A Year After Same-Day Credits, the ACH Gets Set to Launch Same-Day Debits Friday

(Originally posted on Digital Transactions)

By John Stewart

The nation’s automated clearing house network launches same-day clearing and settlement on Friday for debit transactions, and top officials at NACHA say the Herndon, Va.-based network administrator is making final preparations. “We’re looking forward to tomorrow,” Jane Larimer, chief operating officer and general counsel at NACHA, told Digital Transactions News late Thursday. “We’re working to make sure financial institutions and corporates, all of us, are ready for Phase 2 to go live.”

Same-day debits, or Phase 2, follow same-day credits, which were introduced a year ago as Phase 1 in NACHA’s faster-payments plan. Credits allow users to push payments from their bank accounts to those of their payees. Debits enable businesses, such as billers, to pull funds from customers’ accounts.

Making sure all network participants are ready for same-day processing is important because ACH debits are widely considered to be riskier than credits. While fraud losses across the ACH are very low relative to other networks, debits open the door to such mischief as movement of funds out of a consumer’s account without the account holder’s authorization. When processing is speeded up, that risk heightens significantly, experts say.

Another cause for careful preparation lies in the problems that can be caused by errors made when entering withdrawal dates. “Whenever you’re debiting an account, you have to be careful it’s posting to the account when the account holder authorized it,” Larimer says.

With faster processing, there’s less time to catch such mistakes, leaving the door open for funds to be whisked out of the account sooner than the payer intended, experts say. But same-day processing also means returns come in faster, so “you notice there’s a problem faster,” she said. “There are no new vectors of fraud, it’s just that [money] is moving faster.”

In NACHA’s plan, receiving depository financial institutions (RDFIs) are required to handle same-day transactions, while same-day processing is optional for originating institutions (ODFIs). With debit transactions, the receiving bank is the one housing the payer’s account. The payee’s account (for example, the biller’s account) is held by the originating institution.

Because ODFIs are taking extra steps to make sure their systems are avoiding dating errors and fraudulent entries, Larimer says same-day debit volume on Friday and for a few days to follow may be somewhat lower than might otherwise have been the case. “We know large ODFIs are ready to go on Day One, but we don’t have any forecasting on [volume]. We know ODFIs are being more measured.”

Phase 3 of NACHA’s plan will arrive March 16 and will require RDFIs to make funds available by 5 p.m. local time. Up to now, the rule has been the end of the bank’s processing day, which can be as late as overnight in some cases, Larimer said. A NACHA survey this spring indicated 78% of RDFIs were already meeting the 5 p.m. requirement, she added.