The time is right to converge the U.S.' wire transfer and ACH systems, according to a report from Aite Group. A melding of the wholesale payments methods could improve efficiency for banks and service for their commercial clients, contends Nancy Atkinson, a senior analyst with the firm and author of the report.
According to Atkinson, in the end, a payment is a payment. "It must provide the recipient's name, the amount, and the payer's bank and account information," she says. Multiple systems with their own formats, rules, processes, and industry and governmental bodies cause unnecessary complexity, she asserts.
Atkinson proposes replacing the U.S. wire and ACH systems with a single electronic payments system. According to Atkinson, the ideal unified system would provide real-time money transfers, settlement and finality of payment at reasonable cost; sufficient remittance information to enable straight-through processing; and online tracking of payment status. It also would help ensure compliance and anti-fraud protection.
Traditionally, ACH has supported low-value, repetitive transactions while wire was used for high-value, time-sensitive transactions; ACH transactions cost pennies compared to $10 or more for a wire. According to Atkinson, however, cost and risk/fraud protection have become the overarching criteria by which payments methods are measured. "So the value of the payment is no longer the differentiator between the ACH and wire transfer systems," she says.
Among the factors that could promote the consolidation of the payments systems in the U.S., Atkinson relates, are greater demand for domestic and international payments by businesses of all sizes, and heightened concern with regard to fraud. A converged system would make compliance and anti-fraud efforts easier for banks, she contends.
Further, corporates are putting pressure on banks to provide them with lower rates and more efficiency. As a result, "Financial institutions are ... realizing payments have to be simplified and coordinated," Atkinson says.
Atkinson acknowledges that systems consolidation would require industrywide cooperation and systems overhauls. "Industry groups and standards bodies need to look at how their activities impact the broader payments structure, not just their own systems," she says.
Atkinson points to the U.K. Faster Payments Initiative as a possible model for the U.S. The U.K. initiative will bring together that country's ACH and wire systems to offer quicker settlement times. The technology used to create same-day clearing and settlement is being provided by a partnership of U.K. ATM switch provider Link Interchange Network (Worthing, U.K.) and payments services provider Voca (Hertfordshire, U.K.).