Key Learnings from the Same Day ACH Vendor Forum #1

By Chris Selmi, AAP, CRCM, SVP, Risk & Regulatory Compliance

Posted: April 6, 2016

I recently had the privilege of representing WesPay at the first Same-Day ACH (SDA) vendor forum hosted by the Federal Reserve Bank of Atlanta. This was organized as an opportunity for ACH software venders to discuss the details of SDA functionality with the Fed, NACHA, and the Regional Payments Associations. It was an extremely informative session and allowed leaders from across the payments spectrum to discuss the pending implementation.

My key takeaway from the meeting was the need for ODFIs (Originating Depository Financial Institutions) to address the impacts that SDA across their organization and particularly to their operation, even if they do not plan not to offer SDA origination services. I have two suggestions for all ODFIs to consider as we approach the September 23, 2016 implementation date of SDA credits:

  1. Stale-Dated Effective Entry Dates
    ODFIs cannot isolate their originators from the new logic that the ACH Operators will use to calculate settlement date when SDA goes into effect. This is especially important in how stale dated entries are treated. Any stale-dated entry that an ODFI sends to their ACH Operator before 11:45 am PT will receive same-day settlement and will be charged the same-day fee, even if the ODFI chooses not to formally offer SDA to their corporate originators.  If the ODFI wishes for stale-dated entries to receive next-day settlement as they do today, they will need to submit the Origination file to their ACH Operator between 11:45 am PT and 11:15 pm PT each day (after the second SDA deadline).
     
    Another way of saying this is that the ACH Operators will not be offering separate SDA windows and non-SDA windows.  There will still be four daily exchanges, where SDA logic is enabled for the first two transmission windows (at 7:30 am PT and 11:45 am PT) and the last two windows remain next-day settlement only (at 5 pm PT and 11:15 pm PT).  ODFIs will need to make sure their Originators use accurate Effective Entry Dates, and investigate what new controls or tools their ACH software vendors may provide, because any stale-dated or same-day dated Effective Entry Dates that the ODFI submits into the first two ACH Operator windows of the day will receive SDA settlement, whether that was the intention or not.

  2. New Afternoon Same-Day Return Window
    The ACH Operators will establish a new, optional 1:00 pm PT SDA returns window that will settle at 2:30 pm PT.  ODFIs should consider receiving this last daily SDA return file to ensure they have visibility to all ACH returns that are settling against their Fed account at the end of the day. This allows them to settle these returns with the Originators that day to avoid the credit/float risk of waiting to settle with the Originator the following business day.
     
    The challenge for ODFIs in the Western U.S. is that the Federal Reserve’s National Settlement Service window closes at 2:30 p.m. PT each day.  So they will most likely need to use the after-hours discount window to avoid any overdraft penalties.  ODFIs will need to have staff available in the evenings to work their ACH returns and settle with the Fed past 2:30 p.m. PT.  This may have a greater impact to financial institutions in the Eastern Time zones because it’s relatively later in the evening for them compared to the Western Time zones.  And of course this issue won’t manifest itself fully until SDA debits are allowed beginning on September 15, 2017. This afternoon return window already exists for checks, but volumes are still relatively low.  However, as returns shift from a two day to a one day process for both checks and ACH and volumes grow, financial institutions may feel a greater pressure to staff and work their check and ACH returns they are receiving each evening to ensure they are settling these returns with their Originators as soon as possible, and avoid Fed settlement account overdraft fees.

Summary
ODFIs cannot insulate themselves from the impacts SDA will have on the network.  Even ODFIs who choose not to offer SDA origination services will need to ensure they understand how the ACH Operator’s new settlement logic and processing schedule will impact their Originators and their internal reconciliation processes.

For more information about SDA please contact WesPay at info@wespay.org or toll-free at (800) 977-0018. 

Resources
FedACH processing schedule (effective September 23, 2016):
https://www.frbservices.org/files/operations/pdf/100715_fedach_same_day_schedule.pdf