Credit Unions Could Cash In on Same-Day ACH
Same-day ACH will soon be a reality for U.S. financial institutions, and the change could mean that certain product offerings and new data about members may become much more lucrative for credit unions.
On May 19, the Electronic Payments Association gave the green light to same-day ACH, increasing the movement of funds between financial institutions from once a day to three times per day. The new rules, which are largely based on rules proposed late last year, take effect in three phases beginning Sep. 23, 2016. Among other things, they require all receiving depository financial institutions (RDFIs) to accept same-day transactions and require originating depository financial institutions (ODFIs) to pay a $0.052 fee per transaction.
The ACH network is the backbone of the electronic payments system, which is why changes to it often ripple through the entire financial ecosystem. In the first quarter of 2015 alone, the ACH network did 4.72 billion transactions, moving $10.2 trillion, an increase of 5.3% and 3.9%, respectively, versus during the first quarter of 2015, according to NACHA.
Though credit union groups expressed support for speeding up the movement of money through the financial system, the rules haven't been without criticism.
“There does not yet appear to be enough valid use or business cases identified to validate a clear cost-to-benefit analysis of such network,” NAFCU General Counsel Carrie Hunt wrote in a comment letter to NACHA in February, for example. “While it is an incremental improvement for consumers, it comes with a major expense to financial institutions, as it will affect both the basic transaction processes in place and the technology that supports them.”
But NACHA CEO Jan Estep is undeterred; she said she sees huge potential for same-day ACH.
“Our research shows that for same-day ACH use cases, more than 60% of that volume would come from existing ACH users who want to have that option available,” Estep told CU Times. Being able to offer faster payroll services, vendor-payment services and even last-minute tax payments to members are opportunities for credit unions, she added.
“Research that we did over the last year throughout the calendar year of 2014 – and we certainly see this in other research more broadly relative to financial services – it's that end users want options,” she said. “I think part of the voice that we’ve heard is that this is a great opportunity for smaller financial institutions to be able to leverage the common functionality and offer more products and services.”
One of those opportunities for credit unions may be in bill pay.
“About half of the ACH network today is supporting consumer bill pay,” she explained. “So when you consider your basic bill-pay application, think about it and say, are you enabling your consumer to pay a bill directly from the account they have with you – and giving them the option to do that on the same day?”
Mark Vipond, CEO of D3 Banking, which creates financial management tools for financial institutions, said same-day ACH could also disrupt bill-pay vendor pricing favorably for credit unions.
“The way most credit unions have constructed their systems over the last 10 or 15 years is that they use an outside service provider for all the different capabilities,” he explained. “They’ll link out to a bill-pay provider or to an account-to-account provider or P2P. That's a huge obstacle for them to take advantage of the ACH, because the ACH change will impact the businesses of all those digitech organizations that provide those services to the credit union.”
Read more: Same-day ACH mean lower transaction fees ...
With the new rules, credit unions could use same-day ACH to move money for $0.052 per transaction as opposed to $0.30 to $0.80 per transaction they typically pay to a bill-pay provider, Vipond said.
“The bill-pay providers charge a pretty hefty price for each of those transactions. They are not motivated to reduce the price, right?,” he asked. “Their businesses, their revenue streams, are based upon maintaining the legacy system.”
The contentious $0.052 fee per transaction, which was $0.082 in earlier proposals, is intended to offset the cost of implementation for financial institutions on the receiving side, Estep noted. Credit unions tend to receive more than they originate when it comes to ACH, according to Estep, though a lot of originating financial institutions will be on the hook for the upgrading their ACH processing operations and paying the $0.052 fee.
Vipond cautioned credit unions against letting that deter them.
“If they are really thinking through it, they should direct as many transactions as they can from their membership to ACH to reduce their fees for bill payment, account-to-account transfers and P2P transfers,” he said.
And that's on top of improving funds availability for their customers, he added.
The other opportunity for credit unions is access to more data about members’ payment behavior when they use same-day ACH.
If credit unions control their own data, they can see member history and movement habits that they can't necessarily access from vendors, he explained.
“When credit unions can see when members tend to pay certain bills and what the average amount of those payments is, they can offer things like predictive cash flow services to members,” he said.
For example, a credit union may be able to see that a member typically deposits a paycheck on the 1st and 15th of each month and that he moves an average of $120 to a utility company on or about the 20th of every month.
“The credit union can start to do predictive cash flow for the user, which is nirvana for most users who say, ‘Don't just tell me what I did in the past; help me to plan for the future,’” he added. Well, by having availability of the data by controlling the user experience and the data and money movement, that puts them in a position to do that.”
In 2014, Navy Federal Credit Union, which is headquartered in Fairfax, Va. and has $66.8 billion in assets and 5.4 million members, was the 15th largest receiver of ACH payments, according to NACHA. State Employees Federal Credit Union, headquartered in Raleigh, N.C. ($30.5 billion in assets and two million members) was No. 25, Boeing Employees’ Credit Union (Tukwila, Wash.; $13.6 billion in assets and 900,000 members) was No. 39, The Golden 1 Credit Union (Sacramento, Calif.; $9.1 billion in assets and 717,000 members) was No. 44 and America First Credit Union (Riverdale, Utah; $6.8 billion in assets and 696,000 members) was No. 48. No credit unions were on the top 50 list of originators.