Is Faster ACH Good for Ac­quir­ers?

As banks and pay­ment net­works work to en­able same-day and real-time pay­ments, ac­quir­ers are wait­ing to see how they ben­e­fit from this new tech­nol­ogy.

ISO & Agent - - INSIDE 09/10.2017 - BY DAVID HEUN

As with any new tech­nol­ogy driven by banks and pay­ment net­works, ac­quir­ers must de­cide whether faster pay­ments are lu­cra­tive enough to sup­port in their port­fo­lio.

Same-day Au­to­mated Clear­ing House trans­ac­tions ex­ist, in part, as a first step in the faster pay­ments ini­tia­tives tak­ing place in the U.S. But are they lu­cra­tive enough for ac­quir­ers to add to their port­fo­lio?

Even though ACH costs less than credit card in­ter­change, the dif­fer­ence may not be com­pelling enough to win over mer­chants that are happy with cards and mo­bile wal­lets.

But same-day ACH does have a de­voted au­di­ence — de­liv­er­ing 13 mil­lion trans­ac­tions in the last three months of 2016 — and a grow­ing in­ter­est among gov­ern­ment agen­cies and pri­vate busi­nesses.

In­deed, most of that traf­fic was di­rect de­posit or busi­ness-to-busi­ness trans­ac­tions, leav­ing those in the mer­chant ac­quir­ing busi­ness still scratch­ing their heads a bit about which way to ap­proach a less ex­pen­sive, but po­ten­tially riskier, pay­ment op­tion for their clients.

Those who wait out tech­nol­ogy trends to see if some­thing bet­ter comes along might ac­tu­ally be tak­ing the best ap­proach. Some clearly be­lieve that the grow­ing num­ber of per­son-to-per­son

pay­ment net­works will over­take same­day ACH, ren­der­ing the ACH op­tion re­dun­dant.

“Many pro­ces­sors out there are try­ing to of­fer very sim­i­lar so­lu­tions, and you have to have some­thing that stands out,” Jeremy Ep­stein, man­ag­ing direc­tor of the tech­nol­ogy bank­ing group at The Pri­vate­bank, said dur­ing a pre­sen­ta­tion at the an­nual Mid­west Ac­quir­ers Con­fer­ence in Chicago.

“ACH is not go­ing to be a big rev­enue driver, it’s go­ing to be a small piece of rev­enue, but there are pro­ces­sors out there los­ing money be­cause the mer­chants need ACH and they are not pro­vid­ing it,” Ep­stein said.

For those ISOS and agents will­ing to add same-day ACH to their port­fo­lio, there is no short­age of com­pa­nies of­fer­ing to make it eas­ier for them to on­board mer­chants.

Be­cause same-day ACH is quickly be­com­ing an integrated so­lu­tion, it stands out as an ideal ser­vice to fill out an ac­quirer’s grow­ing prod­uct suite, Ep­stein said.

“It is less ex­pen­sive and more cost ef­fec­tive as a fixed fee in­stead of a per­cent­age of each trans­ac­tion,” Ep­stein added, not­ing mer­chants will find it ap­peal­ing as trans­ac­tions shift to ACH be­cause “some con­sumers want to make an elec­tronic pay­ment, and they don’t have a credit card, but have a check­ing ac­count.”

How­ever, get­ting sales staff mo­ti­vated to sell some­thing that doesn’t bring a lot of rev­enue into the com­pany cof­fers, and bump up their own com­mis­sions, re­mains a chal­lenge.

“One of the things we strug­gle with as a third-party pay­ment pro­ces­sor is find­ing the sales force out there that wants to sell same-day ACH,” said Kim Ol­szewski, vice pres­i­dent of trans­ac­tion pro­cess­ing at istream Fi­nan­cial Ser­vices.

A faster ACH prod­uct is “a great value-add to your other ser­vices, but it is not a huge rev­enue driver,” Ol­szewski said. As such, istream en­cour­ages its staff to sell ACH along­side credit card prod­ucts, sim­ply adding be­tween 20 and 30 ba­sis points to the ACH deal.

“You also have to be cre­ative with ACH sales, some­thing dif­fer­ent from what oth­ers are of­fer­ing,” Ol­szewski said.

That dif­fer­en­tia­tor could take the form of cre­at­ing split pay­ment set­ups be­tween the mer­chant and a cash ad­vance com­pany; us­ing a lim­ited use ac­count plat­form; or es­tab­lish­ing a pre­fund set­tle­ment ac­count to ease some of the risk of same-day ACH.

And there is plenty of risk — es­pe­cially in the eyes of those who help busi­nesses and mer­chants nav­i­gate pay­ments risk.

“Same-day ACH is a new prod­uct and ev­ery time a new prod­uct is rolled out, no mat­ter how but­toned-down it seems, fraud­sters find a way back in,” said David Barn­hardt, ex­ec­u­tive vice pres­i­dent of prod­uct at GIACT, a pay­ments risk man­age­ment soft­ware provider.

It is com­mon for fraud­sters to use stolen per­sonal cre­den­tials to open check­ing ac­counts and ini­ti­ate ACH trans­fers, and a dan­ger ex­ists for same­day trans­ac­tions to be pro­cessed be­fore a bank is cer­tain the funds ex­ist in an ac­count.

In short, Barn­hardt has been a voice in pro­ces­sors’ ears re­mind­ing them there is lit­tle room for er­ror in pro­cess­ing same-day ACH trans­ac­tions be­cause it doesn’t have the same type of au­tho­riza- tion and ver­i­fi­ca­tion process as credit cards. But that alone should not scare pro­ces­sors and ac­quir­ers from giv­ing same-day ACH a fair shake.

“The fraud num­bers pale in com­par­i­son to credit cards, which are much eas­ier to steal [than a check­ing ac­count linked to ACH],” Barn­hardt said. “Credit card losses are in the hun­dreds of bil­lions, while ACH is in the high hun­dreds of mil­lions.”

The suc­cess of same-day ACH may come down to how many con­sumers want to use it for re­tail pur­chases.

It is un­der­stood that same-day ACH is a fit for pay­roll de­posits and for busi­nesses to make faster pay­ments to sup­pli­ers. And re­tail mer­chants may be look­ing at it more from that stand­point.

How­ever, the Mer­chant Cus­tomer Ex­change’s failed Cur­rentc mo­bile wal­let — which re­lied on ACH as a way to cut costs for mer­chants — may have left many re­tail­ers un­sure as to whether ACH has a place at their point of sale. Cur­rentc never made it past pi­lot af­ter more than two years of try­ing, and Chase Pay ul­ti­mately bought the tech­nol­ogy, pre­sum­ably to put the loy­alty as­pects of it into play.

Though same-day ACH will al­ways have its use cases, the autho­riza­tion and ver­i­fi­ca­tion meth­ods of P-to-p prod­ucts like the bank-sup­ported Zelle will put those ser­vices in a po­si­tion to trans­fer funds faster and po­ten­tially safer than ACH, Barn­hardt said.

Even though Zelle has had a rocky start in how it han­dles en­roll­ment, it is con­sid­ered a turn­ing point for faster pay­ments in bank­ing cir­cles and a sys­tem that should jump-start fur­ther im­prove­ments and even more col­lab­o­ra­tion amongst banks on the pay­ments front.

“If I am read­ing the tea leaves cor­rectly, in five years Zelle will be com­pet­ing with same-day ACH,” Barn­hardt said.

“Ev­ery time a new prod­uct is rolled out ... fraud­sters will find a way back in.” ‑David Barn­hardt, EVP of prod­uct, GIACT

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