[Federal Register Volume 80, Number 187 (Monday, September 28, 2015)]
[Notices]
[Pages 58248-58253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24551]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1515]
Enhancements to Federal Reserve Bank Same-Day ACH Service
SUMMARY: The Board of Governors (Board) has approved enhancements to
the Federal Reserve Banks' (Reserve Banks) same-day automated clearing
house (ACH) service. The enhancements require receiving depository
financial institutions (RDFIs) to participate in the service and
originating depository financial institutions (ODFIs) to pay a fee to
RDFIs for each same-day ACH forward transaction. The enhancements will
be adopted by incorporation of NACHA's amended operating rules into
Operating Circular 4, governing the Reserve Banks' ACH services.
DATES: Effective September 23, 2016.
FOR FURTHER INFORMATION CONTACT: Ian C.B. Spear, Senior Financial
Services Analyst (202/452-3959); or Jessica Stahl, Economist (202/452-
6452), Division of Reserve Bank Operations and Payment Systems; Evan H.
Winerman, Senior Attorney (202/872-7578), Legal Division; for users of
Telecommunication Devices for the Deaf (TDD) only, contact 202/263-
4869.
SUPPLEMENTARY INFORMATION:
I. Background
On May 27, 2015, the Board requested comment on proposed
enhancements to the Reserve Banks' FedACH[supreg] SameDay Service
(FedACH SameDay Service).\1\ The proposed enhancements were intended to
align the existing FedACH SameDay Service with amendments to NACHA's
Operating Rules and Guidelines that were approved by NACHA membership
on May 19, 2015 (amended operating rules).\2\
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\1\ 80 FR 30246 (May 27, 2015).
\2\ The amendments become effective in three phases, beginning
with same-day credits in September 2016, same-day debits in 2017,
and faster funds availability in March 2018. Next-day settlement
will also remain available.
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The ACH network serves as a ubiquitous, nationwide mechanism for
processing batch-based credit and debit transfers electronically. The
private sector and the Federal Reserve jointly developed the ACH
network as an electronic alternative to checks, the growth of which in
the late 1960s and early 1970s was creating operational and cost
burdens. Currently, the ACH network consists of two network operators:
The Reserve Banks, through FedACH, and The Clearing House (TCH),
through the Electronic Payments Network (EPN). Both operators provide
services to enable ODFIs to originate and RDFIs to receive ACH
transactions. The Reserve Banks and TCH work together to exchange
inter-operator ACH payments in which the ODFI and RDFI are served by
different operators.
The ACH network is governed by the rules of the ACH operators,
which generally incorporate the NACHA Operating Rules and Guidelines
adopted by NACHA's members.\3\ As an ACH operator, the Reserve Banks,
through Operating Circular 4, incorporate NACHA's Operating Rules and
Guidelines as rules that govern clearing and settlement of commercial
ACH items by the Reserve Banks, except for those provisions
specifically excluded in the Operating Circular.\4\ The Reserve Banks'
Operating Circular 4 does not govern ACH transactions conducted through
EPN.
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\3\ NACHA's membership consists of insured financial
institutions and regional payment associations.
\4\ Operating Circular 4, Section 1.4, https://www.frbservices.org/files/regulations/pdf/operating_circular_4_11042013.pdf.
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The Reserve Banks' current FedACH SameDay Service is an optional
service that allows ODFI participants to originate same-day payments to
all RDFI participants that agree to accept such payments.\5\ The
Reserve Banks began offering the service in 2010 to address growing
market demand for intraday ACH processing and settlement. In the five
years since its introduction, the FedACH SameDay Service has
experienced limited adoption; 78 depository institutions (less than 1
percent of FedACH customers) are currently using the service. A number
of factors may account for this low adoption rate. RDFIs typically need
to upgrade internal processing capabilities to post same-day
transactions. Although ODFIs may be able to realize value from the
service through enhanced ACH product offerings, such as emergency bill
pay, these services may be unappealing to originators because of low
RDFI participation and corresponding limited receiver reach. The
current FedACH SameDay Service does not have an interbank fee.
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\5\ As part of the service, the Reserve Banks charge
participating ODFIs a per-item surcharge on the normal ACH
processing fee and provide RDFIs a discount on the normal ACH
processing fee for receipt of forward items.
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Two aspects of NACHA's amended operating rules differ materially
from the Reserve Banks' current FedACH SameDay Service. First, under
NACHA's amended operating rules, receipt of same-day ACH transactions
is mandatory and RDFIs must make funds available from same-day ACH
credits to their depositors by 5:00 p.m.\6\ Second, NACHA's amended
operating rules establish an interbank fee, paid by ODFIs to RDFIs for
each forward same-day transaction.\7\ As described in greater detail
below, NACHA designed the interbank fee, initially 5.2 cents per
forward transaction, to allow RDFIs to offset costs associated with the
up-front investments and ongoing operating costs necessary for
accepting, posting, and making funds available from same-day
transactions. The amended operating rules provide that the interbank
fee will be reduced if actual same-day transaction volume exceeds
original projections by more than 25 percent during regularly required
review periods.\8\ Ten years after the final phase
[[Page 58249]]
of implementation is effective, and every ten years thereafter, NACHA
will reevaluate the interbank fee.\9\ Under NACHA's amended operating
rules the interbank fee may not be increased from its initial level of
5.2 cents per forward transaction.
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\6\ RDFIs' local time.
\7\ The amended operating rules refer to the interbank fee as
the ``Same Day Entry Fee.'' Only forward same-day transactions
originated by or through the ODFI are subject to the fee; same-day
returns will also be available but are not subject to the interbank
fee.
\8\ Same-day ACH volume will be reviewed five years and eight
years after the final phase of implementation is effective.
\9\ NACHA's reevaluation will not include implementation costs
recovered through payment of the interbank fee during the preceding
period, and will be based on the average costs incurred by RDFIs,
same-day ACH volumes, projected future developments, and the extent
to which the fee satisfied RDFI costs.
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These differences require enhancements to the Reserve Banks'
existing FedACH SameDay Service that may have a significant longer-run
effect on the nation's payment system.\10\ Therefore, the Board
requested comment on the following:
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\10\ The amended operating rules contain other elements that
would require modifications to the Reserve Banks' current FedACH
SameDay Service. The Board believes these changes are operational in
nature and will not have significant longer-run effects on the
nation's payment system. These include updated submission and
settlement windows (an estimated morning submission deadline at
10:30 a.m. ET with settlement occurring at 1:00 p.m. ET and an
estimated afternoon submission deadline at 3:00 p.m. ET with
settlement occurring at 5:00 p.m. ET). International ACH
transactions and transactions above $25,000 are not eligible for the
same-day service.
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Making receipt of same-day ACH transactions mandatory for
all RDFIs. If commenters believed that participation by RDFIs should
not be mandatory, the Board requested comment on why the Reserve Banks'
same-day ACH service should remain optional and whether there are non-
mandatory alternatives to achieving ubiquity.
Whether the interbank fee included in NACHA's amended
operating rules equitably reapportions the initial implementation costs
and ongoing operating costs between ODFIs and RDFIs.
II. Summary of Comments and Analysis
The Board received forty comments in response to its request.
Comments were submitted by depository institutions, depository
institution trade associations, national and regional payments
associations, associations representing end users (consumers and
businesses) and third-party payment processors, a private-sector ACH
operator, and an individual. Twenty-two commenters stated that receipt
of same-day ACH transactions should be mandatory and that the interbank
fee appropriately reapportions costs between ODFIs and RDFIs. Three
commenters generally supported same-day ACH services but did not
specifically address mandatory receipt or the equity of the interbank
fee. Fifteen commenters expressed some concern with one or both of the
topics on which the Board requested comment.
A. Mandatory Participation of RDFIs
Thirty-seven commenters addressed mandatory receipt of same-day ACH
transactions. Twenty-nine commenters believed that mandatory receipt is
critical to the success of a same-day ACH service. These commenters,
including seven small depository institutions or associations
representing such institutions, generally agreed that mandating receipt
is necessary to achieve a ubiquitous same-day ACH service that provides
value to end users and depository institutions and achieves the
associated public benefits that come from the enhanced efficiency of
the ACH network. Making receipt of same-day transactions optional, they
argue, would severely limit the benefits of any same-day ACH service.
One commenter (one letter representing two merchant associations),
which agreed that mandatory receipt is necessary to achieve a
ubiquitous same-day ACH service, requested that the Board abandon same-
day ACH services to develop real-time ACH processing.
Eight commenters, all credit unions or credit union associations,
expressed concern that mandatory receipt of same-day ACH transactions
would be overly burdensome on smaller depository institutions. These
commenters indicated that technical and operational changes are
necessary to receive same-day ACH transactions, and that small
institutions will be disproportionately affected because they would be
unable to adequately offset the associated costs of receiving such
transactions because of their lower same-day ACH volume. Only three of
these commenters suggested alternatives: Two commenters suggested that
the Board exempt smaller depository institutions from any mandatory
receipt requirements, and one commenter suggested limiting same-day ACH
transactions to a single morning submission and afternoon settlement
deadline to reduce the burden on smaller depository institutions.\11\
The commenters that supported making receipt mandatory included seven
small depository institutions or associations representing such
institutions, including a community-bank trade group. These commenters
supported mandatory receipt even in light of the associated costs.
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\11\ Unlike the Board's current FedACH SameDay Service, NACHA
estimates that same-day ACH services under the amended operating
rules will include two updated submission and settlement windows (an
estimated morning submission deadline at 10:30 a.m. ET with
settlement occurring at 1:00 p.m. and an estimated afternoon
submission deadline at 3:00 p.m. ET with settlement occurring at
5:00 p.m.). However, exact schedules and timing will be determined
by each ACH operator and are not set by the amended operating rules.
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The Board believes that the benefits of same-day ACH service
outweigh the costs institutions would incur to implement such a
service. Same-day ACH capability will facilitate the use of the ACH
network for certain time-critical payments, accelerate final
settlement, and improve funds availability to payment recipients.\12\
The Board believes that these capabilities will in turn provide a more
efficient electronic payment option for person-to-person payments,
expedited bill payments, same-day payroll payments, and other types of
transactions.\13\ In light of the widespread industry support for a
same-day ACH service with an interbank fee, as evidenced by the
approval of the NACHA amended operating rules, the Board believes that
the costs incurred to implement such a service are outweighed by the
enhanced efficiency of the ACH network and the broader U.S. payment
system.
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\12\ One commenter that supported same-day ACH noted that
payments processed through the check system may clear and settle
faster than some ACH transactions today.
\13\ Same-day ACH may facilitate certain transactions for which
next-day ACH is not feasible. For example, companies with limited
windows for processing payroll payments, such as payments to hourly
employees, may be able to process transactions via same-day ACH that
otherwise would be conducted using checks or prepaid cards.
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The Board also believes that ubiquity is necessary to achieve these
benefits. As with existing next-day ACH services, same-day ACH will be
most efficient if originators can be certain that same-day ACH
transactions will reach any banked receiver. If the same-day ACH
service lacks this ubiquity, originators would be able to use the
service to reach only a subset of their intended receivers,
substantially reducing the attractiveness of the service. The Board
believes, and commenters supporting mandatory receipt agreed, that the
limited adoption of the Reserve Banks' current FedACH SameDay Service
demonstrates an optional service cannot achieve the ubiquity necessary
to establish a successful same-day ACH service. The Board agrees with
the majority of commenters that mandating receipt of same-day ACH
transactions is the only practical method to achieve that necessary
ubiquity and the corresponding benefits. Moreover, the interbank fee,
discussed below, is designed to address the concerns of RDFIs about
same-day ACH implementation and operating costs.
Although the Board acknowledges the concerns raised by some
commenters
[[Page 58250]]
regarding the burden of mandatory receipt of same-day ACH transactions
for small depository institutions, the Board does not believe that any
of the commenters provided a viable alternative for achieving ubiquity
without such burdens. The Board believes that exempting small
institutions would undermine the ubiquity--and therefore the utility--
of the service. Finally, the Board believes that limiting same-day ACH
transactions to a single morning submission and afternoon settlement
deadline would reduce the utility of a same-day ACH service,
particularly for West Coast depository institutions.
The Board believes that a ubiquitous same-day ACH service will
offer considerable pro-competitive benefits. Ubiquitous same-day ACH
service could create a new mechanism to compete with payment methods
other than ACH, and may do so at a lower cost. As stated above, for
example, same-day ACH capability will facilitate the use of the ACH
network for certain time-critical payments, accelerate final
settlement, and improve funds availability to payment recipients. The
Board believes that these capabilities will in turn provide a more
efficient electronic payment option for person-to-person payments,
expedited bill payments, same-day payroll payments, and other types of
transactions.
The Board also does not believe that same-day ACH capabilities
should be abandoned to pursue real-time ACH payments as suggested by
the merchant associations' letter, but rather believes that both
services would be complementary. As outlined in the Federal Reserve's
Strategies for Improving the U.S. Payment System paper (Strategies
Paper), the Federal Reserve recently convened two task forces--faster
payments and secure payments--where private-sector participants can
collaborate to create approaches that will serve the public.\14\ The
faster payments task force, with input from the secure payments task
force, will identify and evaluate alternative approaches for
implementing safe, ubiquitous, faster payments capabilities in the
United States. The Board believes that these efforts are the most
appropriate channels to further consider real-time ACH capabilities.
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\14\ Federal Reserve System (2015), ``Strategies for Improving
the U.S. Payment System,'' (Federal Reserve System, January),
fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf.
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For these reasons, the Board has approved enhancements to the
Reserve Banks' existing FedACH SameDay Service that make receipt of
forward same-day ACH transactions mandatory for all RDFIs.
B. Interbank Fee
Thirty-four commenters addressed whether the interbank fee included
in NACHA's amended operating rules equitably reapportions the initial
implementation costs and ongoing operating costs between ODFIs and
RDFIs.\15\ Thirty-two commenters supported an interbank fee as an
appropriate method for allocating costs between parties.
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\15\ One additional commenter stated it was unable to assess the
equity of the interbank fee due to variables that it believed were
not adequately addressed or evaluated by NACHA's calculation,
including the potential for higher initial implementation costs and
lower incremental costs. One payments association commenter that did
not specifically address the equity of the interbank fee stated that
its membership was split as to whether to support NACHA's amended
operating rules without the fee. One additional financial
institution commenter did not address the equity of the fee or
express clear support but suggested that the fee would not
sufficiently address extended staffing hours necessary to meet same-
day posting times.
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Twenty-one commenters argued that an interbank fee of 5.2 cents is
appropriate.\16\ These commenters generally stated that the interbank
fee is necessary for achieving a ubiquitous same-day ACH service;
without an interbank fee these commenters concluded that many RDFIs
would have opposed NACHA's amended operating rules. Several commenters
cited the failure of NACHA's Expedited Processing and Settlement (EPS)
proposal in 2011 as evidence that a same-day ACH service lacking an
interbank fee could not succeed.\17\
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\16\ One commenter that supported an interbank fee as an
appropriate method for allocating costs between parties did not
specifically address whether the current interbank fee amount of 5.2
cents was appropriate.
\17\ The initial proposal to create a ubiquitous, same-day
framework failed to receive the number of votes required for
adoption under NACHA voting rules. According to NACHA's same-day ACH
request for comment (December 2014), one reason for the proposal's
failure was that it created significant implementation costs for
RDFIs without adequate options to offset those costs. Other reasons
cited for the failure of the earlier proposal were the insufficient
value to originators, and the uncertainty around when funds would be
available to receivers.
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Ten commenters (nine credit unions or credit union associations and
one bank holding company) supported an interbank fee but argued that
the 5.2 cent fee is too low to allow smaller RDFIs to recover costs in
a reasonable amount of time, particularly small RDFIs with limited
same-day ACH volume. Two of these commenters suggested that the Board
create a tiered fee structure instead of a flat fee, allowing smaller
RDFIs to receive higher fees.
Two commenters (a large bank and one letter representing two
merchant associations) opposed an interbank fee of any amount. The
large bank commenter argued that any interbank fee will
disproportionately compensate the largest RDFIs, resulting in
unintended negative effects such as higher end-user fees. The merchant
associations expressed concerns that the interbank fee will impair
competition and may have antitrust implications. The large bank
commenter requested that the Board proceed with a mandatory same-day
ACH service without any interbank fee. The merchant associations
believed that the Board lacks authority to require the Reserve Banks to
collect and transfer an interbank fee. Several commenters expressed
other concerns with the interbank fee: That NACHA would increase the
interbank fee in the future, and that ODFIs would pass the interbank
fee on to their customers using the service.
After considering the comments received, and given the rejection of
NACHA's 2011 EPS proposal, the Board has concluded that in this
specific instance an interbank fee is necessary to achieve a ubiquitous
same-day ACH service.\18\ Many commenters argued that the inclusion of
an interbank fee increased RDFIs' willingness to approve NACHA's
amended operating rules because without an interbank fee, RDFIs would
have lacked the needed business justification to approve the mandatory
receipt requirement that is critical to achieving ubiquity. In
addition, as noted above, the Federal Reserve's current same-day ACH
service, which is not mandatory and does not include an interbank fee,
is not widely used. The Board considered whether a ubiquitous same-day
ACH service could be achieved by mandating in the Reserve Banks'
Operating Circular 4 that FedACH customers receive same-day ACH
transactions without providing for an interbank fee. The Board does not
believe that this is a viable alternative. As described above, the
Reserve Banks' Operating Circular 4 applies only to FedACH customers
and does not govern ACH transactions conducted through the other ACH
operator, EPN. Therefore, any mandate adopted by the Reserve Banks
would apply only to FedACH customers and not to EPN customers,
[[Page 58251]]
resulting in a same-day service that is not ubiquitous.\19\ The Board
also believes that the interbank fee must be implemented by the Reserve
Banks as ACH operator, as it would be infeasible for thousands of
depository institutions to collect interbank fees bilaterally. The
Board has authority to require the Reserve Banks to collect and
transfer this fee under the Federal Reserve Act.\20\
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\18\ The Board's belief that, on balance, the interbank fee is
necessary in this instance is based on circumstances specific to the
nature of the existing ACH network, its governance, and the
requirements of the amended operating rules. Interbank fees may not
be necessary or appropriate in the implementation of other payment
services or systems.
\19\ NACHA made the implementation of the amended operating
rules contingent on the Federal Reserve's support. If the Board had
determined that the Reserve Banks should not adopt the proposed
enhancements and provide same-day ACH service under the amended
operating rules, they would not go into effect.
\20\ Specifically, the Board has authority to require the
Reserve Banks to collect and transfer this fee under the following
provisions of the Federal Reserve Act: Section 11A (12 U.S.C. 248a),
section 11(j) (12 U.S.C. 248(j)), and paragraph 14 of section 16 (12
U.S.C. 248-1). The Board's general supervisory authority over
Reserve Banks, along with its specific authority to require Reserve
Banks to act as a clearing house for financial institutions,
includes the ability to devise methods to cover the costs incident
to the Reserve Banks' clearing activities. See Fraternal Order of
Police v. Board of Governors of the Federal Reserve System, 391 F.
Supp.2d 1 (D.D.C. 2005). Moreover, an interbank fee for same-day ACH
transactions is no different, in effect, from a situation in which
the Reserve Bank is required to pay a fee to an RDFI and therefore
requires ODFIs to pay the fee to the Reserve Bank in order to
recover Reserve Bank costs.
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In order to calculate a per-transaction interbank fee that would
allow RDFIs in the aggregate to recover implementation and ongoing
operational costs associated with the receipt of same-day ACH
transactions, the Board believes that an appropriate methodology
requires certain inputs: A projection of one-time implementation costs
associated with same-day ACH receipt, a projection of ongoing costs
associated with same-day ACH receipt, and projections of future same-
day ACH volume. The process would include obtaining data from
participants in the ACH system, estimating the relationship between
costs and transaction volume, extrapolating those estimates to the
broader universe of ACH participants, and projecting future costs and
transaction volume.
NACHA commissioned a consultant to calculate the interbank fee. The
Board has reviewed the consultant's methodology, which contained the
inputs discussed above. The Board also reviewed the consultant's
assumptions and judgments necessary to construct these inputs and use
them to construct the fee. The Board believes the data and analysis
provide a reasonable basis for the interbank fee, given the fact that
NACHA had to collect data from voluntary respondents, make various
projections into the future, and deal with significant non-
response.\21\
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\21\ The Board would likely have encountered similar limitations
had it undertaken this survey and calculation directly.
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To facilitate its projections, the consultant surveyed a sample of
RDFIs to obtain those banks' projected implementation and ongoing
operational costs. The consultant also interviewed banks and third-
party processors to understand the potential uses of same-day ACH.
Based on interviews, the consultant determined that the largest RDFIs
typically use internal systems to process ACH transactions, while other
RDFIs typically outsource to third-party processors. Accordingly, the
consultant asked only large RDFIs and third-party processors about one-
time implementation costs. All surveyed RDFIs were asked about ongoing
operational costs under three different same-day volume scenarios.
Fourteen large RDFIs and 175 smaller RDFIs responded to the survey,
yielding a sample with reasonable representation across RDFI sizes. The
Board reviewed the survey instruments and cost data aggregated in seven
groups according to RDFI size; NACHA did not make cost data of
individual survey respondents available, citing confidentiality
provisions under which the data were provided by RDFIs. The Board
believes the survey instrument was reasonably designed to obtain the
necessary data.
Using data from these RDFIs, the consultant estimated relationships
between costs and volumes, and used these relationships to extrapolate
to non-responding RDFIs. Projections of same-day ACH volume were based
upon information from ODFIs, NACHA, and other subject matter experts.
Projected adoption rates for ten broad use cases formed the basis for
the projections of total same-day ACH volume. Given its projections of
costs and volumes, the consultant chose a fee that, by its calculation,
sets the present discounted value of aggregate projected RDFI interbank
fee revenues equal to the present discounted value of aggregate
projected RDFI costs for all RDFIs as a whole.\22\
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\22\ NACHA used a 12.2 percent rate of return to discount future
revenue and cost streams associated with same-day ACH. The Board has
determined that that a 12.2 percent rate of return is not
unreasonable for a new, relatively high-risk venture such as same-
day ACH.
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The Board recognizes that projections of future costs and volumes
are inherently subjective, but believes the approach used to determine
the interbank fee is reasonable. Specifically, interviews with industry
participants and extensive review of potential use cases provided a
reasonable basis for estimating future demand for a product that has
not yet been introduced. Also, the collection of data from a sample of
RDFIs of varying sizes through a survey was a sensible way to assess
potential costs of the service. The Board not only reviewed the
methodology used to calculate the fee, but also considered the
implications of the fee for the ACH industry. The Board found the fee
to be reasonable once NACHA addressed issues with respect to
opportunity costs in the fee and the potential for the fee to rise over
time, as described below.
NACHA issued its same-day ACH rule for public comment in December
2014. At that time, NACHA proposed an interbank fee of 8.2 cents. The
calculation of that fee included opportunity costs resulting from the
movement of transactions from higher-margin payments methods, such as
wire, to same-day ACH, essentially transferring to same-day ACH the
high margins that result from banks having market power in other
services. In its final rule, NACHA removed the opportunity cost
component of the fee, thereby lowering the fee from 8.2 to 5.2 cents.
The Board believes that the lower interbank fee of 5.2 cents
reasonably balances depository institutions' ability to offset costs
with the needs of ACH end users. As discussed above, a 5.2 cent
interbank fee would allow cost recovery for RDFIs as a whole. Although
the fee may not allow full cost recovery for all RDFIs, it will allow
all RDFIs to offset a portion of their costs. The Board expects that,
in most cases, the interbank fee will ultimately be borne by end users
that originate same-day ACH transactions, a concern echoed by several
commenters. For some originators, faster settlement or funds
availability associated with same-day ACH may be worth these
potentially higher costs, and their same-day ACH costs (even with the
pass-through of the interbank fee) may still be substantially lower
than the costs they would incur using other payment methods, such as
wire transfers. Originators that wish to avoid such potential costs can
continue to use existing lower-cost next-day ACH options and the
Federal Reserve has no plans to eliminate its next-day ACH settlement.
The Board believes that a higher interbank fee would likely result in
higher costs being passed to originators and may reduce demand for
[[Page 58252]]
same-day ACH services, resulting in a ubiquitous but lesser-used
service.\23\
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\23\ Four of the five commenters representing end users
supported adoption of the proposed enhancements, including the
interbank fee. This support, however, was based on an interbank fee
of 5.2 cents.
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The Board has not adopted the suggestion to tier the fee to allow
smaller institutions to recover more than the 5.2 cent fee because it
does not believe there is a clear correlation between institution size
and implementation costs. As described above, smaller RDFIs often
outsource their ACH and transaction account processing, and may not
incur costs as material as those RDFIs that do not outsource this
processing.
The Board does not believe that the interbank fee will rise over
time, as has been the experience in the card industry. To address this
concern, NACHA proposed provisions that provided for the potential
reduction in the fee, and adopted a rule to ensure that the fee could
not be increased in the future. The Board recognizes that NACHA members
could vote to amend NACHA's operating rules to allow the interbank fee
to increase above 5.2 cents, but no such increase would apply to FedACH
same-day volume unless the Board and the Reserve Banks (as ACH
operator) agree to such an increase.
NACHA's amended operating rules also include a 5-year review and 8-
year review of the fee. At each of these reviews, if the volume of
same-day transactions exceeds the NACHA projection by more than 25
percent, the fee will be lowered to a level pre-calculated by NACHA and
intended to allow RDFIs achieve cost recovery on an aggregate basis. A
schedule of possible fee decreases is available on the Board's Web
site.\24\ If the fee is lowered as a result of such reviews, the lower
fee amount establishes a new ceiling, above which the interbank fee
cannot rise. The Board believes that the lower interbank fee of 5.2
cents, combined with regularly scheduled reviews to determine any
necessary reduction in the fee in pre-calculated intervals, allow cost
recovery for RDFIs over time while maintaining the attractiveness of
the same-day service to ODFIs and originators.
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\24\ http://www.federalreserve.gov/paymentsystems/fedach_about.htm.
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Based on its review of these comments, the Board has approved
enhancements to the Reserve Banks' existing FedACH SameDay Service to
include an interbank fee paid by ODFIs to RDFIs not to exceed 5.2 cents
for each forward same-day transaction and to decrease that fee
according to the fee schedules published on the Board's public Web site
in the event that same-day ACH volume exceeds projections by more than
25 percent during one of the regularly scheduled review periods. Any
other changes to the interbank fee will require additional
consideration and action by the Board.
C. Other Topics Raised
The Board received comments on several other topics related to
enhancements to the Reserve Banks' existing FedACH SameDay Service.
(i) Processing Windows
Several commenters raised questions about the processing and
settlement windows for same-day ACH transactions. As noted above, one
commenter asked the Board to consider a single morning submission and
afternoon settlement deadline, while another commenter argued that
institutions outside the Eastern Time Zone will only gain limited
benefits from same-day ACH. A third commenter requested that the Board
consider extending its National Settlement Service deadline to be
inclusive of business hours in all U.S. time zones.
The Reserve Banks are reviewing the same-day ACH processing windows
and will work with NACHA and EPN to establish processing schedules that
are convenient for as many institutions as possible across the network.
The Board has also previously expressed its intent to enhance the
National Settlement Service and will review extended deadlines and
potential enhancements as described in the Strategies Paper.\25\
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\25\ As described in the Strategies Paper (1) the first phase,
which went into effect in January 2015, expanded the operating hours
of the National Settlement Service by opening the settlement window
one hour earlier (at 7:30 a.m. ET) and closing it one half-hour
later (at 5:30 p.m. ET); (2) the second phase, projected for year-
end 2015, will accelerate the opening time to coincide with the 9:00
p.m. ET opening of the Fedwire[supreg] Funds Service (on the prior
calendar date); (3) the third phase, projected for 2016 or beyond,
will explore the technology, infrastructure and operational and
resource changes required to support weekend and/or 24x7 operating
hours. Federal Reserve System (2015), ``Strategies for Improving the
U.S. Payment System,'' (Federal Reserve System, January),
fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf.
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(ii) Fraud Risks
Several commenters noted an increased potential for fraud with
same-day ACH transactions related to shorter processing windows. The
Board recognizes that same-day ACH transactions may have a different
risk profile than existing next-day ACH transactions. The Reserve Banks
have in place alert services that can assist RDFIs in monitoring risk
profiles specific to same-day ACH transactions, and the Board is aware
that NACHA and the regional payment associations have already started
reviewing risk management issues related to same-day ACH transactions.
The Board believes that any risks related to same-day ACH can be
appropriately mitigated by the industry in collaboration with NACHA and
the ACH operators.
(iii) Continued Availability of Existing ACH Capabilities
Several commenters expressed concerns that the availability of
same-day ACH services would lead to the discontinuation or unnecessary
migration away from low-cost next-day ACH services. The Board believes
that next-day ACH services will remain relevant in light of likely
continued demand by end users for low cost and efficient options for
payments that do not require same-day settlement or processing, such as
regularly scheduled payroll files or bill payments. Retaining next-day
ACH service also reduces operational risk by allowing ODFIs and
operators an opportunity to recover from disruptions without delaying
the settlement of transactions.
The Federal Reserve has no plans to discontinue next-day services,
but it cannot ensure that any given depository institution would
continue to offer next-day ACH origination services to its customers.
In a competitive marketplace for deposit and payment services, however,
if a depository institution were to stop offering next-day ACH
origination to its customers, the demand for that service would likely
be met by other depository institutions.
The Board does not believe that ODFIs will cease offering next-day
ACH origination in an effort to drive volume to same-day ACH
transactions, thus increasing RDFI interbank fee revenue. If that were
to happen, same-day ACH volume would far exceed the volume expectations
used in calculating the 5.2 cent interbank fee, which would result in a
reduction of the fee following the regularly scheduled reviews. The
Board intends to monitor the adoption of same-day ACH and the continued
availability of next-day ACH services. The Board will reevaluate the
amount and appropriateness of any interbank fee if low-cost next-day
ACH origination services are widely replaced by same-day ACH services,
increasing costs to originators.
[[Page 58253]]
III. Criteria for Evaluating the Federal Reserve's Role in the Payment
System
A. New Services and Service Enhancements
In considering new services and major service enhancements to
existing Reserve Bank services, the Board requires the following
criteria be met: the service must enable full long-run recovery of
costs by the Reserve Banks; the service must yield a clear public
benefit; and the service must be one that other providers alone cannot
be expected to provide with reasonable effectiveness, scope, and
equity.\26\
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\26\ See The Federal Reserve in the Payments System (issued
1984; revised 1990), Federal Reserve Regulatory Service 9-1557,
http://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm. Clear
public benefits include promoting the integrity of the payments
system, improving the effectiveness of financial markets, reducing
the risk associated with payments and securities-transfer services,
or improving the efficiency of the payments system. Id.
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The Board believes that the introduction of a FedACH same-day
service with mandatory participation by RDFIs and an interbank fee
meets these criteria.\27\ The service will not adversely affect the
Reserve Banks' ability to recover the cost of providing the ACH service
over the long run as operating costs can be recovered through fees
charged for using the Reserve Banks' ACH services.\28\
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\27\ Although comment was not specifically requested on whether
adoption of the service satisfied the Board's criteria, several
commenters addressed the subject and all agreed with the Board's
analysis that the criteria would be met.
\28\ The Reserve Banks intend to review current FedACH SameDay
Service fees to determine whether any changes are appropriate as a
result of the enhancements.
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The service also offers clear public benefits. Same-day ACH
capability will facilitate the use of the ACH network for certain time-
critical payments, accelerate final settlement, and improve funds
availability to payment recipients. The Board believes that a
ubiquitous same-day ACH service would enhance the efficiency of the ACH
network and the broader U.S. payment system by providing a more
efficient electronic payment option for person-to-person payments,
expedited bill payments, same-day payroll payments, and other types of
transactions. As several commenters noted, this is consistent with the
strategic goals identified in the Strategies Paper.\29\
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\29\ The Strategies Paper communicates desired outcomes for the
payment system and outlines the strategies the Federal Reserve will
pursue, in collaboration with stakeholders, to help the country
achieve these outcomes. One of the specific strategies for improving
the U.S. payment system in the Strategies Paper is enhanced Reserve
Bank payment, settlement, and risk-management services through
promoting greater use of same-day ACH capabilities. Federal Reserve
System (2015), ``Strategies for Improving the U.S. Payment System,''
(Federal Reserve System, January), fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf.
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The Board also believes that the private sector cannot be expected
to provide the service alone with reasonable effectiveness, scope, or
equity. Without incorporation of NACHA's amended operating rules by the
Reserve Banks, a viable same-day ACH service would be unlikely.\30\
Without the ability to reach any RDFI in the ACH network, the Board
believes that any same-day ACH service would be ineffective and any
corresponding public benefits would be limited.
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\30\ This is evidenced by the limited adoption of the Reserve
Banks' current optional FedACH SameDay Service.
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B. Competitive Impact Analysis
When considering changes to an existing service, the Board also
conducts a competitive impact analysis to determine whether there will
be a direct and material adverse effect on the ability of other service
providers to compete effectively with the Federal Reserve in providing
similar services due to differing legal powers or the Federal Reserve's
dominant market position deriving from such legal differences.\31\ The
Board believes that there are no adverse effects to other service
providers resulting from adoption of the amended operating rules. The
changes to the Reserve Banks' existing service conform the service to
industry-wide ACH operating rules that can be adopted by both ACH
operators.\32\ The changes are not the result of any differing legal
powers or any dominant market position resulting from legal
differences.
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\31\ See The Federal Reserve in the Payments System (issued
1984; revised 1990), Federal Reserve Regulatory Service 9-1558,
http://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm.
\32\ TCH, owner of EPN, indicated its strong support for the
enhancements in two separate comments submitted to the Board.
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IV. Conclusion
Based on its review of comments received, the Board has approved
enhancements to the Reserve Banks' FedACH SameDay Service that require
RDFIs to participate in the service and ODFIs to pay a fee to RDFIs for
each same-day ACH forward transaction. The enhancements will be adopted
by incorporation of NACHA's amended operating rules into Operating
Circular 4, governing the Reserve Banks' ACH services.
By order of the Board of Governors of the Federal Reserve
System, September 23, 2015.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2015-24551 Filed 9-25-15; 8:45 am]
BILLING CODE 6210-01-P