The payments industry is experiencing unprecedented change as we move to modernize the U.S. payments system. Times of accelerated change such as these offer both challenges and opportunities. To navigate these changes well and to make the most of these opportunities, it is critical to stay abreast of new developments.
NEACH’s monthly faster payments executive summary is designed to help you do just that by informing you about the latest news and trends in the world of faster payments. Our goal is to give you the information you need to make thoughtful, informed decisions in response to today’s changing payments landscape.
Here are a few of this month’s highlights.
NACHA—THE ELECTRONIC PAYMENTS ASSOCIATION
Same Day ACH volume grew 192 percent over the same period last year. In a recent news release, NACHA stated:
The number of ACH payments totaled more than 5.6 billion in the third quarter of 2018, a 6.7 percent increase over Q3 2017…The ACH Network’s strong performance is driven in large part by online and business-to-business (B2B) payments.
More than 3.3 billion ACH debit and nearly 2.3 billion ACH credit payments were made in the third quarter of 2018. During this same period, B2B payments increased by nearly 10 percent with over 896 million payments completed. Healthcare EFT payments, a healthcare industry standard for claim payments from insurers to providers, also increased by 10 percent to 77 million payments. In addition to B2B growth, online ACH payments increased by 14 percent and totaled 1.5 billion.
Over the next two years, NACHA, in its ongoing efforts to meet the needs of businesses and consumers, will continue to expand Same Day ACH with new offerings—faster funds availability, a higher dollar limit, and later processing hours.
According to NACHA: “The faster funds availability rule will go into effect on September 20, 2019; the increase in the per-transaction dollar limit will begin on March 20, 2020; and the new Same Day ACH processing window with expanded hours will start on September 18, 2020.”
Meanwhile, the Federal Reserve continues to spark discussion and debate in the industry.
THE FEDERAL RESERVE
The Federal Reserve Board on Oct. 3, 2018, issued a Request for Comment, inviting public comment on actions they could take to support faster payments in the United States. Specifically, the Fed is inviting comment on the potential of building a real-time gross settlement (RTGS) system to promote ubiquitous, safe, and efficient faster payments in the United States. The Fed is looking to assess the potential actions under consideration for achieving this, which include developing:
- A service for real-time gross settlement (RTGS) of faster payments that is available to conduct settlement of individual transactions on a 24x7x365 basis; and
- A liquidity management tool that would enable transfers between Federal Reserve accounts on a 24x7x365 basis to support faster payment services, whether provided by the private sector or the Reserve Banks.
According to the Fed, aligning settlement speed to the real-time nature of the underlying payment would provide a safe and efficient foundation for the next generation of payment services. This RTGS system is being examined in other geographies around the world, including Europe and Australia, but brings significant questions on whether it would work in the United States.
With the launch of the Federal Reserve RFC, interest in faster payments and payments in general is growing in Congress. On Monday, Oct. 29, 2018, the Congressional Black Caucus sent a letter to Governor Powell urging the Fed to move forward with its proposal. In response, others are urging a mandate of faster payments in the U.S.
Is this simply an acceleration of the modernization of the U.S. faster payments system, or does growing interest by Congress suggests that regulation may not be far behind? Only time will tell. However, we can expect to see massive disruption and modernization in the U.S. payments system in the next three to five years.
In other news, Zelle and Venmo continue to pick up speed.
According to PYMNTS.com, Zelle, backed by Bank of America, JPMorgan Chase and other financial institutions (FIs), reported transaction volume increased 16 percent year-over-year with an increase of 13 percent in the total amount of money moved during Q3. During that same time, Zelle processed 166 million transactions and $32 billion worth of payments.
In related news, PayPal’s Q3 financials revealed that Venmo’s total payment volume increased by 78 percent year-over-year, hitting $17 billion. PayPal is now on course to monetizing Venmo. In September 2018 alone, Paypal reported processing more than $1billion in instant transfer volume in Venmo.
We expect the competition between Zelle and Venmo to remain fierce as we approach the Q4 finish line. Who will come out on top? Only time will tell. But regardless of who gains the greatest market share, one thing is certain--the real winner is the customer.
In this movement to modernize the payments system, the industry is also seeing a growing trend in collaborative and innovative partnerships between FinTechs and financial institutions. In an increasingly competitive and regulated market, financial institutions will have to work together with FinTech companies to provide the services their customers are looking for.
Toward that end, NEACH explored the intersection of FinTech and Financial Institution Innovation at a special event on November 14, 2018. The event, Innovating Payments 2018,brought together speakers from both worlds to discuss, present, and engage with attendees on innovation topics and strategic directions.
To stay abreast of these and other new developments in the world of faster payments, visit NEACH's Pacing Payments website.