America’s changing payments landscape

For the world’s biggest economy it’s a long-overdue development, but faster payments has finally arrived in the US. September 23 marked the launch by North America’s electronic payments association Nacha of phase one of same day automated clearing house (ACH), aka SDA. This new payment capability – along with real-time payments and new financial messaging standard ISO 20022 – were analysed at last month’s Association for Financial Professionals (AFP) conference in Orlando, Florida.

As of September 23, US businesses and consumers could send and receive payments and payment-related information on the same day – instead of the following day – via the ACH Network. All of the US’s 14,000 banks and their customers can now receive same-day transactions.

The second phase won’t launch until September 2017, when faster processing and settlement of debit transactions will be added to credit transactions, supporting additional use cases such as consumer bill and credit card payments.

The transformation might have happened earlier, but in 2012 The Clearing House – the oldest banking association in the US and operator of the Electronic Payments Network (EPN) – opposed Nacha’s plan to create a same-day ACH platform and the project lay dormant for the next two years before being revived. Sharon Jablon, product specialist at The Clearing House, says that

In a conference session entitled ‘Upcoming Payment Capabilities Affecting Corporates’, Francis Sudall, treasury project business manager for CIGNA Corporation, said that the insurer had heard “plenty of buzz” about same-day ACH from all its banks prior to the launch and had installed a treasury management system (TMS) in preparation.

“However, we couldn’t immediately accommodate same-day ACH, nor was there a strong business case for installing it immediately,” he told his audience, mentioning that there is currently a US$25,000 cap on same-day ACH payments. “So we’ll do it for a limited number of functions, such as payroll as well as disability payments. But we’ve no plans to update our current infrastructure to accommodate ACH.”

As Sudall noted, unless the limits increase over time the current US$25,000 cap is likely to prove inadequate in the aftermath of events such as a major hurricane, when CIGNA would probably have to resort to releasing a mass volume of payments.

Jeff Sesar, vice president of Zenith Information Systems – a smaller fintech company founded in the mid-1960s and serving the wealth management industry – was even more underwhelmed. “We have 14 or 15 partner banks and none of them advised us in advance of same-day ACH,” he reported. “When I contacted them, most provided only the basic Nacha announcement.

“As a payroll company ourselves, we’re already heavily involved in this field. Employees expect to be paid promptly so they can pay their bills and we don’t see a great deal of value in same-day ACH.”

For Bob Taylor, treasurer at Pittsburgh-based trucking group Pitt Ohio Express, the new service is likely, in any case, to be swiftly supplanted by real-time payments, which will be highly beneficial for their customers. Jablon agreed that impetus for change comes from a variety of drivers; not least the wishes of the new generation of US millennials. “We’ve heard complaints for many years that the current system is too slow and batch-driven,” she agreed. “Millennials want the system to be far speedier and Nacha is attempting to keep up with the times.”

Advent of ISO 20022

Turning to ISO 20022, Jablon noted that the new standard has been developed by the International Organisation for Standardisation (ISO) rather than SWIFT, although the financial messaging services provider was involved in its development.

“ISO 20022 is now being rolled-out by the banks and there is both a road map and a plan in the US to rewrite high-value payments in ISO formats by 2020,” she noted. Despite this Nacha doesn’t yet have plans to move to ISO although last year it produced an ISO 20022 mapping guide, enabling corporates to send ACH files in ISO format and is in the process of producing further guides.

Sudall said that CIGNA currently uses ISO 20022 for wire request capabilities and also plans to utilise it for messaging related to its electronic bank account management (eBAM) programme from the first half of 2017. Asked for the group’s motivation in moving towards the standard, he added: “A main objective for treasury workstation implementation was to gain greater visibility across our organisation. We also wanted to have flexibility in sending cash from anywhere we operate.”

“We’d love the single file format for all of our transactions,” said Sesar. “However, we anticipate ISO 20022 being succeeded by various other standards over the years ahead, so I’m hesitant and pushing any of my team towards it.”

Lack of motivation

A separate session, entitled ‘Smarter, Better, Faster Payments’, examined the current status of real-time payments in the US. According to Jeff Diorio, a director in the technology consulting practice at consultant Treasury Strategies: “Since 2013, the Federal Reserve has been pushing for faster, more secure and more collaborative payments. There’s a level of frustration that things aren’t moving faster.

“But major corporations openly admit that they’re rather more interested in receiving payments faster than they are in making them.” He admitted that with the UK having moved to faster payments back in 2008 with the introduction of its scheme  and the subsequent launch of the single euro payments area (SEPA) facilitating cross-border payments across Europe, the US “is a little behind the curve”.

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