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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.

Over the last several years, the U.S. economy has seen significant growth in small businesses, surpassing 30 million individual businesses and representing 99.9 percent of all businesses in the U.S. These businesses fuel local communities by creating jobs and revenue, making it imperative that their bank partners help ensure profitability and growth in 2019.

This is especially important as industry forecasts indicate a slight plateau in growth. In fact, Kiplinger expects 2019 growth to slow to 2.7 percent from 2.9 percent this year. In their recent forecast, they go on to explain that while Americans will keep spending at a healthy rate because of higher wages and low unemployment, the tight labor market will make it difficult for businesses to expand.

How can financial institutions heighten security measures on transactions while guaranteeing consumers a faster payments process?

In August 2018, the volume of transfers via the ACH Network hit an all-time high – exceeding 2 billion transactions alone according to NACHA. Together, the value of those payments totaled $4.5 trillion, a 12 percent increase from the same time last year. These statistics prove consumers are increasingly using ACH payments for more regular, predictable transactions.

To keep up with demands, financial institutions need to take their payment processing abilities to the next level – and same-day ACH is the way to achieve this. But with the improved experience comes potential new challenges and liabilities that must be considered.