The ACH (Automated Clearing House) Network affects most Americans daily, having moved nearly $73 trillion in payments in 2021, according to Nacha, the organization that governs it.
As payments constantly evolve and become more digital and faster, the ACH Network is also evolving in order to meet the needs of both businesses and consumers. To learn more about how it is handling the new world of payments and what might be in store for the future, PaymentsJournal sat with Michael Herd, Senior Vice President of ACH Network Administration at Nacha, and Steve Murphy, Director of Mercator Advisory Group’s Commercial and Enterprise Payments Advisory Service, for a discussion on this vital payments network that Americans use every day.
Payments volume, especially B2B payments, continues to grow significantly on the ACH Network in 2022, noted Herd. The number of transactions on the ACH Network increased 2.8% so far this year, with B2B payments increasing 14% so far in 2022 B2B payments are defined as invoice and supplier payments from one business to another or merchants and businesses getting funded for card activity. It does not include payroll direct deposits, which are a separate category.
“So, the increase in volume of B2B payments has been really dramatic,” he said. “We’re also seeing very, very high levels of dollars moving through Same Day ACH windows. And consumer payments continue to be strong as well despite the end of the pandemic-era assistance payments.”
ACH Limit Increase to $1 Million
Murphy asked about the impact of the ACH Network’s move in March to increase the Same Day ACH payment limit to $1 million. Nacha members approved a measure to increase the per-payment maximum from the previous limit of $100,000 to $1 million effective March 18, 2022. It applies to all eligible Same Day ACH payments, including credits and debits for both businesses and consumers.
The $1 million limit can be used for many different types of payments, from insurance claim payments and payroll funding to business-to-business and tax payments, according to Nacha.
The second quarter was the first full quarter with this per-payment increase. There were 185 million Same Day ACH payments transferring $486 billion in the second quarter, respective increases of 24.4% and 94.4% over the same timeframe in 2021.
“That has obviously had an impact?” Murphy asked.
Herd replied, “we have gotten a lot of good feedback from the industry on that step,” and businesses especially have been taking advantage of the new limit increase.
“Businesses are really the entities that have a need to send larger-dollar payments,” he added. “They have really been taking advantage of the new dollar limit.”
It’s not only businesses but also consumers who have benefited from the increased $1 million limit, Herd said. Some examples of consumers taking advantage of the new limit include authorizing payments from a personal banking account to a brokerage account or a retirement account, or conversely, taking money out of such accounts and into a personal account.
“We’re seeing a lot of activity here,” he said. “People want the ability to move that large amount of money on a same-day basis.”
The Rise of Digital Payments
Herd observed that the COVID-19 pandemic spurred higher use of digital payments, and that looks set to continue even as we move into a post-pandemic era. This was especially true for small and medium-sized business, which have adopted digital payments in droves after years of relying on paper-based payments such as checks and cash.
“The pandemic era was really transformative in how small and mid-sized businesses send and receive payments,” he said. “This change in behavior to more digital payments [for SMBs] is something the industry has been trying to push for decades with only moderate success. But in the two-plus years of the pandemic era we have seen transformational change.”
This is true even for businesses such as personal services providers, which have largely been cash-based historically.
Murphy asked if the current economic climate and possibility of a recession are affecting the volume of B2B payments. “What are you seeing reflected in the network?” he asked.
Herd said that, so far, there has been no discernible decline in business payments on the ACH Network.
“We have not seen a decline in volume that is attributable to a recession,” Herd said. “We’re still seeing growth in B2B payments, which is a core part of economic activity.”
The Future of the ACH Network
Herd also discussed several new innovations on the ACH Network and some potential future plans. He said that in September it will start implementing late-night file deliveries to all 9,800 financial institutions that are part of the ACH Network. This means payments can be transferred later at night on banking days and that “this is really addressing a gap that exists today.”
He said this move will provide accountholders with more accurate and up-to-date information on account activity and what their balance will be at the opening of the next banking day.
“This will create a better user experience and help consumers avoid things like overdraft fees,” he said.
Murphy speculated on whether the ACH Network will look at implementing another increase past the current $1 million limit in the near future. Herd noted that the limit was raised from $25,000 to $100,000 in 2020 prior to the current increase. Nothing is set for yet another increase, but it is a situation that the ACH Network is watching.
“We will see what the activity looks like over the next six to nine months and how the market is adapting to the larger dollar amount,” Herd said. “There is nothing on the table at the moment, but it is something we are acutely aware of.”