Strapping In for Real-Time ACH

An opportunity exists for banks to reach business customers with real solutions that solve real business problems.

“Always borrow money from a pessimist. He won’t expect it back.” –Oscar Wilde

Gonzonians, as we head into a fairly uncertain 2022, one thing we can be sure of is that real-time payments (RTP) will be a major topic and strategic focus. In the 2022 edition of What’s Going On In Banking, my colleague Ron Shevlin identifies this as one of the four major trends for mid-size banks.

While there are a lot of tentacles to this story, real-time ACH will be a central theme, particularly as it applies to the business depositors so many banks identified as a strategic focus. Both the Federal Reserve (via the FedNow product) and The Clearing House are live with their real-time ACH solutions, and most of the mega/large banks are already live with one or both.

This presents mid-size and community financial institutions with an opportunity to go to business customers with a new solution and advice that can solve real business problems and cement relationships.

Here are seven considerations for approaching this opportunity:

1. Identify and target the biggest niche opportunities for real-time ACH

The truth is that everybody doesn’t need a real-time ACH solution. In 2020, ACH network volume totaled 26.8 billion transactions. Of those, 347 million, or about 13%, were real-time. Future percentages will no doubt double or triple, but a majority of transactions will do just fine on the pre-arranged/batch/warehoused model – e.g.:

• Direct deposit
• Pre-arranged account transfers
• Accelerated bill payment (they’d pay a bill same day for a fee)
• Most payroll

However, there are some businesses/areas that have immediate, dead-on needs for real-time:

• Businesses like title companies that have been living with 3:00-4:00 p.m. cut-off times for years that would love to take advantage of expanded time windows, at least to the limits allowed by Nacha et al ($100K at this point, but likely to be larger as the service matures)
• Businesses that can face immediate needs for inventory replenishment but need to get funds to suppliers to facilitate that
• Businesses with lots of contract/temporary employees. Human resources groups have identified real-time and, in some cases, daily payments to these people as a big future trend.

These are just a few of the obvious ones, but every FI with a niche will identify others that apply to them. This is a great opportunity for banks to utilize the data analysis expertise they have been building to come up with a game plan for the cash management and branch teams.  

2. Use this opportunity to expand cash management services and your trusted advisor role

Most businesses will not intuitively understand this opportunity, and this is something new with tangible value banks can bring to them. One of the comments Cornerstone hears the most from front-line staff is that they never feel they have something new or different to sell. The bank that is first to its customers with this information and solution does.

3. Use real-time payments as a reason to discuss movement to digital services and away from paper

There are still too many businesses, and particularly smaller businesses, that use paper-based, manual payment processes. This is an opportunity to help these businesses automate and digitize using the bank’s cash management solution. Plus, client education on real-time can be a door-opener for other deposit services.

4. Understand and be prepared for interfaces that might be needed to the ERM and accounting systems used by your clients

Whether it is QuickBooks or common GL/payment systems commonly used in particular industries (education, medical, legal), banks need to understand the impact and interface requirements. The front-line team will shine when they can offer definitive answers to questions about these interfaces.

5. Plan for the impact real-time ACH will have on wires

In some cases, real-time ACH can be a much better solution than wires for business customers, especially for smaller amounts. In others, wires are a big source of fee income, or soft charges in account analysis. Banks should use their data expertise to plan for volume/fee income impact and review potential changes to fee income and account profitability.

6. Understand what you will pay for this service

While it does not look like there will be a significant up-charge for a real-time ACH payment versus batch, there will be some kind of up-charge. Banks need a clear understanding of fee changes and implementation charges. And, with that in mind…

7. If you’re not in the vendor installation queue, get a hard implementation date commitment

Remember the line, and the wait, to get Apple Pay? At least for “Receive” capability, banks should ensure they can go live with the solution in a timeframe that complements their sales plans and addresses the changes they will need to make to handle this service. Everybody will need to be able to receive, since the big banks (that initiate so many of the transactions) all have “Send” capability today. A bank may be able to wait to deploy “Send” based on the niche strategy allowing it, and it appears there will be more back-office changes needed for “Send” versus “Receive.” However, there may be a benefit to doing both at the same time.

A new product exists that will provide real value to a key customer base. Bankers, don’t miss this opportunity to expand your advisory relationships. It’s the beginning of many payment opportunities ahead.