Raising the cap for faster payments was like bursting a dam for Yasser Abou-Nasr, who sees a chance for Dwolla, his payments company, to connect to a whole new category of digital transactions.
“This opens up a larger addressable market for us, with new businesses and new industries for faster payments,” said Abou-Nasr, senior vice president of products at Dwolla, which provides API connections to the ACH network and the RTP instant settlement rail.
Nacha, which oversees Rail ACH, increased the same-day transaction limit to $1 million from $100,000 in March, following a hike in March 2020 from the original limit of $25,000.
The most recent bullish response was immediate. In March 2022, same-day ACH volume was $115 billion, a 42% increase from February, when volume was $81 billion. In April, same-day ACH volume was $177 billion, a 54% increase from March. Average volume per same-day payment increased from $1,681 to $2,827, putting it just above the $2,679 average for a standard ACH transaction, which has a penny limit under 100 $000,000 per transaction.
“This surge was expected to create use cases and improve other use cases for same-day ACH, and it did,” said Michael Herd, Senior Vice President of ACH Network Administration at Nacha.
The impetus comes primarily from business-to-business transactions, which tend to be larger than consumer payments and also address the need for improved supply chain finance, according to Herd.
“You may have a case where payments are due upon delivery of a product, for example, and same-day helps with that,” Herd said. Payroll and insurance disbursements are examples of how the higher limits can support transactions involving consumers, he said.
Same-day ACH is one of many options for expediting trade settlement. The Clearinghouse’s RTP rail offers instant settlement and bolsters bank support, while the government-based FedNow rail is in development. Same-day ACH is gaining momentum as a choice that isn’t instantaneous, but still reasonably fast under 24 hours.
“ACH is really hot right now, we’re seeing it growing on a hockey stick curve,” Abou-Nasr said.
With the higher ACH limit on the same day, Dwolla plans to approach insurance technology companies, construction companies, supply chain and logistics companies. These businesses may not require instant payment settlement via RTP rail, but could benefit from the slightly “slower” same-day ACH, Abou-Nasr said.
Dwolla, which has its roots in mobile wallet support for digital payments, has become more aggressive in enabling faster payments over the past year. Dwolla in 2021 created a partnership with Cross River Bank in New Jersey to connect to The Clearing House’s RTP rail to support real-time payments for business customers.
But instant rail has not yet reached the whole market. More than 200 banks use the RTP rail, which debuted more than five years ago, covering around 70% of US checking accounts. But to date, the overall adoption of RTP by banks has been gradual, with banks cite challenges adopting other payment innovations such as buy now/pay later loans as a reason to move more slowly on RTP.
Real-time billing, or request-to-pay (RfP), uses the RTP rail to support paying bills in near real-time or at a specifically scheduled time. This category has attracted major banks such as Citigroup, Bank of New York Mellon, JPMorgan Chase and PNC Financial Services Group. But dozens of big banks and thousands of smaller financial institutions offer neither RTP nor RfP. As the economy slows, banks expect adoption to increase as a way to mitigate overdrafts. And the government-backed FedNow railroad won’t be active until 2023 at the earliest.
In a previous interview, Attie Muse, director of payments strategy and operations for Verizon, which is participating in real-time billing trials with multiple banks, said ubiquity among banks is needed for real-time payments to take hold. Muse also said that instant settlement is unlikely to be necessary for all payment types or in all cases.
Abou-Nasr of Dwolla said that if the preference is to move as much volume as possible to instant settlement rails, same-day processing can serve a large market as the ACH network already covers more than 10,000 financial institutions.
“Some are still hesitant to move entirely on RTP. And there are other rails that are available for faster processing,” Abou-Nasr said. “While the pace of RTP adoption may be slow, there is also the ACH rail that expands use cases with the higher daily ACH limits. It helps to have parallel rails.”
While fees vary, same-day ACH costs about double the fees of a traditional ACH payment, but also about half of an RTP transaction, Abou-Nasr said.
“It’s worth pointing out that even standard ACH overnight is still faster than a check, and standard ACH has grown nearly 10% in the last year,” Herd said, adding that standard ACH payments of 2021 totaled $72.6 trillion.
Same-day RTP and ACH can coexist, according to Gregory MacSweeney, vice president and head of communications for The Clearing House.
Same-day ACH may be the preferred payment method if the sender is already used to sending by ACH because they don’t need to change their process, MacSweeney said. But there are also reasons to favor RTP, he said.
“The RTP network also offers additional features not available on same-day ACH, such as immediate confirmation of payment – so the sender knows that payment has been received – and services, such as RfP, which enable payment bills,” MacSweeney said.