ACH Improvements, FedNow Represent Future of Electronic Payments

The volume and value of ACH payments is consistently increasing, while the Federal Reserve prepares its FedNow instant payment platform, Nacha representatives said March 23.

The Automated Clearing House is an electronic fund-transfer system run by Nacha. “We’re all working toward the future,” said Jane Larimer, president and CEO of Nacha, a nonprofit trade association for electronic payments.

“The future is going to a place where you’re seeing 27/4 banking,” she said.

In 2022, the ACH network handled 30 billion transactions totaling $77 trillion, a steady increase from 2021. “ACH is really the backbone of payment systems,” Larimer touted to a group of payroll professionals at the American Payroll Association’s Capital Summit.

The Covid-19 pandemic provided a boost to ACH payments, much of which came from direct deposits of advance child tax credit payments. “Every month of the child tax credit, the percentage of electronic payments went up,” said William Sullivan, Nacha’s director of government and industry relations.

The pandemic also led to employers writing fewer checks. “We’ve been trying to get rid of paper checks for a long time,” she said. “We saw during the pandemic a catalyst to move from paper to electronic.”

Larimer highlighted an increase in consumer ACH use, with many consumers switching to electronic forms of payment. “We really did see a shift. It’s the pandemic silver lining,” she said, adding that “were seeing 8% to 9% volume growth”

Larimer also noted an increase in direct deposit use toward the end of 2022. “We really saw numbers moving up at the end of [2022], beginning of [2023].”

When asked about Nacha’s expansion plans, Sullivan noted the National Settlement Service’s current schedule as a roadblock to expanding to 24/7 service. The National Settlement Service is a multilateral settlement service owned and operated by the Federal Reserve.

“[ACH] is beholden to when the National Settlement Service is open,” he said, adding that the federal government has spoken of expanding these hours.

The ACH relies on National Settlement Service to settle and only operates weekdays, 7:30 a.m. to 5:30 p.m.

“I think the [government’s] focus is on FedNow, and that’s understandable,” he conceded.

The Federal Reserve is working toward the introduction of its FedNow instant payment platform, designed to cover transactions between businesses, individuals, and governments. FedNow is expected to launch in July, Sullivan said, citing recent comments by Treasury officials.

The Federal Government currently provides payment services in conjunction with the private sector, including Nacha.

While emphasizing the future of payroll and 24/7 payment systems, Larimer noted it likely won’t happen tomorrow, “but I’m hoping I don’t need binoculars to see it.”