, added to Phase 1 offer potentially greater risk of funds being sent out fraudulently as a result of corporate account takeovers unless FIs put proper controls in place to mitigate this risk. The potential for harm may be somewhat diminished given the individual transaction cap of $25,000.
  • Since the identification method for same-day payments relies on the requested settlement date using the Effective Entry Date field, some FIs could end up being surprised to learn their credits have settled sooner than they intended. Originators that have not been careful in selecting the settlement date will experience this "surprise."
  • If corporate originators inadvertently send same-day payments, such a mistake could prove costly. This is because the 5.2 cent same-day interbank fee, paid by the originating bank to the receiving bank, will likely be passed along to the originator. A corporate originator mistakenly sending same-day credit payments to 10,000 employees could incur an additional $520 fee plus any other upcharge associated with sending same-day payments.
  • Taxpayers may expect that just-in-time payments or late payments to avoid additional penalties can be made using same-day ACH to the IRS. As my colleague noted in the post I mentioned above, such payments will not be supported in Phase 1. Therefore, it is critical that FIs educate their account holders about this limitation.
  • Unless controls are put in place by their processors, FIs may have difficulty stopping same-day service to corporate account holders they judge to be too risky for sending same-day payments, or when agreements have not been put in place allowing corporate participation.
  • Since next-day ACH is the earliest settlement generally available today, some processors preclude using today's date as a settlement date. Unless this restriction is removed, originators would not be able to send same-day payments when Phase 1 service becomes available.

The risks outlined above are just some of the reasons FIs and their processors will want to be sure they are prepared for the September 23 deadline. Failure to do so could damage account holder relationships. NACHA, the regional payments associations, and the ACH operators offer a wealth of information on same-day ACH that all parties need to avail themselves of.

By Steven Cordray, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

April 4, 2016 in ACH | Permalink

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