The Ongoing Success Story of ACH

The PaymentsJournal Podcast

The ACH Network is set to surpass 33 billion payments by the end of the year, marking a significant milestone. Consumer Internet-initiated payments are set to surpass 10 billion, a remarkable achievement considering the payment method was created just 20 years ago.

In a recent PaymentsJournal podcast, Michael Herd, Executive Vice President of ACH Network Administration at Nacha, and Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, discussed this success story and the future of the protocol in a crowded payments landscape.

The State of ACH

Instant payments rails like FedNow and RTP have received significant attention over the past year, but this hasn’t slowed ACH’s momentum. In Q2 2024, ACH payment volume increased by over 6% year-over-year, with an average daily payment volume reaching 132 million payments. The total value of payments flowing through the ACH Network topped $42 trillion in just the first half of the year.

“There are a few areas that are driving overall ACH volume growth,” Herd said. “The first is B2B payments, which are growing by more than 10% per year. That’s been a long-standing trend for the last seven or eight years. While there are still pockets of check use in industries like healthcare and higher education, overall check volume seems to be declining and the B2B space is moving towards ACH.”

ACH is also thriving in consumer single and recurring bill payments, as well as account transfers. This volume exceeded 2.6 billion in Q2 2024, up 8.3% year-over-year.

“With increasing automation of business processes and the digitization of payments, both businesses and consumers are looking for greater efficiency,” Tavilla said. “It comes as no surprise that there is now record-breaking volume being transacted over ACH. There’s more data that is available with digital payments and it also helps businesses improve cash flow.”

However, there was a recent slowdown in healthcare claim ACH payments, likely due to a large-scale ransomware attack on the healthcare sector. A major processor in healthcare payments was unable to process claims for a period, leading to a 2.8% year-over-year increase in healthcare claim payment volume in Q2.

Same Day ACH

There’s a strong demand for faster payment settlement, and Same Day ACH has a formidable use case in both consumer and business applications. For consumers, that includes transfers to non-DDA accounts like digital wallets and brokerage accounts.

Same Day ACH supports the two-way flow of funds in B2B, C2B and B2C payments, allowing for both debit pull transactions and credit push payments. This contrasts with many real-time payment networks, which are currently credit push only.

“To say Same Day ACH has a key role is an understatement,” Herd said. “Same Day ACH volume in 2024 is up 47% from last year, including 566 million payments in the first half of the year. April was a banner month, maybe because it was tax month, but there were over 100 million Same Day ACH payments in April. In all likelihood, Same Day ACH payments will exceed a billion this year for the first time ever.”

The payment landscape is trending toward digital and real-time payments. Consumers increasingly demand faster payment methods, and Same Day ACH is a key part of that trend.

A driving factor in the growth of Same Day ACH payments is the ACH Network’s firm establishment. ACH is ubiquitous, and businesses and consumers are familiar with it. Unlike some of the newer real-time payment rails, virtually all financial institutions are connected to ACH, facilitating money movement regardless of the customer’s bank.

“If you’re a business and you haven’t dipped your toe in the faster payments waters yet, start with what you’re familiar with, which is likely to be ACH,” Herd said. “Same Day ACH is just a faster form of what you already know. It’s the same system and the same processes. You will have to adapt to the faster settlement of funds, but ultimately there’s a much lower barrier to entry.”

Improving the Experience

While the ACH Network is well established, there are three key areas where the platform can improve: risk management, exception resolutions and ACH scheduling. To mitigate risks, Nacha members have adopted new rules to raise the bar for payment monitoring among every participant in the ACH Network.

The objective is to better identify and recover from fraud attacks that target ACH and other credit push payments. As fraud attempts rise, it’s crucial to understand how organizations continue to fall prey to criminals. The new rules aim to define the network’s response to fraud and mitigate criminal activity.

Second, paper-based processes should be eliminated from the ACH payment exception resolution process. Exceptions are payments that don’t process directly through, and resolving those transactions often requires manual intervention from the two financial institutions involved.

The institutions must share documentation and information to resolve the exception, which is often still done through phone calls and faxes. Because the manual methods lessen the efficiency of the underlying ACH process, a better solution is to resolve exceptions through secure online platforms. The Federal Reserve’s exception resolution service and Nacha’s risk management portal are two examples of how exception resolution and information exchange can occur through secure channels.

The last area of opportunity is to expand the current Same Day ACH schedule to align with the close of business in the Pacific Time zone. Currently, the latest time a Same Day ACH payment can be sent is 1:45p.m. PT. There is significant value in supporting Same Day ACH processing up to the end of the business day for Pacific Time zone businesses and consumers.

Lower Hurdle to Entry

Though the ACH Network has room to improve, there is little doubt that ACH will continue to have a place in the payments landscape for years to come.

“It’s not instant,” Herd said. “However, with ACH there is a lower hurdle to entry in nearly every situation. Wherever you’re transacting, wherever your employees have their bank accounts, and wherever your customers are, you’re going to be able to reach them with ACH.”

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