The Road to Same-Day ACH: Part I

Posted by Bethany Frank on 15 Aug 2017

What is the ACH Network?

The Automated Clearing House is a network that connects financial institutions in the United States, allowing banks and credit unions to transfer data and funds between each other. According to NACHA, the association governing the network, it is “a batch processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing.” This means the system only processes transactions at specific times.

The terminology might seem uncommon, but most people are familiar with ACH. It’s the kind of transaction that takes place when an employer deposits a paycheck directly into an employee’s checking account, or when someone uses Venmo to send money to a friend. In these instances, funds are transferred from one party’s bank account to another’s via the ACH Network.

How is Same-Day ACH Different?

When a business or an individual initiates an ACH transaction, information from one bank is routed to the bank receiving the funds. Banks collect bulk files of this information throughout the day until it can be submitted for processing. Until Phase 1 of the Same-Day ACH rollout in September 2016, there was only one window per business day for banks to submit batch files - an obvious problem as demands for speed and instant results increase.

There are now two windows during which banks can submit files for processing: one at 10:30 AM ET, and another at 2:45 PM ET, with two settlement windows at 1:00 PM ET and 5:00 PM ET. A third processing window will be added as part of Phase 3 in 2018. With these additional windows, payments made via Same-Day ACH will be posted within one business day or less. Same-Day transactions are processed the same way as regular ACH transactions, just faster.

What Else is New?

Phase 1 of the rollout made it mandatory for financial institutions to accept and process Same-Day ACH credits, or the ability to push funds from an account. This is especially useful for sudden payouts like emergency payroll, or insurance disbursements in the event of a natural disaster. Other expedited payment options are often more expensive and less transparent, making Same-Day ACH credits a better alternative in these kinds of situations.

Beginning September 15, 2017, Phase 2 will also make it mandatory for financial institutions to accept and process Same-Day ACH debits - the ability to pull funds from a bank account. Businesses can utilize Same-Day ACH debits to quickly pay vendors for supplies, or offer customers the ability to make last-minute bill payments. In March 2018 it will become mandatory for financial institutions to make funds transferred via Same-Day ACH available to payees by end of business on the day a transaction is initiated, completing the phased rollout.

Businesses have diverse payment needs. Same-Day ACH is a convenient new option in cases that call for expedited payments. It costs less and provides greater insight into cash flow than comparable alternatives. It can also help businesses increase customer satisfaction and reduce risk. Stay tuned for part two of this series as we dive deeper into some of these benefits, and be sure to check out our blog for more on payments innovation.

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Bethany Frank Senior Marketing Associate Bethany specializes in content and events as part of Alacriti's marketing team. She's a graduate of Rutgers University and has a background in writing, broadcasting, and digital media. Fascinated by the intersection of technology and human nature, Bethany is out to explore what drives consumers in such a fast-paced, digitally connected world.

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