When same-day ACH credits were launched last fall, observers predicted they would be most popular with corporates that were late sending a payroll file.
Data on the first six months’ worth of same-day ACH seem to confirm those predictions, showing more than half of transactions were direct deposits. In three months ending in March (the most recent data available), there were more than 13 million same-day ACH transactions, with a total value of nearly $18 billion; 7.2 million of those transactions, or 54%, were direct deposits, while just 32% were business-to-business payments.
Nancy Atkinson, founder and principal of Pittsburgh-based GTB Consulting, said that she has been surprised by the level of use of same-day ACH.
“My expectations were low, and that turned out to be wrong,” Atkinson said. “There’s been a fair amount of uptake.
“The use case that’s been most frequent is to make payroll,” she said. “If the payroll file didn’t get sent two days in advance, instead of having to convert it to wires to every employee, they’re converting it to same-day ACH.”
“We’re seeing the most common use being missed payroll,” confirmed Craig Vaream, managing director and head of North America payables and receivables at J.P. Morgan. But he noted that some organizations, like insurer Aflac, have been more enthusiastic about embracing same-day ACH.
Aflac “felt they could improve satisfaction among their insureds by paying faster when a claim comes in,” he said. “Aflac identified this as a differentiator in the marketplace for them.”
Aflac’s One Day Pay
The insurance company, based in Columbia, Ga., is using same-day ACH to make claims payments to consumers as part of a program called One Day Pay, and the company says the speedier payments have boosted customer satisfaction.
Aflac provides supplementary insurance, such as accident and cancer coverage, that’s sold to employees in the workplace. In February 2015, the company launched One Day Pay, which promises that if a policyholder submits an insurance claim online with all the supporting documents by 3 p.m., the company will process the claim that day and pay the claim the next day.
That promise initially ran up against the realities of ACH payments, said Angela Grier, second vice president for payments solutions and compliance at Aflac.
“Prior to same-day, we’d send the ACH file out, but it could take a day or two before the policyholder’s bank would release the funds into their bank account,” Grier said.
“With the implementation of same-day ACH, our policyholders should receive their funds the next day after we process their claims,” she said. “It’s really neat. If you file a claim by 3 p.m. today, you can have funds in your bank account tomorrow. Whereas before, depending on your bank, you could have it tomorrow or [the day after].”
When a claim comes in, Aflac processes it quickly enough to make the next morning’s deadline for filing same-day ACH payments, at 10:30 a.m., so the claim payment will land in the policyholder’s bank account later that same day.
Same-day ACH “really enhanced our One Day Pay program,” Grier added.
Customers who use the One Day Pay program and file their claims electronically can choose to be paid by check or ACH. Those who select ACH have to sign up for direct deposit and provide AFLAC with information such as their bank routing number and account number.
Grier noted that the majority of Aflac’s policyholders still opt for a check in the mail rather than a direct deposit. About 42% of Aflac’s claims payments are made via ACH, she said.
Same-day ACH payments can’t be larger than $25,000, so any claims payments above that limit have to be made by regular ACH credit, Grier said, unless the policyholder’s account is at J.P. Morgan.
From Aflac’s perspective, switching to making payments via same-day ACH was easy. “We just had to make one simple change on the files we send to J.P. Morgan; that was all that was required,” Grier said.
Same-day ACH costs more than a conventional ACH credit, but Grier said that for Aflac, “meeting the needs of our policyholders was our number-one priority.
“We just wanted to get the funds into our policyholders’ hands as quickly as possible, so they could worry less about finances and focus more on their recovery,” she said.
The company links the faster payment to improved customer satisfaction: Among policyholders that use its online portal, “95% of them say they are likely to recommend Aflac to others,” Grier said.
Up Next: Same-Day Debit
The next phase of NACHA’s implementation of same-day ACH transactions, same-day debits, will launch on Sept. 15. Vaream predicted that the use of same-day ACH will increase when debit becomes available, as debits are used for late bill payments.
“I imagine we’ll see some pickup to process same-day, versus incurring the penalties for missing paying a credit card or some other bill they may owe,” he said.
Atkinson said same-day debit is likely to get the most use “on the consumer side, where it will be used to debit the consumer’s account on a given day before service is cut off or something else negative happens to that consumer.”
Businesses do allow other businesses to debit their accounts for certain types of payments, she said. “So it’s possible it could be used on the B2B space as well, but I don’t see as many opportunities in that regard.”
The initiation of same-day ACH credits last year engendered some concerns that speedier payments would result in more fraud. To date, that doesn’t seem to be the case. A NACHA survey of 24 financial institutions conducted in March and April found that none of those banks had seen an increase in fraud related to same-day ACH.
Vaream said that with the launch of same-day debit approaching, treasurers should reassess their bank account “hygiene” in case faster debits lead to fraud attempts.
“I’ve been talking to a lot of clients about how they’re managing their accounts, the fraud tools they have, just so they’re better prepared should a fraud situation arise,” he said.
“There are fraud mitigants that I think all treasurers should have associated with their accounts,” Vaream said, and cited debit blocks, which instruct the company’s bank not to allow debits on an account or specify that only certain companies are allowed to debit the account.
Debit blocks are “one for-sure tool that people should apply to their accounts,” Vaream said.
The majority of corporate accounts already have debit blocks, he said. “But I’ve been surprised at times when I go into a client’s annual business review, how many do not have these types of protections.”
“It’s going to be interesting to see how this all plays out over time,” Atkinson said, and whether same-day ACH transactions might eventually replace regular ACH amid the push for real-time payments.
“I would think there would be some resistance from some of the banks and the corporates, but as you get used to this process, it’s probably going to become more common,” she said, adding that the statistics to date “definitely show there has been some willingness to move to the [same-day] solution.”