"It's insufficient," says Jason Marshall, senior director of payment services at Bentonville, Ark.-based Walmart. "It's a toe-in-the-water approach that contemplates a very narrow set of applications. To be useful, it needs to be done through
NACHA and include all banks. And it needs to include credits as well as debits. There just aren't enough banks participating at this point for us to benefit."

Marshall blames the banks. "What we're hearing from many banks is an instinctive fear of change," he says. "We're actively discussing same-day ACH with our banks and feel that our most important partners support change, but others see change as a threat, and that's a concern for us.

"The ACH is supposed to be a technology-based payment system, but it has clung to the same settlement timing schedule for 35 years," Marshall notes. "Where else do you find a technology-based service that hangs on to old ways for that long?"

A useful same-day ACH product would also help Walmart reduce its use of paper checks, Marshall says. "For example, some states require us to pay employees who are terminating the same day they leave. Today we have to hand them checks. It would be better if we could use the ACH." But since same-day settlement excludes ACH credits, Walmart can't use it to pay departing employees.

Same-day ACH would also give paying corporations more control over reversals. "We have strong controls to prevent payroll errors, but you do hear stories about mistakes and the difficulties of managing reversals through the current ACH," Marshall says. "With over 1 million employees, we want the best tools we can get." Walmart also pays many of its 60,000 suppliers with ACH credits and would welcome the option for same-day reversal should an error occur, he adds.

The stunted nature of today's program partly reflects the Fed's gradual approach, which keeps ACH credits and many kinds of ACH debits off the table, but it's mostly the result of banks not participating in the program. Unless the receiving bank, the one holding the account that would be debited, opts in, there's no same-day settlement.

And receiving banks are balking. "They generally see no tangible benefit to participating," says Amol Gupte, North American head of treasury and trade at Citi. "We bank a lot of large billers, so it makes sense for us to participate, but we need the retail banks on the other end, whose accounts would be dipped into, to play along, and what they see is a lost day of float if they do."

So far only 20 banks have registered. None of the big banks–not even Citi–have signed up, and traffic remains minimal, Cordray reports.

Banks are also wary of anything that might cut into their wire revenue. "They have raised concerns about same-day credits where they already have wire products that provide same-day settlement," says Gary Sefcik, consumer receivables product manager for BNY Mellon Treasury Services. "They are asking why they should invest in ACH upgrades to provide redundant capabilities. The business case for investing in same-day ACH is not strong."

Cordray argues that a same-day ACH credit is significantly different from a wire. "There are more controls around wires," he says. "You have the Fed reference number to track. Wires are irrevocable."

Gupte understands banks' lack of enthusiasm for same-day ACH but says, "If we don't do it, nonbank payment clearers will spring up to do it, so we should do it first and make it a banking product." He points out that the United Kingdom has created just such a payment system, Faster Payments Service, that occupies the middle ground between the U.K. equivalents of Fedwire and the ACH. Faster Payment carries middle-ground pricing, and it's doing well, he reports.

Obviously, expediting settlement by a day changes float, but that is a minor concern in today's low-interest-rate environment. The average ACH payment eligible for same-day settlement is $300, Cordray points out. At 2% interest, the value of a day's float would be two cents per transaction.

Same-day ACH started several years ago, when banks that issue credit cards and those offering corporate check lockboxes pushed to create private payment exchanges between banks. Such bilateral exchanges bypass the ACH networks, so they are able to expedite clearing and settlement. An established direct-send market developed.

Now the Fed is bringing that service onto a network. "It's easier and more efficient for the banks to let the ACH network sort and settle the transactions," Cordray notes. "And you get the safety and soundness of settlement through the Fed." With direct sends, the funds typically clear through an account at the receiving bank, he explains.

The bilateral exchanges have not yet moved their activity to the Fed, but Cordray speculates that it could happen, and banks considering direct sends could opt to work through the network.

Cordray calls the present offering "phase one," but says that phase two has not yet been planned. It could expand the program to more types of payments, or to ACH credits. The immediate goal is clear: get more banks to sign up and move phase one from an experiment to the useful production stage.