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U.S. Banks May Struggle With Same Day ACH Window

According to a technology vendor’s global payments manager, mid-tier and lower-tier U.S. banks may find it difficult to run a third batch process in a business day to accommodate an auto-settlement window of the house. same day compensation (ACH).

“I think it’s tier three, four and five banks that are going to say ‘wow, this is a real problem,'” said Paul Thomalla, global head of payments, Finastra. “The majority of financial institutions in the United States will be rubbing their heads trying to figure out how they can handle another [batch processing] to ride a bike in their day? “

“Everyone in the United States is used to [the previous] cycles, everyone in the corporate world is completely used to it. Now I have a third cycle and the question is, do I have enough horsepower in the process? Do I have enough staff to do the processing manually? What will customers think of it? And I think each of those will be different depending on the direction the bank is going and the legacy it has within its financial institution. “

The Federal Reserve Board OK changes to the National Settlement Service (NSS) and Fedwire Fund Service at the end of December to support the third settlement window which will take effect on March 19, 2021.

The introduction of the extra window is intended to equalize the opportunities for east and west coast banks to settle payments within the day, according to Dave Fortney, executive vice president, product development and management, The Clearing House (TCH).

With the changes, banks will be able to submit their last transactions for processing today at 4:45 p.m. ET – two hours later than today at 2:45 p.m. ET.

“Those two hours, you could say they’re incremental. It’s not a huge fundamental change,” says Fortney of TCH. “But especially with time zones, it really does open up a much better window across time zones. US schedules to process same-day payments during that business day. “

But in order to accommodate the additional settlement window, the Fedwire Funds service will close at 7:00 p.m. Eastern Time (ET) and open at 9:00 p.m. for the next day. Federal Reserve banks will maintain a 90-minute window – down from two hours previously – between the opening and closing of the Fedwire Funds Service, reducing the time it takes to complete a number of processes.

“Compressing this time is going to require technical changes to ensure that things can happen maybe a little faster than they have in the past. But there is also a risk that the opening will be delayed. at some point because some of those processes don’t end, ”says Fortney.

In addition to the time window changes, the Federal Reserve has said it will also increase the minimum value of transfers needed to Federal Reserve banks from $ 1 billion to $ 3 billion to grant an extension to the service’s closing time. Fedwire Funds.

The regulator has requested comment market participants on the changes in May because he recognized the possible risks of reducing end-of-day processing time; disruption of the opening hours of the Fedwire Fund service; and additional costs for reserve bank account holders and their clients to implement the changes.

“Ultimately, the industry’s recommendation was to go ahead with the proposal when the Fed commented and the Fed concluded the same,” Fortney said. “The benefits outweigh these additional treatment risks.”

While the majority of ACH entries and files processed by recipient banks are automated, according to Fortney, work will need to be done to effectively monitor these transactions.

For Thomalla, the new window is part of a larger push towards real-time processing. But not all banks will have the right technology stacks to keep pace with real-time processing and see the financial benefits of building such systems.

“Do I want to spend the time and effort making these changes to my expensive batch system?” Because I will no longer make money by processing transactions multiple times a day rather than overnight. So I have to work but I will not get any tax benefit from it. I could get better customer satisfaction, but I’m not going to get a financial boost. “

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