Jason Campbell  00:03

Welcome to the Treasury Update Podcast, Coffee Break Sessions presented by Strategic Treasurer covering foundational topics and core treasury issues in about the same amount of time it takes you to drink your cup of coffee. I’ll be your host Jason Campbell, business development leader as Strategic Treasurer. Welcome back for another great episode of the Coffee Break Session. I know that we’ve already had two great, wonderful episodes, you know, talking about ACH and just kind of some formatting and how the data parts work. And I think this one is a really good topic to talk about, which is same day ACH. So I’m really looking forward this conversation and chatting with me today is Craig, Jeffery, our managing partner at Strategic Treasurer. Craig, again, thanks for being on the show today.

Craig Jeffery  00:45

It’s a great day for a great podcast.

Jason Campbell  00:47

It’s a great day for a great podcast. Absolutely. Love it. All right, so kind of continue with our, our flavor this past couple of ones that we’ve done so far, you know, looking forward to this one too, as well. And I think it’s, as we get into talking more about payments and speed is everything in today’s world, how fast can I get at the speed of light, right? So today, we want to kind of dive into talking a little bit more about same day ACH. So Craig, kind of walk us through here, what is same day ACH?

Craig Jeffery  01:17

So ACH, automated clearing house, transfers are electronic transfers in the US, they use the Clearinghouse network for moving funds. And that’s a batch system. So it has historically started out everything was settled in one or two days typically could be future dated as well. Same day ACH kind of breaks that mold.  It’s still batches, but it breaks the mold in that payments can clear the same day, still using the, I’ll call it the legacy ACH platform, which is a batch, you know, store and forward system, with certain windows, all of those are geared towards the earliest would be the next business day, same day, ACH moves that up. So it uses that method and system, but speeds it up so that those transactions can clear the same day as long as you meet the different windows of time.

Jason Campbell  02:12

So according to NACHA, that, you know, when you look at the growth of same day, ACH year over year growth, just from 2020 to 21 was 73.9% and payments, and 105% increase in just overall dollars. When you look at a total of 603 million payments for same day ACH, I think there’s a pretty good demand out there. And looks like it’s continuing to grow. So talking about this a little bit more in depth here. What are some use cases for same day ACH?

Craig Jeffery  02:44

Yeah, Jason, before we go into some use cases. So I mean, the growth is the growth is helpful. I mean, 603 million payments in 2021. That’s just under two payments per person in the United States. So not massive numbers, a lot of room to grow. But you can see that there’s, you know, any any payment method that’s, that’s growing in high double digits, like 74% is experiencing some helpful growth. Yeah, so the use cases for same day ACH, because they’re not instant, you know, and it’s different. Like on the consumer side, we’re used to different payment methods, like, you know, you might use owl that settles through banks, and it’s almost instantaneous, where you can transfer up to a certain amount, person to person, and then you know, eventually person or person to business as well. But this idea of being able to transfer on the same day basis, some of the use cases would be if there’s a mistake in payroll, how do you get money to people that are upset, you know, they were shorted $50 or something failed, they don’t get paid at all. So payroll fixes is one type of use case, making smaller vendor payments is another one that occurs. benefit payments, some insurance companies are using same day ace ACH to make those settlements. Same thing with like RTP. On there’s different payment methods that are closer to real time closer to instantaneous, but this benefit payments are another one, the gig economy, people making payments, so things like using RTP or same day ACH, those, those are types of methods that people can make payments, where they’re almost instantaneous if you had the windows.

Jason Campbell  04:24

So obviously you have that, that kind of that same day versus something that batches or clears within you know, three to five business days are however, it’s set up to go. Are there any restrictions because obviously, same day, you would think that it’s almost kind of a little bit a little wary about, you know, how the transactions that occur, but I’m just kind of curious, are there any restrictions to it?

Craig Jeffery  04:43

You know, in most of these faster payment schemes, these set systems that are set up, that provide Faster Payments, either new payment rails or a method of delivering payments faster. This is the same payment rail but delivery methods, payments faster.  In 2020, before 2020, the transaction limit was $25,000. In 2020, it moved from 25,000 to 100,000 US. So it was a quadrupling of the value.  In 2021, that the limitations were also timely, but they extended it the windows by two hours in 2021. And then in 2022, last year, the limit grew tenfold, from 100,000 to a million. And so this increase the limits, I mean, all of these faster payment systems start low in terms of limits on value, and then they increase the value that can be transferred over time as the process becomes simpler, safer, more controlled, giving you a little bit of time to grow. You see that in the UK, you see that all over the world, you see it with same day ACH, now it sits at a million dollars, you know, transaction limits, you know, when it’s $25,000, corporations can’t really use it for mobilizing their cash because you know midsize corporation above its, its, that’s too small. And when you get to a million dollars, now that covers a much larger number of transactions or movements that instead of using a wire, you could use a same day, ACH transaction.

Jason Campbell  06:11

Which only makes sense. I mean, anything that you have, from a standpoint as a platform or structure that is progressive is growing, right? You want to dabble a little bit here dabble out there just to make sure that they’re nothing’s overlooked, especially when you think about large amounts of money and how fast everything can circulate in today’s automated world. So it totally makes sense to have you got to have some type of guard or something to make sure everybody’s protected one way or the other, both on the sending and the receiving side of things, which totally makes sense. And so and I was going back through our podcast, and you know, going back through the ACH conversation that we have.  You know, and I also look at, you know, speed is everything in today’s world we want to now and as I think about same day ACH, why is it not the sole standard for ACH transactions?

Craig Jeffery  06:56

Well, to your comment, you know, speed is everything, you know, it depends. Speed is, speed is extremely important in certain situations, like you really need something fast. You’re doing a closing on the house and you’re trying to you know, you’re trying to pay the law firm, or you’re trying to pay the mortgage company, those transfers have to occur. Speed is essentially everything or most everything at that those points. Everything’s getting faster, but not everybody needs instantaneous payments. So Faster Payments where I can pay three times a day or I would say with the same day ACH, I can pay more quickly. There’s value in that.  To your question, I think, as you said, Why is same day not the sole standard for ACH transactions, I think I think same day ACH is a very clever way of using an existing payment network, existing payment rails and allowing it to move faster without creating a whole new payment rail, right. It’s designed for batch and forward, overnight running processing huge amounts of payments. In a batch mode, not in a you know real time. You think of real time gross settlement systems like wire transfer systems like the Fed wire in the US, it’s meant for processing payments really quickly, but it’s really expensive and it moves quite rapidly. Well, that system is designed for that.  You’re never gonna get the low cost of a batch and forward system. And so this is a it’s just a clever way to use the ACH network in a way that’s not overnight. So it provides a pressure release valve, I think, for doing these types of transactions without having to completely gut the entire system to operate differently.

Jason Campbell  08:35

Actually makes good sense there, you know, and I, in my mind, I’m just like, you know, how fast can I get my money, right? I mean, I think that’s but it’s you’re right there. There’s certain organizations certain parameters and stuff like there’s like, hey, let’s let’s take time and imagine also to like, the higher the amounts, you know, again, the more fragile you want to be with, to ensure that everything is safe and smooth going through. So excellent points there. Well, thank you for joining me today, Craig. I really appreciate it again. And for our listeners, please be sure to tune in every first and third Thursday of the month for a new episode of the Coffee Break Session. As usual. If you have any comments, questions or feedback, please send us a note at podcast@StrategicTreasurer.com. Until next time, take care.

Announcer  09:21

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