Easily handle the 'third window' in same day ACH processing

On March 19, 2021, new rules took effect from NACHA (National Automated Clearning House Association) that opened a third window for same day ACH (Automated Clearing House) processing. What are these new rules about, and what are the main points for BFSI (Banks & Financial Services Institutions) to consider?

The ‘third window’ is two hours wide

NACHA first implemented same day ACH processing in September of 2016, with the intent of lowering the lag time between transactions and account settlement. Benefits include faster payment for merchants, more up-to-date account balance information for customers, and fewer returned entries.

Since the introduction of same day processing, NACHA has continued to evolve the rules. Meanwhile, demand has kept soaring for ACH processing, which is used for direct deposit of salaries, dividends, Social Security payments, utility and mortgage payments, and charitable giving, for example.

The ‘third window’ rule expands same day ACH availability by two hours each day. More specifically, until implementation of the new rule, 2:45 p.m. ET (11:45 a.m. PT) had been the latest time for an ODFI (Originating Depository Financial Institution) to submit files of same day ACH transactions to an ACH operator. The new same day ACH processing window will allow ACH files to be submitted until 4:45 p.m. ET (1:45 p.m. PT).

The exact timing of ACH file processing schedules, including the new third window, is not determined in the rules but is instead established by each ACH operator, according to NACHA.

Challenges for your financial institution

Despite the huge advantages of same day ACH, speedier processing times have posed challenges to BFSIs. Before the emergence of same day processing, BFSI settled accounts and transmitted a return file to the FRB (Federal Reserve Board) only once daily.

By moving to same day ACH, on the other hand, banks, credit unions, and other financial institutions wanting to stay competitive have needed to post return files twice a day instead.

In earlier rules changes, NACHA implemented faster funds availability in September of 2019. Then a rule raising the limit of most ACH transactions from $25,000 to $100,000 took effect in March of 2020.

Generally speaking, each change in the ACH rules brings greater complexity. Beyond that, BFSIs adapting to new rules face increased competition from other financial institutions which are also racing hard to keep up with evolving regulations.

Consider getting outside assistance from an automation consultant

With the new regulation active, now is an excellent time to hire an automation consultant to go over your current automation capabilities and streamline your processes, while also introducing new automation to cover emerging processing needs.

Organizations should never postpone technology modernization initiatives. Ultimately, these delays nearly always produce unwarranted stress while interfering with future efficiency gains.

By putting as much automation as possible in place as soon as you can, you obtain a platform for rapid adaptation to the new third window rule in addition to future changes in the regulatory and business climates.

SMA Technologies is widely recognized for its long-time experience in the credit union and banking worlds. As a result, BFSIs come to us for assistance in complying with ACH rules.

To give just one example, when NACHA first rolled out the same day processing regulation, SMA’s consultants collaborated with clients on implementing our Opcon digital business automation software to configure the workflows and scheduling needed for speeding up internal processing, as well as to smoothly integrate Opcon with existing IT environments.

Clients were able to automate practically every process needed for compliance with same day processing. For the most part, too, companies successfully avoided adding more human work hours for handling the larger workloads entailed in same day ACH.

Look at Managed Automation Services as another option

Are you concerned about having enough in-house expertise to administer new automation technology? If so, give thought to MAS (managed automation services) as an option for automating ACH and other banking processes, as well.

In another report, McKinsey predicted a bright future for banking automation, while also pointing to some boondoggles experienced by financial institutions that didn’t take optimum approaches to implementation. These debacles include the following:

• Installing hundreds of bots but with little to show in terms of efficiency or effectiveness.
• Training developers but finding themselves unable to move solutions into production.
• Launching multiple tactical pilots without a long-term plan, resulting in difficulties in scaling.
• Starting to automate but then discovering that they lack the capabilities needed for comprehensive digital transformation.

To prevent such issues, McKinsey recommended that financial institutions should think strategically about the best ways of developing and harnessing automated processes. As an example, McKinsey suggested obtaining automation from a services vendor that can offer technology and experienced technicians at whatever scale the bank requires.

The analyst firm estimated that, by adopting the best strategy, banks can automate from 10 to 15 percent of their functions over the next few years, enabling redeployment of staff resources to tasks that cannot be performed by machines.

Aside from speeding ACH processing, automation is also increasingly important today in these aspects of banking:

• Enforcing efficient workflow
• Expediting loan processing
• Reducing processing errors
• Enhancing the customer experience