For the millions of Americans who receive electronic payments directly into their bank accounts, a new system is about to go into place that will allow those payments to be made faster than ever. For banking executives and the legal counsel who advise them, the stakes are very high for successful compliance with this new system.

1. SAME DAY ACH ALLOWS
PAYMENTS TO MOVE FASTER
BY HOLLY MERRILL
For the millions of Americans who receive electronic payments directly into
their bank accounts, a new system is about to go into place that will allow
those payments to be made faster than ever. For banking executives and the
legal counsel who advise them, the stakes are very high for successful
compliance with this new system.
The ACH Network
Most consumers are familiar with the “ACH” payments system without even
|realizing it. For example, when employers pay their workers through direct
deposit—or consumers pay bills electronically out of checking accounts—the ACH
network is probably responsible for those payments. According to NACHA, the
electronic payments association behind the ACH network, more than 23 billion
ACH payments were made last year.
ACH payments are electronic payments made through the Automated Clearing
House (ACH) network, which many people are surprised to discover has been in
existence since the late-1970s, far before anyone had ever heard of the Internet
or mobile transfers.
ACH was originally conceived as a “batch” payment system for banks and credit
unions. The upside has always been that ACH is more cost-effective than wire
transfers and other payment systems. The downside has been that payments are
not real-time and require a couple days to actually be processed and for the money
to change hands.
ACH payments are simply electronic transfers from one bank account to another.
These transactions are popular alternatives to checks and credit card payments
because they use fewer resources, thereby reducing costs for financial institutions
and their business customers. Moreover, since ACH payments are electronic,
there is less risk of errors from human data input and less hassle involved with
mailing checks.
March 2016

2. Same Day ACH
In recent years, businesses have been increasingly clamoring for the ACH network
to become more responsive to changes in the speed with which commerce is
conducted in the 21st century. Financial institutions, NACHA and federal regulators
listened. Now, after extensive discussion and exploration, we’re on the verge of a
sea of change in the payments industry.
In May 2015, NACHA’s membership voted overwhelmingly to adopt Same Day
ACH, a new rule that will make it possible to execute same-day ACH transactions.
The purpose of Same Day ACH is to allow transactions that need to move faster to
be prioritized and sent into a same-day processing queue.
The rule will be rolled out in a three-phase process, with the first phase going into
effect on September 23, 2016. In Phase One, the focus will be on ACH Credits
such as payroll, person-to-person payments and expedited bill payments. In this
phase, two processing windows will spread the volume throughout the day and
lessen the strain on resources at the end of the day. The proposed Morning Same
Day ACH window will be submitted by 10:30 A.M. and settled by 1 P.M. ET; the
afternoon window will be submitted by 3 P.M. and settled by 5 P.M. ET, with funds
available to customers at the end of the processing day.
In Phase Two, which will begin on September 15, 2017, same-day ACH debits will
be introduced. The focus in this phase will be on consumer bill payments and the
structure of the same-day debit payment windows will be the same as in Phase
One: two processing windows at 10:30 A.M. and 3 P.M. ET and settlement taking
place at 1 P.M. and 5 P.M. ET.
In Phase Three, which will go into effect on March 16, 2018, receiving financial
institutions will be required to provide funds availability at 5 P.M. local time for
same-day credit entries.
Practical Considerations
There are a number of important implications to the new Same Day ACH rule that
banking executives and their legal counsel need to contemplate.
FEES
Financial institutions sending Same Day transactions will be charged a premium
fee to cover some of the costs to expedite payments with Same Day ACH. These
fees will be collected by the two ACH Operators with the understanding that a
portion of those fees will be credited back to the receiving financial institution to
help offset the costs they are incurring to create the necessary infrastructure for
compliance with the new rule.

3. Conclusion
Once Same Day ACH is fully implemented, any originating financial institution
can issue payments that must clear on the same day, knowing that all receiving
institutions will be required to process the transactions that same day. This change
will allow businesses and consumers to move money faster throughout the financial
system.
However, there will undoubtedly be a number of bumps and bruises along the
way to full implementation. Banking executives and their legal counsel will need to
remain in close communication as the organizations attempt to mitigate risk and
ensure compliance with the groundbreaking Same Day ACH rule.
MANDATORY PARTICIPATION
NACHA and the Federal Reserve have mandated that all banks and Credit Unions
currently using the ACH Network must be able to receive and settle Same Day ACH
according to the new rules. It will no longer be optional to receive Same Day ACH.
It will be optional for sending Banks to offer this service to expedite outgoing ACH
transactions. Companies that would benefit from this new service should contact
their bank or ACH service provider.
Since Same Day ACH will revolutionize the ACH Network, all financial institutions
will be impacted. NACHA and the Federal Reserve encourage all financial
institutions to begin looking at the internal impacts to operations, processing
schedules, agreements, return processing, settlement, risk management, etc. If
a Third Party Service Provider is used, begin discussions to ensure they will be
prepared for each of the phases.
THE FED
The Federal Reserve has also laid out a plan to work with banks and merchants
to research and identify potential approaches for facilitating faster payments
throughout the financial system. They have indicated they will present some of their
proposals by the end of 2016 and are likely to be focused specifically on payments
between business and individuals. Banking executives and their legal counsel need
to stay tuned to these changes from the Fed and assess how they fit with the
NACHA rules.
FRAUD PREVENTION
When the U.K. moved to faster payments in 2008, British banks saw a big increase
in fraud as criminals took advantage of the collapsed window of time for banks to
review risky transactions. U.S. banks would be well-served to review their risk and fraud
policies in addition to their staffing resources to meet the challenge of faster processing.

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About the Author
Holly Merrill, AAP, is the Chief Compliance Officer for GIACT Systems, a national
provider of Account and Identity Verification Services. Holly has more than 37
years of experience in payments, including serving as CEO of PaymentsPLUS,
CEO of Payments Resource One (PRO) one of the Regional Payments Associations
that was also one of the private sector ACH operators. She is also a past member
of the NACHA Board of Directors and served on the National Check Clearing
House Board.
Holly is co-author of two books from LexisNexis®
Sheshunoff®
: Automated Clearing
HouseTransactions: Operations, Compliance, andAudit and the ACHTraining Manual. She is
also a frequent speaker and conducts Sheshunoff®
ACH certification training Webinars.