A 2012 proposal to enable the processing of electronic transactions on the same day they're initiated died unceremoniously. But now there's a renewed push for faster payments.
The new goal — laid out Tuesday by Nacha, the payments industry group that sets the rules for the network that connects every U.S. credit union and bank — is to phase in same-day capabilities in three stages, rather than all at once.
The revised plan drew a mixed reaction from backers of a speedier system. They say the staged approach should help assuage the concerns raised by the earlier plan's opponents, but it's also likely to slow the implementation process.
"It's going to be a slow grind, but we need to move it along," said Bob Steen, chief executive officer of Bridge Community Bank in Iowa, who is a former Nacha board member and an outspoken supporter of a faster system.
Today almost all payments over the automated clearing house network wait until the next weekday to be completed. Under Nacha's proposal, those payments would eventually be processed twice each weekday. But the overhaul would fall well short of the near real-time systems that have been built in the United Kingdom, Mexico, Sweden and other countries.
Nacha hopes to hold a vote on a specific proposal, perhaps about a year from now, after listening to comments from banks, credit unions and users of payments system.
"We do want to seek feedback," said Janet Estep, Nacha's president, "because certainly implementing across some 13,000 financial institutions across the United States is not a simple task."
Estep demurred when asked how soon the speedier payments system might be fully built. "At this point, it probably is most prudent to say that we do not have any firm timeline because we are seeking input," she said.
The step-by-step approach could give banks more time to make costly upgrades to their computer systems. The expense of making technology improvements is widely seen as a key reason some big banks opposed the 2012 proposal to modernize the automated clearing house network.
The Clearing House, a trade association that represents large banks and was the most visible opponent of the 2012 proposal, declined to comment on Nacha's new plan.
Under the three-phase approach, financial services institutions would first make improvements to enable their customers to push money into other accounts without enduring waits of a day or more. Examples of this type of service include the direct deposit of paychecks by employers and person-to-person payments.
The second phase would allow credit unions and bank customers to pull money from other accounts on the same day the request is made. This type of payment is often used to allow automatic bill payments to be deducted from consumers' checking accounts each month.
In the final implementation phase, credit unions and banks would enable their customers to make same-day payments twice each weekday. This move is designed to help financial institutions, businesses and consumers located in the Pacific time zone. Under the earlier proposal, West Coast CUs and banks would have needed to submit their transactions by 11 a.m. Pacific time to squeeze into the same-day window.
Elizabeth McQuerry, a payments consultant at Glenbrook Partners, expressed disappointment with Nacha's new plan. She said that settling transactions twice daily falls far short of what's needed.
"That's a Band-Aid. It's a short-term solution," McQuerry said.
She noted that numerous proprietary near real-time payment systems are already being built in the United States. Unless a parallel system is built to link every bank and credit union, payments will become more fragmented, she said.
McQuerry also noted that Nacha's announcement lacks important details. "It doesn't give us any timetables," she said. "We're talking about years here."
Steen, the Iowa community banker, made a similar point, but suggested that Nacha is moving about as quickly as the organization's membership will allow.
"I appreciate the leadership. And I hope the industry moves along with it," he said. "I know the timeline is going to be long and tedious, but I think they're doing what they can do."
Tuesday's announcement follows the publication of a paper last fall by the nation's Federal Reserve banks, which envisioned the construction of a near real-time payment system linking every U.S. bank and credit union by 2023.
In February, after soliciting public comments on its 10-year vision, the Fed signaled that it is pushing ahead with its efforts to encourage the construction of a speedier electronic payment system.
Nacha also said Tuesday it would launch a study to assess how much it would cost financial institutions to implement its proposed improvements, as well as the potential volume of payments that would move across an upgraded system.
Some credit unions warned the Federal Reserve earlier this year that moving to a real-time payment system would increase their IT and personnel costs. Cutler Dawson president and CEO of $55 billion-asset Navy Federal Credit Union in Vienna, Va., challenged the contention that because faster payments are becoming more common globally, the U.S. needs to follow suit.
"In many countries where faster payments have been mandated, it was done for credit 'push' transactions only," Dawson noted. "This is a notable difference from mandating faster settlement of both debits and credits."
Nacha's membership includes many of the nation's largest banks and Navy Federal CU, in addition to more than a dozen regional payment associations that represent the views of financial institutions in specific geographic areas. Only Nacha members get to vote on the group's proposals, but the organization also solicits feedback from users of the payment system.
Estep said Tuesday that she sees the Fed's activities as complementary to Nacha's revived effort. The kinds of improvements envisioned by Nacha will provide a foundation on which banks and credit unions will be able to build other products, such as real-time payment capabilities, she said.