Payments looking forward

This year’s Smarter, Faster Payments Conference, staged by Nacha in Miami Beach, was in part a celebration of the 50th anniversary of the ACH network, however, a far greater share of the agenda, was dedicated to the path ahead, including payment vehicles not directly tied to the ACH network.

Notable among the prominent topics were real-time payment rails FedNow and RTP, the implications of open banking, and the emerging potential of a pay-by-bank model, which could enable merchants to circumvent card interchange by leveraging ACH rails.

These conversations took place against a backdrop of continued ACH momentum.

Nacha reported first quarter volume of 8.2 billion transactions conveying $20.7 trillion of value, representing year-over-year growth of 5.6% and 5%, respectively. Nacha Executive Vice President of Network Administration Mike Herd pointed out that ACH volume has increased by at least $1 trillion in each of the past 11 years.

Though still a small share (roughly 3.5%) of overall network activity, same-day ACH traffic is growing at a 47% clip, which seemingly validates Nacha’s hypothesis that the various faster payments rails are complementary rather than competitive. Herd observed that the growth curve for eight-year-old same-day ACH is remarkably similar to The Clearing House’s RTP network since its November 2017 launch.

Executives from Nacha, the Clearing House (TCH), and Federal Reserve Financial Services (FRFS) shared a consensus expectation for a greater number of overall payments driving growth more than cannibalization from existing channels during a panel on the future of faster payments. All agree that various use cases are better suited for different rails/delivery timings, and Nacha CEO Jane Larimer says there are “no illusions that ‘ACH Classic’ is going away.”

TCH and FRFS sounded broad agreement on the prospects for their competing real-time networks. Although FedNow has already surpassed RTP in the number of enabled financial institutions (734 versus “over 600”) since its summer 2023 launch, the six-year-old RTP maintains a significant volume advantage thanks to its head start and activity at the largest banks.

All parties agree that the lack of a U.S. governmental mandate inhibits the type of explosive real-time adoption seen in recent high-profile cases in Brazil (Pix) and India (UPI). All set expectations for a gradual multi-year ramp, though faster than the trajectories of recent launches.

Concerns over the irrevocable nature of instant payments, and fraud risk of credit-push models in general, generated interesting pushback, with checks serving as a convenient punching bag. According to TCH CEO David Watson, RTP push payments are generating the lowest fraud rates across all TCH payment instruments, with checks running highest.

ACH’s unique design that enables both debit (pull) and credit (push) payments, which today comprise roughly equal shares of network transactions, says Larimer, who acknowledges credit push fraud is “more difficult to get your arms around, due to the social engineering aspects,” but points to pending Nacha rules instituted in response. Many are not required until 2026 (a subset takes effect this fall) but she points out this is a deadline, and that some organizations have already begun implementation.

On the pay-by-bank front, several industry experts suggested it’s not a new product so much as a renewed awareness of an existing category, much like “buy now pay later” refreshed layaway plan financing models. With digital wallets increasingly capable of managing the mechanics and merchants doggedly pursuing avenues to lower the cost of acceptance, this could well become the use case that propels the next wave of ACH growth.