As the steward of the ACH Network, the payment system that universally connects all U.S. bank accounts and facilitates the movement of money and information, Nacha is responsible for setting the rules that govern the system. The Nacha Operating Rules direct how the ACH Network is operated and ensure that millions of payments occur smoothly and securely each day.
To learn more about the Rules, PaymentsJournal sat down with Michael Herd, senior vice president of ACH Network Administration at Nacha. During the conversation, Herd discussed the Rules, ACH messaging, and his favorite innovations changing ACH today.
The 4 Rs: Rules, roles, rights, and responsibilities
At Nacha, Herd is responsible for the Nacha Rules – both maintaining old ones and developing new ones.
The Rules, officially called Nacha Operating Rules & Guidelines, establish the roles, rights and responsibilities of all the parties participating in the ACH Network. From the type of information required in each transaction to the protocol for disputes, the Rules direct how the ACH Network is operated.
“It’s really the Rules that make the ACH Network the truly ubiquitous and standardized Network that it is in the U.S. today,” explained Herd.
However, even though the Rules bind everybody together under a common framework, there is still room for freedom. This flexibility, coupled with the requirements of the rules, enables innovation.
“There [are a lot] of parties out there that are figuring out new ways to use the ACH Network,” said Herd. They are aided by knowing that all the parties using the ACH Network are meeting a minimum level of requirement to one another. As such, there is a level of trust in place for innovators to build off of.
ACH messaging can solve current areas of friction
With millions of transactions humming across the ACH Network each day – in fact, in 2018 ACH moved nearly 23 billion electronic payments – countless companies are also sending and receiving reams of information. This constant communication creates a space for innovation.
Nacha is entering this space with ACH messaging, or messaging between financial institutions.
“The basic idea is to leverage the existing Network that we have to enable financial institutions to communicate with each other about initiating and resolving exception cases,” outlined Herd.
He explained that financial institutions are often requesting documentation or additional information about transactions, but are frequently unsure of how to find another bank, or who to actually call, or sometimes even fax.
“We think the [ACH] messaging concept is a way to put all that dialogue [and] inner bank communication onto the system that already connects them, and is already relating to payments,” said Herd.
Instead of navigating a myriad of different communication options, ACH messaging would allow financial institutions to send messages in standardized formats at designated times.
Same Day ACH: “A good news story”
When asked his thoughts on what were some of the greatest innovations Nacha has been involved with over the past few years, Herd had an immediate answer: Same Day ACH.
“It certainly has been an important strategic initiative [that] the Nacha organization [focused on] over the last several years,” explained Herd. It took a significant amount of work, not just from Nacha, but from financial institutions and the wider payments industry as well.
Despite challenges, and after years of toil, the effort paid off and now Same Day ACH exists for end users to take advantage of. And take advantage of it they are.
“Our Same Day ACH payment volume last year increased [by] triple digits,” said Herd, adding that overall Same Day ACH volume jumped 137 percent from 2017, a large amount that reflects the popularity of the faster payment option. “I think that’s a good news story,” he said.
However, Herd is quick to point out that Nacha is not just going to bask in its achievements; the organization will continue to improve Same Day ACH.
“We have additional enhancements that are going to be implemented over the course of the next couple years,” said Herd. Specifically, he mentioned that Nacha will increase the dollar limit for same-day transactions, up to $100,000 per transaction. After traveling around the country and soliciting feedback from industry members, Herd said increasing the limit was the most common request from corporates.
Other enhancements include allowing Same Day ACH transactions to be submitted to the ACH Network for an additional two hours every business day. Additionally, the speed of funds availability for certain Same Day ACH and next-day ACH credits will be increased.
“It will be a game changer,” said Herd.