As the pandemic winds down, both consumers and merchants are beginning to figure out what the “new normal” will be. This is especially true for the way they interact with money. People are paying at the register with their phones, and merchants are accepting alternative payment methods. The shift to digital payments has seen exponential growth, and an impressive number of those payments are transacted via the ACH Network.
To further discuss the growth of the ACH Network, especially during the pandemic period, as well as what’s new and up-and-coming for the payments powerhouse, PaymentsJournal sat down with Michael Herd, SVP of ACH Network Administration at Nacha, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.
A State of the Union for ACH
The state of the ACH is very strong. Due to the pandemic over the last year-and-a-half, there has been a shift in the way entities conduct their businesses, and there is a strong drive for all payments to be digital. This is pushing the ACH Network to new heights.
“We announced a record year in 2020 in terms of volume and volume growth on the ACH Network, but then our first quarter of 2021 exceeded any quarter in 2020,” said Herd. “ We started the year very, very strong. Volume growth in the first quarter was up over 11% year over year.”
Business-to-business (B2B) payments really stand out, with nearly a 20% year-over-year growth in B2B volume on the ACH Network. While B2B has always been an area of growth, the curve has not always been quite as steep. The ability to get small and medium businesses (SMBs) to use electronic payments for accounts payable, accounts receivable, payroll payments, and even other kinds of payments has been accelerated by the state of the country and the economy over the course of the pandemic.
Lastly, Same Day ACH had a volume increase of 88% year-over-year. “We had a strong growth rate before. But this year, so far, it’s double last year’s growth rate,” concluded Herd.
Same Day ACH Extended Hours
As of March 2021, the third Same Day ACH settlement window is live. The rule expands access to Same Day ACH by allowing Same Day ACH transactions to be submitted to the ACH Network for an additional two hours every business day until 4:45 p.m. With this extension, ACH payments are now settled four times each business day.
Before the rule went into effect, Same Day ACH capability in the western time zone would close before the end of the business day, while other time zones in the continental U.S. would have access to the faster payment method throughout much more of the business day.
So why is this important? The ability to use Same Day ACH for a greater period of time during the business day for things like paying invoices, collecting bills, and making payroll could be the different between a business’ decision to use or not use the technology.
“We have some anecdotal evidence that the window extension is currently being used and was even used on the very first day that it was available,” explained Herd. “I think it will have a significant impact [in] the long run.”
Per payment limit increase for Same Day ACH
An increase to the Same Day ACH dollar limit has been approved and will go into effect as of March 2022. The limit will increase from $100,000 to $1 million per payment. It will apply to all eligible Same Day ACH payments, including credits and debits for both businesses and consumers. “The dollar limit increases [have] always been at the forefront or top of mind, particularly to business users of the ACH,” said Herd, adding that it’s an enhancement that they’ve often asked for.
This could be particularly beneficial for tax payments, insurance payouts, and claim payment payouts to either a consumer or a business. Many of those will be above the current existing limit of $100,000 per Same Day payment . Additional uses include paying out the proceeds of a loan or collecting funds for payroll through an ACH debit.
“The increase is expected to have a positive impact on the users who are coming up with ways to make better use of the Same Day ACH capability. Just looking at what happened last year when our prior limit went into effect, it had almost an immediate impact on the use of ACH,” added Herd.
The average dollar amount of the Same Day ACH payment increased by 40% in just two months when the new limit went live. A similar outcome is expected when the new limit increase goes live.
What’s next?
It’s hard to know what the payments systems’ “new normal” will look like. But as 2021 progresses, the large-scale government assistance that resulted in a large volume of payments, many of which used the ACH Network, will be phased out. This includes the extensions of unemployment and government compensations.
Starting in July, the IRS will start to distribute the advanced child tax credit payments in a series of six monthly recurring payments throughout the rest of the year. These payments will continue to generate assistance dollars through the ACH Network.
However, other kinds of payments are starting to recover and rebound. For example, small businesses and the hospitality industry staff members are returning to work, which will result in more payroll payments. As for the B2B sector, it continues to recover and grow, resulting in more supplier type payments. Consumers are also spending more money now that their income is more stable, leading to more consumer bill payments.
“I think 2021 will be a very strong year for the ACH Network,” said Herd. “We’re seeing signals for ongoing adoption and stronger ACH usage.