What is the Difference Between Same Day ACH and Real-Time Payments? A Treasury Professional Primer

The U.S. payments system has undergone some important changes over the past few years. Consumers and businesses have been clamoring for faster payments, which has led to a push for speedier digital transactions. Same-day settlement was seen as a way to dramatically improve payroll, bill payments and person-to-person transactions. For businesses, digital transactions have been viewed as a way to increase efficiency across the payment value chain, in particular by reducing reliance on cumbersome, manual paper check processing, improving liquidity, boosting efficiency, lowering costs and helping prevent fraud.

The changes currently underway are seen as an important step toward real-time payments. However, there remains some confusion about the differences between Same Day ACH payments, which are settled within hours, and real-time payments that are settled within minutes or even seconds. The following is a brief primer on the major differences.

Same Day ACH: A Phased Approach to Faster Payments

In order to facilitate same-day funds settlement in the ACH network, the National Automated Clearing House Association (NACHA) introduced the first phase of new rules late last year. As a result, instead of settling ACH transactions in one to two days, the option of settling funds within 24 hours is now available. A “same day fee” is included with each Same Day ACH transaction to cover the costs associated with the faster settlement process. The second phase, which will begin in September of this year, will make Same Day ACH available for debit entries, enabling faster processing of virtually any ACH payment. The final phase, which starts in March 2018, will require that receiving depository financial institutions make bank credit funds available from same day ACH credits to depositors on the same day.

Real-time Payments: Task Force Working to Set Future Standards for the U.S.

Research by the Federal Reserve Bank (Fed) found that 75% of business payees in the U.S. would prefer instant or one-hour payment speed. As result of these market demands, the Fed is looking to set new standards for how payments should be modernized in this country. At present, more than 35 other countries now have faster payment systems than the U.S. In an effort to catch up to the rest of the world, the Fed formed a task force of 380 representatives from financial institutions, government, consumer interest organizations, non-bank providers, regulators, technology solution providers and trade groups. This task force, which Fifth Third Bank serves on, is working to develop specific standards by 2021, which will be needed to make real-time or near real-time payments a reality in this country. The goals include putting rules in place that will allow funds availability to recipients within 30 minutes any time of the day or night. Also, senders will be able to initiate payments based on minimal information about the recipient, such as name or email address. And with the growing trend toward mobile banking and transactions, real-time payments will inevitably necessitate mobile capabilities.

Faster Payments Are Good News for Corporates

The development of Same Day ACH is an important step on the road toward real-time payments. Some corporates will have to adjust their infrastructure to accommodate same-day processing, but these changes are opening the door to new market opportunities, efficiencies and cost-savings. These changes will ultimately allow more information to be communicated, and to do so in a more secure way with the end objective of reducing fraud.

As the U.S. prepares for the coming of faster payments, we will begin to harmonize with the rest of the world, which is already several steps ahead of us in adopting real-time processing. Fifth Third is committed to ensuring that our corporate clients will be ideally positioned to take full advantage of the many business opportunities the modernized payment system will present, such enhanced cash flow forecasting, improved working capital and same-day payroll.

The views expressed by the authors are not necessarily those of Fifth Third Bank, National Association and are solely the opinions of the authors. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, National Association. Member FDIC.