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Understanding the Various Payments Systems Series: Blog 4

In the wake of new and expanded payments methods like same-day ACH and Real-Time Payments (RTP), another option that continues to make headlines is the use of third-party payment apps like Venmo and Zelle.

In our previous two blogs, we discussed the unique differences and use cases for same-day ACH and RTP, but financial institutions and their account holders must also have a clear picture of third-party apps and their use cases. Only then will they be able to leverage the different methods to their full potential and adequately support them from a strategic standpoint.

The Rise of Third-Party Payment Apps

Third-party payment apps have been growing in popularity, and are a sound option for peer-to-peer (P2P) transactions. For P2P payments, this method is extremely convenient because it uses an identifier, such as a phone number or email address, so that consumers do not have to disclose their bank account information.

Understanding the Various Payments Systems Series: Blog 3

Today, there are more ways than ever for consumers and businesses to transact payments quickly, specifically, with the Venmo, Zelle, same-day ACH and most recently, The Clearing House’s real-time payments system. Although these different methods may seem the same or are perceived as “instant” payment methods, they are not.

With so many options, it can be very confusing, which is why we have broken down what each is, their specific use cases, and which type is better.

Understanding the Various Payments Systems Series: Blog 2

Today, organizations and consumers all crave fast, immediate payments. In response, services like Zelle, Venmo and same-day ACH, among others, have emerged. With so many methods, it can quickly become confusing.

Adding to the confusion is the perception that funds are immediately transferred. For instance, with mobile wallets like AndroidPay or ApplePay and services like Venmo, a user will see value transferred instantly but those funds are not settled immediately.

It is imperative, then, that financial institutions and their account holders understand the key differences between each method, and understand how each impacts payment delivery.

Real-Time Payments vs. Same-Day ACH

Previously, we explored same-day ACH – one payment method that is continuing to grow in popularity. Its ease and flexibility makes it well suited for time-sensitive matters such as payroll or business-to-business (B2B) transactions.

Understanding the Various Payments Systems Series: Part 1

Over the last several years, the payments landscape has changed drastically with improvements in speed and convenience for consumers and businesses alike. There are now more ways than ever before to process transactions quickly and with ease.

When PayPal first hit the market in 1998, the idea of eWallets was introduced. Then in 2014, Apple launched their mobile wallet service, Apple Pay. Since then, there has been an insatiable appetite for fast, immediate payment methods, including Zelle, SquareCash, same-day ACH and most recently, The Clearing House’s real-time payments system, to name a few.

With so many payments methods, it can be confusing, especially when coupled with terms like “instant payments” and “push payments.”  However, not all faster payments methods are equal.

According to recent transaction data from NACHA, same-day ACH is growing rapidly. During the second quarter of 2018, there were nearly 42 million same-day ACH transactions – an increase of 243 percent compared to the second quarter of 2017. As a result of this growth, NACHA announced three new rules, which will expand the same-day ACH processing window by two hours and increase the per-transaction limit to $100,000.

With new rules and expanded capabilities, businesses and consumers alike will increasingly realize the advantages and convenience of same-day ACH, however, fraudsters also stand to benefit. Cybercriminals now have the ability to access and move funds faster than ever before. At the same time, financial institutions have less time to process and ensure the validity of transactions.

In response, financial institutions must be prepared to address attempts by fraudsters to exploit the system, but to do so, they must first understand the tactics used.