Author: Kevin Moland, KMoland@profitstars.com

May 19^th was a banner day for the payments industry. In case you missed it, a major payments entity announced its plan to speed up electronic transactions by allowing credits to flow through its ubiquitous network at unprecedented speeds. Over the last decade, new technologies and nimble payment startups had been driving major industry players in this direction. The announcement on May 19^th could turn out to be a watershed event, one of those defining moments where an industry makes a pivotal shift and moves in a new direction that will define its relevance for years, maybe even decades.

If you think I’m talking about NACHA’s announcement that its voting membership approved the ballot initiative for Real Time ACH, don’t be so sure. That news may ultimately be overshadowed by another announcement made on, well, the “Real Time .”

To be fair, NACHA’s Real Time ACH announcement will likely turn out to be important. It will cut the time selected ACH payments spend in transit, making it possible to send funds (in Phase I) and debit accounts (in Phase II) with transactions that settle and, more importantly, post to the recipient’s account that Real Time instead of the next business day. Granted, the rule is limited to domestic U.S. transactions sent by the appropriate cut-off time, which could be as early as noon if you live in the Pacific Time zone. In addition, to help offset the receiving financial institution’s costs, the originating financial institution will have to fork over an additional nickel per transaction, which will likely be passed on (with an appropriate upcharge) to the originator. While the transactions will post the same day, the receiver may not have access to the funds until 5:00 p.m. Eastern Time. But even with those limitations, NACHA’s rule change will definitely make it possible for selected ACH transactions to move more swiftly—assuming the Federal Reserve Bank opts to implement it in its prescribed form. (The Fed has requested input from FIs and other payments entities regarding NACHA’s proposal. The comment period is open until July 2^nd.) 

But NACHA’s big news may not have been the most important announcement made on May 19th. MasterCard picked that Real Time to roll out its new MasterCard Send program. MasterCard Send is the card processor’s new service that allows businesses or consumers to send money to anyone with a debit card in seconds instead of days. MasterCard’s new service will leverage the existing debit network to send credits, and they aren’t the first ones to do so. Square Cash began using the debit card network to send credits in 2013 by labeling their transactions as payment “reversals.” (This practice was initially controversial, since there was no original debit transaction being “reversed.”)

MasterCard’s plan to allow credit transactions to flow down the debit card rails has the potential to make that system a truly ubiquitous, real-time channel through which businesses or consumers can send money to anyone—banked or unbanked—with an appropriate receiving vehicle, including MasterCard or non-MasterCard debit cards, mobile money accounts, bank accounts, or a relationship with a cash agent outlet. MasterCard also plans to allow international payments via Send in the near future.

Did MasterCard intentionally time its announcement to upstage NACHA’s news? Consider these phrases from MasterCard’s press release:

• “It’s fast! 24/7/365 access to funds anytime vs. several days for checks or ACH transfers to process.”
• “MasterCard Send is the only personal payments service that can reach virtually all U.S. debit card accounts and enable funds to be sent and received typically within seconds – far superior to existing solutions that either limit transfers within a closed-loop network or involve ACH, which can take several days for funds to be received.”

In any case, MasterCard’s announcement provided an alternative focal point for bankers and payments professionals who happened to be watching the headlines last Tuesday.

The good news for financial institutions is that the majority of recent payments system innovations, including NACHA’s Real Time ACH and MasterCard’s Send, still leverage the existing transaction rails established and operated as part of the traditional banking system. Apple Pay, for instance, uses the debit and credit card networks for its new mobile payments initiative. PayPal settles its P2P transactions through the ACH network. FIS’ PayNet leverages the debit network to move payments in almost real-time. Early Warning is developing a faster payments solution compatible with the ACH and check rails. While the Fed has stated that the creation of a new payments rail is an attractive option, it doesn’t appear likely that the existing rails will be replaced by something entirely new anytime soon. 

Whether you see NACHA’s Real Time ACH initiative or the MasterCard Send announcement as the highlight of the May 19th news cycle, the one certainty you can take from these two stories is that the payments industry will continue to change rapidly. Other players, including The Clearing House, are working on their own initiatives to provide more rapid payment options. The Federal Reserve has called on financial institutions and payment service providers to move towards a faster system, and both NACHA and MasterCard referenced the Fed’s initiative as one of their motivations. As the industry looks for ways to make the payments system faster, you can bet these two announcements won’t be the last news stories about solutions that move money more quickly. 

Is your financial institution factoring faster payments into your future product plans?