As NACHA prepares to implement its new Same Day ACH rule later this year, CEO Jan Estep reviews challenges and successes in the industry's march to faster payments with PaymentEye's Sarah Gill.
Sarah Gill, Reporter: Next up in the Finetics Studio we have Jan Estep. If we could talk a little bit about real-time progress in payments, because we haven't spoken about that that much in Finetics Studio. So where are we at?
Jan Estep: So let me talk first about the ACH network in particular, since that's a lot of what we do in every day. And it's a network of the United States that really connects virtually all 12,000-plus financial institutions and then millions of their customer accounts behind that. And again, when you think of what I talked about earlier, bringing parties together to move the payments forward, what we do via rulemaking is essentially say, "What do we all have to agree to at a common level in order for people to then innovate on top of it?"
So the ACH network is kind of what I call "skinny" by design. You have just enough commonality so that any type of organization can innovate on top of it, be that a large bank, a small credit union, a payment processor, a corporate who wants to send payments to others--they all have a different role in the ecosystem. And because the ACH network is skinny, innovating on top of it is really where value is created.
Sarah Gill, Reporter: Okay, cool. And if we could come back to kind of real-time payments, where are we at in that kind of journey?
Jan Estep: Right. So we actually passed a ubiquitous rule this year that will bring same-day ACH to the market in the United States by September of next year. And again, what that means is that any ACH transaction--a credit or a debit--can move between parties on the same day. Currently it's next-day, so overnight. That cycle remains the same. But now individuals, government entities, businesses have the option to move it two more times every 24 hours. So there will be three options every 24 hours to move any ACH credit, any ACH debit, and voluminous information with that payment, which has real value in terms of sending the payment plus the related data. So that will be available next year.
And it really is a complementary effort to, then, real-time payments, which is a different architecture, a different solution for different needs. And I think what we're doing is really saying speed is kind of a calibrating point; it's an option. How fast do you want it? Do you want it value dated? Do you want it next day? Do you want it same day? Or in the future in the United States, if we can get to a ubiquitous solution, do you want it real-time? And I think it's that ubiquity that is tough.
In the ACH network, we do it via rules that say it's mandatory on the receiving side. And what that does is really give value to the originating side, because you don't need a special log-in, you don't have to guess who could receive or not, it's not a separate program. But this ubiquity essentially says, "I know." It can reach any one of those 12,000 financial institutions. I know for sure I can send a payment and it can be received by any of the millions of bank or credit union accounts in the country, and there's great value in that. And we need to find a way to do that for real-time payments also.
Sarah Gill, Reporter: Yes. I mean, what are the kind of main challenges about making that happen, firstly same-day and then real-time?
Jan Estep: Well, it is not only the payment, right, moving that. It is having everybody do it in the same way, and it is the attached systems. So the payment can move there, but if you can't post it to the end account, then that's a problem. I've had businesses talk to me, says, "It's great if I receive an ACH payment the same day, but if you don't send the data with it that helps me post it to my internal account, I can't do anything with the money, right? I can't complete the process." So having payments plus information is a part of the challenge. It's also part of what we have with ACH today. So thinking about that in real time, how much information can flow with the payment, or do you need to retrieve it somewhere else, you know, suppose there's some mechanics that I think everybody needs to start working through.
Sarah Gill, Reporter: Yes, for sure. And who do you think kind of stands to benefit the most from bringing in same-day and then real-time?
Jan Estep: Well, we did a lot of research for same-day ACH and found that an estimated 60% of same-day ACH transactions will come from what we call traditional ACH. And what that really says to us is that there are a lot of users today that simply want the option to not wait for one day, but to be able to move it same day, to be able to keep their money as long as they can and then send it, or to pay for a late bill or a tax as soon as their own money comes in. So the option is there for consumers and for businesses, and that is kind of the bread and butter of what will happen.
But what's also interesting is that the ACH network is a payment in and of itself, but it's also a settlement mechanism. It's common architecture, this common skinny architecture. And I think what we envision throughout the industry is that there will be a lot of innovation on top of that, things that aren't quite fully imagined today, where you say the foundation is there, it's solid. It has good rules around it. It has ubiquity and that surety of reaching all the endpoints. But then you can view that as a platform to develop new products and services. And that's where I think there will be even greater value in the future.
Sarah Gill, Reporter: Yes. I mean, it's certainly a really exciting time for the payments industry. And you know, in your work, you must have a really good kind of perspective over the whole sort of what, you know, wider financial industry. And is there anything in particular, any innovation, that you're kind of personally excited about?
Jan Estep: I'll mention a couple of things. And these are really projects that have come out of the NACHA Payments Innovation Alliance--again, this membership-based group--where we essentially say, "Folks, come together. Talk about the topics that you think are important." So one of them, as we just talked about, was real time. And there was a white paper written by the Alliance members that was called "Real Time in Real Life." So they didn't just talk about the payment, the architecture, the format, but they said, "What do I need to do if in fact real-time payments are coming at me and I've never had that before?" So kind of peeling the onion back a little bit was one of them.
Another project was around ACH using the local channel, right? So if you have an ACH batch-oriented system, but you can put a layer on top of it that adds end user convenience, takes out friction in the payment, sends separate messages. What does that really mean? What does it mean to mobile?
And another paper--again, from the Alliance--well, actually, it will just be published this month--is around ISO20022, how it's supported by the ACH network in the US today and what things we can be doing, too, when we have commonality in the formats as you think about it as a worldwide format. So again, some interesting things at the end-user level and kind of at the geeky level, when you're talking just about payments and how they should be structured.
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