As a bank customer, it is difficult to fully understand how the everyday transactions we have come to depend on can move so rapidly and affordably. Most of us don’t even seem to think twice about what really goes on behind the scenes within the financial system.
What does happen behind the scenes is that billions of dollars move stealthily through the financial system via an intricate network payment system called the Automated Clearing House (ACH). When consumers sign up for online bill pay or have received a paycheck deposited directly into their bank account, they have benefitted from the ACH network.
What Is The ACH Network?
The Automated Clearing House network, also known as the ACH, is a payments system that is regulated and managed by Nacha, (previously known as the National Automated Clearing House Association which was founded in 1974.)
ACH payments are processed by the U.S. Federal Reserve. Another company, The Clearing House, also processes these payments. They are owned by the world’s largest commercial banks.
The Clearing House’s ACH payment service known as EPN or Electronic Payments Network is in charge of almost half of all the U.S. commercial ACH payment volume. The other half of the ACH transactions are done via the U.S. Federal Reserve.
This payment system enables ACH transactions for use with direct deposit, payroll, tax refunds, tax payments, consumer bills, and more payment services within the U.S.
Nacha launched Same Day ACH in 2016 with this goal:
“to move the ACH Network from today’s single, next-day settlement to multiple, same-day settlement options that would be available for virtually any ACH Network transaction.”
Currently, most ACH payments are settled the next business day. This rule enacted by Nacha will allow ACH “Originators”, that prefer same-day processing, to submit same-day ACH transactions to accounts at any receiving financial institution (RDFI). This Rule comprises a “Same Day Fee” on every Same Day ACH transaction. It allows RDFIs an opportunity to recover their costs for allowing and supporting Same Day ACH.
Fast forward five years and the network has experienced massive growth both in value and number of payments through Same Day ACH. At its inception, adoption rates were considerably slower, however, its increasing availability has been the main driver for its rapid growth.
Fueled by the pandemic and the exponential growth of digital payments, an extraordinary amount of these payments were processed through the ACH Network.
The growth rate of Same-Day ACH has been nothing short of impressive. Within the first six days of processing in September 2016, there were approximately 1.3 million payments valued at almost $1.5 billion transferred via Same Day ACH.
In the first two quarters of 2021, there were over 291 million debit and credit Same Day ACH payments worth $439 billion. With an increase of 86.3% and 123% respectively, it is clear that Same Day ACH has been carried by the massive wave of “digitization”.
Michael Herd, SVP of ACH Network Administration at Nacha, states:
“It really has had a significant impact and change of trajectory since we first launched it. The cumulative tally since its 2016 launch now stands at more than 1.2 billion payments transferring over $1.5 trillion.”
More enhancements are underway for Same Day ACH. Thus far, they have added debit processing, increased the dollar limit, expanded available hours, and sped up funds availability. Another increase in the dollar limit will be implemented in March 2022. It will raise the dollar limit for Same Day ACH to $1 million per payment.
Same-Day ACH has certainly grown some very deep roots in just a matter of five years. It is filling a void where consumers and businesses want faster payments.