[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