On Wednesday, September 23rd, the Federal Reserve approved enhancements to the same day automated-clearing house (ACH) service. For those not familiar with same day ACH, it is a service that enables same-day payments and settlements between originating and receiving banks. This is not a new concept and the functionality was originally introduced in 2010. However, less than 1 percent of depository institutions currently use same day ACH functionality (Frierson/Secretary of the Board, Board of Governors of the Federal Reserve System, 2015).
The new ruling aligns the previously voluntary FedACH same-day payment service with the industry’s (NACHA) action in May that required financial institutions to have same-day ACH and pay a 5.2 cents per-transaction fee to receiving institutions. With the new ruling, phase 1 of the mandatory adoption of same day ACH will be required by September of 2016 This includes same day ACH credit transactions.
This decision has been discussed for a number of years, and in light of consumer demand for real-time payments and settlements, the approval wasn’t surprising. Even though the decision was not surprising, there will be an industry impact that needs to be brought to light for discussion.
The impact can be divided into a few areas that are tied to revenue.
- Infrastructure
- Risk and Fraud exposure
- Management of Customer Opt-ins
Transaction Exposure Same day settlement can mean an increase in transactional risk exposure. Decisions need to be made and settlements handled outside of any daily batch processing cycle that may currently exist for ACH processing. This can mean that data needed to make decisions may not be readily available or appropriately compiled to ensure that customer risk factors are taken into consideration before a decision is made. For example, leveraging customer-level characteristics to make a risk-based decision on an overdraft becomes very important in a same-day processing cycle and can provide a competitive edge to the product-level overdraft allowances common in the industry.
Overdraft Allowance Overdraft allowances and fees can currently be charged for ACH transactions without a customer opt-in. Real-time transactions such as non-recurring debit card and ATM transactions require an opt-in to charge an overdraft fee. Today, overdraft and NSF fees provide more than 50% of the fee revenue derived from deposit accounts. One important question comes to the forefront in the ACH same-day environment: Will these transactions now require an opt-in for fee assessment? This is what some industry groups are predicting. Should this occur, there could be a significant negative impact to fee revenue.
Navigating this new regulation is going to require a deeper understanding of risk in an environment that historically has not developed or implemented risk factors, scoring or strategies. There is good news: FICO has the tools and industry expertise to assist you in steering your portfolios through these waters into a successful and profitable future.
If you would like to learn more about how FICO works with our customers around deposit challenges please watch this short video or read these customer stories. Leave comments if you have additional thoughts about the new ACH changes.
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