Alexa Cook  0:05 

Welcome to The Treasury Update Podcast Coffee Break session, the show where we cover foundational treasury topics and questions in about the same amount of time it takes you to drink your coffee. This is your host Alexa and I’m joined today with Craig Jeffery, Managing Partner of Strategic Treasurer. Welcome back, Craig.

 

Craig Jeffery  0:22 

Alexa, it’s good to be back. I think every time I’m on your Coffee Break series, and I say your name like picture people listening to this with their audio on, not in their ear, and devices answering.

 

Alexa Cook  0:36 

Yeah, that’s a good point. Every conference call I enter I say, “Hey, hey, Alexa is here” and the “Hey, Alexa” together is never a good thing to say when you know people have stopped playing out loud. But yeah, so today we’re gonna continue on our payment series, I guess and we’re going to be covering same day ACH. So, Craig, if you could start us off by just kind of going through what our same day ACHs.

 

Craig Jeffery  0:59  

So ACHs is the automated clearing house. This is run by the National Automated Clearing House. This is a US based payment system. So, think of the Central Bank, the Federal Reserve, and then you think the National Automated Clearing House under that. So, this is the low value payment system. So, high volume, low value, so things like direct deposit of payroll, debits for your life insurance, many types of transactions run over the ACH rail. So same day ACH is different from traditional ACH because ACH is a system where it has typically been, for most of its history, been batch with a future date settlement. So, things might come in they settle two day, two work days, from now or one workday from now, but it’s been largely batch. So, what same day AHS is doing is taking an existing settlement system and platform that was done on a batch basis and speed up those batches to allow for more windows that can occur during the same day. So, instead of sending in this morning or this afternoon or this evening, and the transaction settled tomorrow, if you hit certain windows, they will settle during the same day. So, it’s while it’s not instantaneous, it’s not real-time. It’s happening the same day. So, it’s using and leveraging a very, very strong payment platform, providing some ways to speed up the settlement and still leverage this platform to do it in the same day. So, there’s three windows right now that you can have, and it’ll settle at certain times during the day.

 

Alexa Cook  2:45 

How long have these same day ACH has been around?

 

Craig Jeffery  2:49 

Yeah, that’s a good question. So, we’re in 2022 now this started in 2016. I think the maximum amount I’ll talk about some of the amounts too because what we see with a lot of these different payment schemes, faster payment schemes, real-time payment schemes, is they’ll start with a lower limit. And then as it’s proved and people get less scared about security, they can increase the amount. So, it began I believe the cap was 25,000 or it was until 2020. So, it may have started out lower than that, but it was the most you could send was 25,000 then it increased to 100,000. That limit lasts until March 17th, 2022. So, we’re recording just before that thing, and I’m not sure when this will come out, but it’ll probably come out after that date and the new limit will be 10x that, so it will be a million dollars US that you can do through same day ACH.  So that that that’s a pretty significant, I would say game changer for what happens with same day ACH.

 

Alexa Cook  4:01 

Yeah, for sure. And when you’re saying limits, is that a single transaction single payment, or is that okay?

 

Craig Jeffery  4:08 

Yes, single, yep, single transaction.

 

Alexa Cook  4:12 

So, I guess are there any concerns with using same day ACH, or any cons?

 

Craig Jeffery   4:18 

So, the concerns that people have with the faster payment schemes, those are their significant, you know, across the board, not just for same day ACH in particular but for the faster payments generally, and the concerns are that they might not be as established. And second, the speed does the speed provide a greater opportunity for fraud in other words, they’ll move so quickly and settle so quickly, that money can be moved out of the banking platform. That tends to be the top concerns but for same day ACH now that they’ve gotten quite a few years under their belt, they’ve been progressing the amounts that can be transferred. This is lowering the concern level for fraud other than the normal frauds are an issue, criminals are more sophisticated. But you know, just having this amount move up to a million dollars means companies that might use it for concentrations like hey, this is really not very expensive to concentrate funds during the same day. They might be able to concentrate funds you know, $100,000 doesn’t really work with Fortune 1000 companies for their cash concentration activities, for the most part. Well, a million dollars covers quite a few more accounts, less expensive than wire transfers, etc. So, there’s definitely some opportunity and this fits with the ongoing growth of same day ACH.

 

Alexa Cook  5:47 

Since this was started really in 2016. Has there been a huge adaptation to it? Are companies shifting to it or are they kind of staying away from it, you know, despite those cons?

 

Craig Jeffery  5:57 

I think there’s continued adoption you know if we look at the ACH network volume. 2021, I’ll just go through a couple of the stats, there was just under 30 billion transactions in the ACH network last year. And that was $72.6 trillion of transfer. So, that’s about three quarters of the GDP of the world. Somewhere in there. So, it’s a significant amount of money flowing through the whole system.

 

Alexa Cook  6:27 

30 billion in 2021 is huge, Craig, do we know how much of that is same day ACH?

 

Craig Jeffery  6:32 

Yeah, same day, ACH has been growing rapidly, but as you know, the ACH networks been around multiple decades, and is quite substantive as we look at that. So, in 2021, little over 600 million transactions, just under a trillion dollars went through for same day ACH, so just thinking about that in the growth period, the volume of transactions 74% increase since the year prior since 2020. On the value close to a close to a trillion, nine hundred and fifty billion. That’s almost double what 2020 was from a value perspective. So, we do expect that to get dwarfed when the number moves up to a million and that can be used for concentration purposes. But both in terms of volume and value, you know, it’s over 1%, but less than 2% of the ACH network traffic. So, it’s taken six years, it’s still under 2% and we’re still seeing pretty significant growth rates, but only to see significant growth rates like that for multiple years to get into the 15% target area. I say target area, I am thinking that would be a substantive part of what is occurring.

 

Alexa Cook  7:51 

So, I think we’ve got time for one more question. And I know earlier you had mentioned the different windows or the three batch windows for ACHs, the same day ACHs, did you maybe want to go into a little more detail on that?

 

Craig Jeffery  8:03 

Sure. So, there’s windows for next day, ACH. You submitted by a certain time to NACHA, and they’ll settle it through the network for the next day settlement. There’s also same day windows. So, I’ll use times in Eastern time. So, if you get anything in by 10:30 Eastern Time, that’ll be distributed out to the network by noon and settlement will occur by one, at 1030 window gets your settlement by one. There’s a 2:45 in the afternoon window Eastern time. That gets settled at five and then a 4:45. window, the input deadline gets settled at 6pm on the current day, so you’ve got 10:30 2:45 and 4:45 windows to submit it. They settle at one, five, and six, so that’s the current status of that.

 

Alexa Cook  9:02 

Okay, great. Just to do a quick recap of today. What our same day ACHs it’s really the automated Clearing House which is our US based payment system. It’s really taking the existing settlement platform and then speeding up those batches and those three timeframes that we had just talked about, and that’s really just the short highlight of it. I don’t know if there’s anything else you want to add quickly there, Craig.

 

Craig Jeffery  9:23 

No, I think that’s, that’s a great summary. You know, same day ACH is may not be as cool as some of the systems that you can settle anytime, on a very close to real-time basis. But this is a nice adaptation from a really reliable system that allows you to speed up payments. So, if you have to get pay to somebody where there’s mistake, you can still get it submitted in the same day without wiring that wiring people having to pay for them to receive a wire to the account or just doing fast transactions to recover from problems or to provide better service.

 

Alexa Cook  10:02 

Well, thanks everyone for tuning in this week. And make sure you join back every first and third Thursday for a new episode. And as always, we love hearing from you so if you have any questions, comments or topic suggestions, you can send us an email at podcast@strategictreasure.com. Thanks again, Craig.

 

Craig Jeffery   10:18 

Thank you, Alexa.

 

OUTRO 10:19

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