In Part 1 of our blog series on Automated Clearing House (ACH) payments, we provided an overview of the ACH system, explaining some of its key advantages over other forms of electronic funds transfer and detailing ACH’s exponential growth over the past few years.
Given the popularity and utility, ACH payment providers stand to reap significant benefits from offering the capability to their consumers and business customers alike.
But they must think beyond merely offering ACH. To fully leverage ACH as a compelling competitive advantage, ACH providers must meaningfully differentiate their ACH offerings by optimizing functionality around three key concepts: speed, risk and control.
In this edition of the ACH blog series, we’ll focus on the first of those aspects, revealing how ACH processing times can be significantly reduced, enabling users to make payments and receive funds quickly, while preserving security and mitigating operational risk.
Streamline payments with same-day ACH processing.
As discussed in Part 1 of this series, ACH payments offer several advantages over other forms of electronic money transfer, but one traditional shortcoming of ACH is speed.
Payment requests made via the network must be verified by the sending bank and accepted by the receiving bank, a process that takes at least two business days to complete from the time the request is made.
What’s more, banks either process ACH transfer requests once a day or in batches–typically three per day–as opposed to in real time. That means a request made after the cutoff time for a given day’s final scheduled batch will have to wait until the next business day to begin processing.
Taken together, those delays mean it can take at least three, or often up to four or even five, business days for an ACH transfer to complete from the time it was initiated.
However, significant progress is being made to enable faster ACH payments. The National Automated Clearing House Association–the ACH system’s governing body–in recent years has required banks to allow same-day or next-day processing of ACH payment requests. That means that, as long as the electronic payment request is submitted before the same day cutoff for the day, it's possible for the money to be received within 24 hours.
While not all transactions are eligible, same-day processing usage is growing fast and same-day ach processing times are improving. In 2022, same-day ACH transaction volume passed the $1 trillion volume milestone, increasing a whopping 85.9 percent over 2021.
Getting a grip on ACH hold days.
To further maximize the speed of ACH transactions, payment providers can enable clients to reduce the number of “hold days” during which the recipient can approve or deny the request before the transaction is processed.
While such hold days generally are recommended to verify the validity of payment transfers, providers such as Galileo offer the ability to reduce or eliminate hold days in certain situations, based on the provider’s agreement with its program sponsor bank; for instance, in cases where the transaction amount is low, the customer has a good payment history and/or the risk models indicate a low probability of the transaction failing.
That shorter hold day period reduces the time it takes for the payment to be processed, meaning providers can offer their customers faster payment receipt and debit card funding, among other value-adding use-cases.
Significantly, Galileo’s application programming interface-based hold days override feature works on a per-transaction level. That flexibility means a client payment provider may specify the hold days to be reduced or eliminated only in cases where the customer has never had a rejected payment, for instance, or only for an initial interaction with a new user, as a way to offer a differentiated first-time customer experience.
Combined with same-day ACH, Galileo’s hold days override capability enables funds to be available to the recipient within hours from the time the transfer request was initiated.
Faster ACH drives value for business and consumer users.
Such frictionless and fast money movement is particularly valuable to small and midsize businesses (SMBs), for whom cash flow management is an ever-present issue–and one that has become particularly challenging amid the current economic turmoil and supply chain complications.
Amid that backdrop, offering SMBs the ability to receive funds via ACH payments quickly can significantly improve cash flow and eliminate headaches around day-to-day financial operations, giving SMBs the time to focus on other aspects of running and growing their business.
But faster ACH also can be a compelling value proposition for providers serving consumer audiences.
Beyond the enhanced convenience of quicker money transfer in general, hold days override functionality offers a way to address one of the biggest challenges to growth and activation of consumer payment products; the lag time between account opening and funding–a gap during which a high percentage of new users forget about or lose interest in a payment product.
This pitfall on the road to long term customer engagement and value can be overcome by getting a payment product funded as quickly as possible, in this case, by initiating a same-day ACH debit request with 0 hold days specified. By enabling a newly signed customer to begin spending right away, this fast funding process drives a positive user experience and establishes stickiness that will pay dividends in the long run.
Along with hold days override, Galileo also offers other capabilities designed to increase the speed of ACH payments, including ACH Early Pay, which enables payment providers to offer account holders early access to paychecks or tax refunds they receive via direct deposit.
With payments moving closer toward a real-time servicing paradigm, the above examples are just some of the use-cases in which ACH providers can stand apart from the competition by meeting consumer and business users’ ever-increasing need for speed.
Now that we’ve explored how payment providers can differentiate their offerings by providing faster ACH transactions, stay tuned for the next edition in this blog series, in which we’ll discuss the next key ACH differentiator: risk mitigation.
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