Faster Payments Plan Is Still Too Slow, Critics Say

A 2012 proposal to enable the processing of electronic transactions on the same day they're initiated died unceremoniously. But now there's a renewed push for faster payments.

The new goal — laid out Tuesday by Nacha, the bank industry group that sets the rules for the network that connects every U.S. bank and credit union — is to phase in same-day capabilities in three stages, rather than all at once.

The revised plan drew a mixed reaction from backers of a speedier system. They said the staged approach should help assuage the concerns raised by the earlier plan's opponents, but it's also likely to slow the implementation process.

"It's going to be a slow grind, but we need to move it along," said Bob Steen, chief executive officer of Bridge Community Bank in Iowa, who is a former Nacha board member and an outspoken supporter of a faster system.

Today almost all payments over the automated clearing house network wait until the next weekday to be completed. Under Nacha's proposal, those payments would eventually be processed twice each weekday. But the overhaul would fall well short of the near real-time systems that have been built in the United Kingdom, Mexico, Sweden and other countries.

Nacha hopes to hold a vote on a specific proposal, perhaps about a year from now, after listening to comments from banks, credit unions and users of payments system.

"We do want to seek feedback," said Janet Estep, Nacha's president, "because certainly implementing across some 13,000 financial institutions across the United States is not a simple task."

Estep demurred when asked how soon the speedier payments system might be fully built. "At this point, it probably is most prudent to say that we do not have any firm timeline because we are seeking input," she said in an interview.

The step-by-step approach could give banks more time to make costly upgrades to their computer systems. The expense of making technology improvements is widely seen as a key reason some big banks opposed the 2012 proposal to modernize the automated clearing house network.

The Clearing House, a trade association that represents large banks and was the most visible opponent of the 2012 proposal, declined to comment on Nacha's new plan.

Under the three-phase approach, banks would first make improvements to enable their customers to push money into other accounts without enduring waits of a day or more. Examples of this type of service include the direct deposit of paychecks by employers and person-to-person payments.

The second phase would allow bank customers to pull money from other accounts on the same day the request is made. This type of payment is often used to allow automatic bill payments to be deducted from consumers' checking accounts each month.

In the final implementation phase, banks would enable their customers to make same-day payments twice each weekday. This move is designed to help banks, businesses and consumers located in the Pacific time zone. Under the earlier proposal, West Coast banks would have needed to submit their transactions by 11 a.m. Pacific time to squeeze into the same-day window.

Elizabeth McQuerry, a payments consultant at Glenbrook Partners, expressed disappointment with Nacha's new plan. She said that settling transactions twice daily falls far short of what's needed.

"That's a Band-Aid. It's a short-term solution," McQuerry said.

She noted that numerous proprietary near real-time payment systems are already being built in the United States. Unless a parallel system is built to link every bank and credit union, payments will become more fragmented, she said.

McQuerry also noted that Nacha's announcement lacks important details. "It doesn't give us any timetables," she said. "We're talking about years here."

Steen, the Iowa community banker, made a similar point, but suggested that Nacha is moving about as quickly as the organization's membership will allow.

"I appreciate the leadership. And I hope the industry moves along with it," he said. "I know the timeline is going to be long and tedious, but I think they're doing what they can do."

Nacha also said Tuesday that it's launching a study to assess how much it would cost banks to implement the proposed improvements, as well as the potential volume of payments that would move across an upgraded system.

Nacha's membership includes many of the nation's largest banks, in addition to more than a dozen regional payment associations that represent the views of financial institutions in specific geographic areas. Only Nacha members get to vote on the group's proposals, but the organization also solicits feedback from users of the payment system.

Tuesday's announcement follows the publication of a paper last fall by the nation's Federal Reserve banks, which envisioned the construction of a near real-time payment system linking every U.S. bank and credit union by 2023.

In February, after soliciting public comments on its 10-year vision, the Fed signaled that it is pushing ahead with its efforts to encourage the construction of a speedier electronic payment system.

Estep said Tuesday that she sees the Fed's activities as complementary to Nacha's revived effort. The kinds of improvements envisioned by Nacha will provide a foundation on which banks will be able to build other products, such as real-time payment capabilities, she said.