Tag Archives: ACH

time is money 8964120

What You Should Know About Real-Time Payments

The democratization of something is often used too loosely and in many industries and business practices. The democratization of shopping, renting, buying, traveling, and particularly finance. The over usage of this term does not apply to payments transfer over the past decade. With the advent of smartphones, better internet, and peer-to-peer payments are virtually real-time within the U.S. and many developed countries worldwide.

The Past, Present, and Future

Western Union first started to issue employee salaries via non-cash payment with a metal plate card in 1914. Throughout the ’50s and ’60s, payments networks such as American Express, Mastercard, and Visa emerged as payment networks that began facilitating trade. This paved the way for the magnetic-stripe POS system in the ’70s and ’80s, which went wireless in the ’90s.

Today, non-cash transactions make up more than 80% of in-store sales. Non-cash is the preferred method of payment for a growing number of transactions. Payment networks continuously look for ways to capture a larger piece of the payment’s universe, particularly the tail-end of the payment ecosystem, such as small ticket items such as candy bars and large ticket items like cars.

Advances in payments processing have made the world both smaller and safer and have allowed trade to grow in the form of e-commerce and mobile payments and digital wallets.

However, there still are key barriers to overcome. Payment settlements are not quick. In many cases, nor is it cheap. Even with automated clearing house (ACH) transactions, which has reduced the cost of payments and processing time down to a matter of one day, instead of the average three days, merchants would still prefer to have the funds for the goods sold right now, as is the case with cash.

Enter Real-Time Payments (RTP)?

That is what Real-Time Payments (RTP) accomplishes. Although RTP is not a new technology, it has been adopted only recently in the U.S. In the ’70s, Japan introduced the first RTP, and today it is estimated that over 50 countries have an active RTP system implemented.

RTP allows payments and data to flow extremely fast, settling payments instantaneously. The Clearing House (THC) unveiled the U.S. iteration of the RTP in 2017 and now processes payroll, B2B, P2P, and RFP transactions, among others, in real-time.

How does RTP work?

Real Time Payments

The closest to RTP so far has been Next Day Payment and ACH Same Day Payment. They are usually traditional payments processed very fast. They have a specific cutoff time for transactions to be assigned to particular dates and then processed.

ACH Same-day funding and Next day funding utilize batch submission that happens faster via the ACH network and, depending on the cutoff times of the day, has the payments transferred to sellers in a matter of hours or overnight. 

Real-time payments are different. RTP is the collection of financial information and verification of user identity between the seller and the buyer that is settled, and funds transferred at that very moment, effectively in real-time, like cash. The following steps are involved in this exchange:

  1. The seller submits a Request for Payment (RFP).
  2. The buyer submits payment details.
  3. The payment is settled once the seller receives payment details and confirms authenticity.
  4. The buyer confirms the finality of the transaction.

These steps happen in a matter of seconds, if not microseconds.

Even with the fastest existing payment rails, merchants must wait overnight to access their funds if the processing is done by a specific cutoff time. The system is available 24 hours a day, 365 days a year, even on weekends and holidays with RTP.

Benefit

There are numerous benefits for all types of users using RTP. First, Merchants can get their funds immediately. If there are issues in processing a certain payment, the merchant will know of it in real-time.

Another benefit is that the RFP is available 24/7/365, including holidays. So anyone can transact at any time, and the payment is cleared, and funds settled immediately.

This system can translate into actual dollars for firms. Any business processing payroll will not need appropriate funds and processing fund transfers out of their bank accounts a day or two before the paycheck date. Businesses can process payroll and have the funds withdrawn at that date.

Risks

As with any innovation, there still are cracks in the system. The biggest hurdle will be adoption. As the system gains traction, many financial institutions will be late adopters, which will not be able to accept RTP payments. Until there is mass adoption as banks and financial intermediaries ramp up their technology infrastructure and security, it will not be easy to gauge the impact of a new payment system.

Furthermore, although there will be a heightened level of security surrounding the new payment rails, any fraudulent transactions that slip through the system will also be processed just as quickly as any other real-time transaction. This will create more hurdles in monitoring and tracing transactions involved in theft or other criminal activity.

Federal Reserve’s FedNow 

The U.S. Federal Reserve Board is also expected to enter the fray. The central bank announced in late-2019 that it was developing an RTP rail called FedNow and will launch in 2023. As of early-2021, over 200 financial institutions were participating in the FedNow pilot program, supporting the rail’s development, testing, and implementation. These financial institutions also included several payment processors that are part of developing the technological integration requirements to sync with FedNow to adopt the RTP.

The payments industry has experienced many changes, with a history ripe with ingenious innovation. More and more firms enter the market to take advantage of the latest technology to facilitate trade and transactions at breakneck speeds. Now, thanks to real-time payments, merchants and consumers alike can benefit from a payment system that is both cheaper and settled instantaneously.

ach automated clearing house inscription on green keyboard key 199090020

ACH Network Hits 2.7 Billion Monthly Payments In Record-Setting Quarter [2023 Update]

The Automated Clearing House or ACH network saw a dramatic rise in its quarterly volume. Nacha, the group that runs the ACH network, reports that the network saw 7.1 billion payments during the first quarter of 2021. The total equals about 2.7 billion payments per month. The quarterly report is an 11.2 percent increase over the same quarter from 2020.

Nacha also reports the payments received by the ACH network during the first quarter of 2021 totaled about $17.3 trillion in value. The total is close to 19 percent higher than what it had in the first quarter of 2020.

Nacha cites this statistic as proof that the ACH network is strong and can handle various stresses. People are using the ACH network more often than ever. Even after accepting one of the most massive government stimulus programs in the country’s history, the system is still capable of handling all these transactions.

What Contributed To This Increase?

ach payment

Nacha states that the United States’ direct deposit stimulus payments to qualifying taxpayers helped boost the ACH network’s volume. The government sent more than 125 million stimulus payments to Americans as of the end of March. These payments total about $325 billion in value. Most of these checks went direct to peoples’ bank accounts through a direct deposit service.

There were concerns that the direct deposit payments would be hard for the network to facilitate. Most people who had been expecting these stimulus payments got what they were looking for without waiting long.

Not every person got their payments at the times they expected. It took a while for the transactions to move, but most people have reported that they have gotten their funds as of April 2021. Some people got their payments in about a week after they were announced. The extended effort by the government to move hundreds of billions of dollars out was extensive, but it was successful enough to facilitate the needs many people held.

B2B Work

Businesses are also moving away from traditional check-based payments for B2B transactions. They are focusing more on ACH payments, as they are more convenient than giving other businesses checks. Businesses can move payments to other businesses’ checking or banking accounts through ACH transactions. Nacha reports that B2B ACH payments increased by nearly 17 percent from the first quarter of 2020. About 1.2 billion B2B payments took place in the first quarter of 2021.

Healthcare Transactions

People are relying on ACH payments for healthcare transactions. Nacha reports that people spent 9 percent more on healthcare payments through the ACH network this past quarter than the year before. People are especially using these payments to facilitate exams, treatments, and other services that people often require for their health needs.

Online Purchases

Businesses are also accepting ACH payments for purchases more than ever. Nacha states that spending on online purchases went up about 14 percent in the first quarter. People are spending more than $2 billion on online transactions.

The Rise of Same-Day ACH Payments

Same-day ACH payments have also become popular to where businesses are transferring more than $1 trillion between businesses in a quarter. Same-day payments have become increasingly critical as companies look to get their funds ready sooner.

Nacha is also planning to increase the per-payment limit on same-day ACH payments to $1 million in early 2022. The effort will meet the expanding needs businesses have for handling ACH payments. The same-day service has only been around for the past couple of years, so the team will still be refining the work as it moves forward.

Nacha’s Work

Nacha is short for the National Automated Clearing House Association. The group has been working its hardest to manage the ACH network and to ensure it keeps running well. Nacha’s ACH network helps manage direct deposits and payments between businesses and other parties. It can handle payments to people and even other businesses. The system supports all American bank and credit union accounts.

Nacha is fully functional and will continue to maintain its operations well without risking losses. The group gets its funds from the banks and credit unions it governs. The fees it collects for transactions also helps keep it running.

How Does the ACH Work?

The way how the ACH works is part of what makes the system so effective. The ACH system allows a person to provide one’s bank or credit union name, account type, routing number, and account network to the network. A business or other party can then send a signal to transfer funds from one’s account to that other person’s account. The all-electronic process ensures money can go between parties in moments.

The ACH setup ensures people can keep track of their transactions in moments. It is easy for senders to keep tabs on their expenses. Senders can also save the data they collect and send regular payments to people as necessary, including every week or month if necessary.

The ACH process is also cheaper to manage than if one were to wire funds to someone. The ACH network has also improved its infrastructure to ensure payments can go forward faster. Same-day payments have been working since 2016, and they are becoming increasingly common and less expensive as the technology becomes more refined.

Nacha continues to review its standards for handling direct payments. It reviews ongoing trends surrounding how people use clearing house payments and adjusts the rules and infrastructure for what users need the most. The work is about ensuring people can get the support they deserve.

It likely won’t be long before these new records break once more. People are using ACH payments more than ever, as they are convenient and easy to plan. The network’s system for managing funds will especially do well in ensuring more payments can run well. It will be exciting for people to see what the ACH network goes next and how Nacha will continue to keep the system operational.

Decline of Paper Checks

Q1 2013 NACHA Report Shows Decline of Paper Checks [2023 Update]

Leave a reply

NACHA, the governing body that oversees the automated clearing house network, released figures from the first quarter of 2013 regarding transaction volume and overall traffic on the network. ACH is the system that links virtually all financial institutions in the US allowing banks and merchants the ability to convert paper checks to electronic form.

POP, or point of purchase, is the system that retailers convert checks to electronic payments right at the register and the voided check is returned immediately to the customer. The year-over-year numbers from January through March were down 8.5% as compared to the same time period in 2012. In addition, compared to Q4 2012 to the most current numbers, POP transactions were down a full 15%. While some of this decline can be credited to seasonality and inflated volume from holiday spending, the decline is still worth noting.

An alternative to POP is BOC, back-office conversion, which allows merchants to collect check payments at the register throughout the day and process the total in a batch all at one time. While this method historically has had lower volume than POP, it still saw a year-over-year decline, falling 10.5% to slightly under 43 million transactions in the first three months of 2013.

One appeal of BOC vs. POP for merchants is added transaction speed at the register because the customer does not have to wait for the check to be run through, verified, and given back to them. It also does not require each point-of-sale location to have the equipment to convert checks, which can reduce overall hardware costs.

The overall trend that can be gleaned from these numbers is that there seems to be a clear trend showing the use and acceptance of paper checks in retail environments is on a slow decline. This can be attributed to the rise of other forms of payment, one in particular being the growth in number of businesses that accept credit cards. In addition, in my own personal experiences at retail stores and restaurants over the past few years, there is a growing number of business owners that due to fraud, forgery, or even a high instance of returned checks NSF have voluntarily decided not to accept personal checks as a form of payment.