ACH Operational Changes
They say money changes everything, but so does timing. Just look at the multiyear rollout of the new rules adding two same-day settlement windows to the ACH network — it isn't just increasing the speed at which money moves through the entire financial system — it's changing how credit unions operate.
Refresher: The Deadlines
On May 19, 2015, NACHA, the Electronic Payments Association, announced that it gave the green light to a three-phase implementation plan for same-day ACH. Phase I, which took effect on Sept. 23, 2016, increased the movement of funds between financial institutions to three times per day. The rules also require all receiving depository financial institutions to accept same-day transactions and establish a fee to recover some of their costs. (International ACH transactions and single transactions of more than $25,000 are excluded.)
In just a few weeks — on Sept. 15, 2017 — Phase II of the transition kicks in. It requires credit unions to provide same-day ACH debit capabilities.
That's an important event because it makes same-day processing possible for practically any ACH payment, according to NACHA. And that's a lot of payments. In 2016 the ACH network handled more than 25.5 billion transactions — a year-over-year increase of 5.4%, NACHA reported. Those transactions amounted to more than $40 trillion in 2016. In the first quarter of 2017, the number of transactions grew another 6.9%, moving approximately $11.5 trillion through the financial system during that time.
Getting On the ACH Train
There are a lot of moving parts to the same-day ACH rollout, and as credit unions get ready to embrace Phase II, the first thing many may need to do operationally is devise a way to get up-to-speed — and then find a way to stay there.
Nick Lane, who is a contracts consultant at financial services advisory firm Cornerstone Advisors in Scottsdale, Ariz., said many credit unions still aren't clear on what same-day ACH is or what they need to do.
“When we get into having those conversations, for the most part, most of them are like, ‘Yeah, we heard about this but we didn't really know this level of detail about it,’” he said.
“I don't know if ‘unprepared’ is the word,” he added. “It's just not necessarily top of mind with a lot of the other things that they’re focused on.”
Taking One for the Team
Tweaking frontline and support-level employee-training programs is on the to-do list for many credit unions.
“Processing ACH more than one time a day will take more time,” CFO Lisa Ashcraft explained to CU Times. The Alabama-based Tuscaloosa Credit Union has $74.4 million in assets and about 7,100 members.
“Certainly now that everybody's receiving credit files, the process to bring the file in and have it available is there,” NACHA President/CEO Jan Estep added. And because same-day ACH allows credit unions to offer new services to members, frontline employees may also need new training, she said.
“What does that mean to your customer service areas, to your tellers, either in promoting new services, and/or being able to answer questions [such as], ‘Can I really get it this fast today?’ for incoming money? Answering questions like, ‘If I send it with same-day ACH credit, when will it get to the party I’m paying?’ Having good customer service questions and answers are also helpful,” she said.
For some credit unions, staff training has actually been the only substantial adjustment that same-day ACH has spawned.
“Our operations haven't changed much other than educating staff so they can explain mid-business day posting to members who are used to account updates coming in the wee hours of the night,” CEO Tommy Cobb told CU Times.
In that vein, some credit unions are also focused on retraining members, because many members still expect ACH transfers to take more time, Lane noted.
“Now members are going to have to be trained that if it's going same-day ACH, they may set that up to push that payment and they’ll see that debited from their account the same day rather than getting that extra day there,” he said.
That in turn means rolling out new policies and language on credit union websites and in other member materials, which, for better or worse, means more compliance work, Lane noted.
“From an operational standpoint post Dodd-Frank, I think a lot of the smaller institutions have been feeling a lot of regulatory burden — and now we’re bringing something else in,” he said.
“[Same-day ACH] adds another tool that obviously can have a positive benefit to the member. But from a back-office perspective, there are additional rules and regulations that are now piled onto everything else they’ve gotta be paying attention to,” he said.
Same-day ACH has a wide range of applications for consumers, but payroll and other business-related payments are natural fits as well. That leads to another operational change for some credit unions.
“If credit unions are supporting businesses, they really need to make sure that their authorization language is clear,” Estep said.
“Originators do need to make sure they’re using that effective entry date appropriately, and reviewing their authorization so that the timing of the debit is understood. It's a great feature for a business to be able to say, ‘Yes, you can pay your bill today and this is when we’ll debit you,’ but they just need to make sure that that's clear,” she said.
That's especially the case with payroll transactions, Lane warned.
“One of the benefits to the business from the same-day ACH standpoint is I can wait until the day of to push those payrolls through. Where, in the previous method, I would have to put additional time to do that,” Lane explained. “As a business owner, especially a small business owner, that's going to increase my average balance in my account because I’m getting that additional day or two.”
But without proper training, it could be easy to debit a member too early on ACH debit transactions, Estep cautioned.
“If you don't have a proper date in the effective entry date for settlement, it will just move into the next batch cycle. With a credit, that may mean that you get your money a day earlier than you should have. That's okay when you’re receiving money. It's not so nice when you are being debited for something,” she explained.
That's Not All, Folks
There's more to come. Phase III of same-day ACH kicks in on March 16, 2018, and will require financial institutions to make funds available from same-day ACH credits to depositors by 5 p.m. local time instead of the end of the processing day.
That will likely bring more operational changes for credit unions, though the first task — getting up-to-speed — could be the most important.
“I think people are gonna be ready, but it's not an all-hands-on-deck kind of event for a lot of the people that we’ve talked to,” Lane said.