Anatomy of an ACH transaction
synctera.com
synctera.com
Yes and they happen very s-l-o-w-ly.
Sometimes they can take up to 3 business days (not counting weekends and holidays). And they only work during "bankers hours" --- between 10am and 3pm each day.
In other words, ACH is the horse and buggy way to process financial transactions with lots of manual work required along the way.
It shouldn't be this way and most everyone knows it. The new and improved and long overdue way is called FedNow and will operate 24/7/365 and will offer almost immediate results --- so you can do amazing, wonderful, high tech things like electronically pay a friend your part of the dinner check while still sitting at the table.
https://www.federalreserve.gov/newsevents/pressreleases/othe...
I thought it was more exciting that checks can be deprecated :) Over 13 million are still used every day!
https://www.washingtonpost.com/archive/business/1996/01/17/t...
They still have to move across the country in one direction, though... I'm still not quite over the fact that I need physical access to my mailbox to receive payments from certain entities.
https://www.protocol.com/newsletters/sourcecode/tech-legacy-...
https://www.frbsf.org/education/publications/doctor-econ/201...
https://www.frbsf.org/education/teacher-resources/open-opera...
https://en.wikipedia.org/wiki/Closings_and_cancellations_fol...
People outside banks often find this surprising.
In ACH, as soon as you get the notification about an inbound credit transfer, it's effectively final. Whether it ultimately settles on the same day or 1-2 days later is irrelevant, since what matters is finality.
ACH credit transfer clawbacks are very rare compared to ACH debit rejections (due to e.g. insufficient funds or fraud).
There's no such mechanism that I'm aware of, though – instead instant deposits usually use debit card rails.
The receiving bank doesn’t bear any risk, Venmo is taking the risk.
You are the person who is the beneficiary on the accounts this money sits on. So you are responsible for it. If an entity sends money on your behalf, they take the responsibility for the money you send. That means they are the ones with the processes that will trigger if money doesn’t clear as expected. Processes which may involve anything from reminder emails and push notifications, all the way to debt recovery companies, lawyers and thugs showing up at your door.
Both entities have float. The question is who is taking legal risk.
What risk? Venmo is the sender here. Almost by definition, the sender doesn't have any risk: They either send money they have (in which case all is well), or promise to send money they don't have (which is the recipient's problem).
If you're talking about the transaction that originally funded the to-be-paid-out balance, that's a completely different story.
> Venmo is sending money from Venmo bank accounts to your bank, through a direct integration.
Yes, and that "direct" integration is typically ACH (for transfers "in 3-5 days") or debit card rails (for "instant payouts"). It might also be RTP these days, and maybe soon will be FedNow, which are both cheaper than debit card push payments (although I don't see payment app providers stopping their very lucrative business of charging ~1% for instant payouts any time soon).
For ACH, there is no risk to the recipient. since nobody is floating anything: It takes 3-5 days. For debit cards, there is also no risk since these payments are effectively final immediately after they're announced to the recipient, even though they don't settle instantly.
No, they have the money. But the money is ultimately that of the Venmo user. If that money gets removed from the account by some other means (eg some form of clawback, dispute, whatever) then they're out that user's money, and they're on the hook: So Venmo pays for the user.
Every dollar is somebody else's dollar.
Sure, but that's completely independent of the finality, settlement timing, payment rails etc. of the payout side.
So if you're talking about the funding side, ACH is indeed very risky, since it's ACH direct debit. But great-GP was talking about Venmo payouts. There, Venmo is an ACH credit sender, which is risk-free.
A lot of apps like CashApp, Venmo, Uber Driver, Lyft Driver, etc give you two options for getting your money out of their app. Instant and Delayed. Delayed is usually free and deposits into a linked bank via ACH. Instant is immediate and is a reverse transaction on a linked debit card.
This is RTP and it usually isn't free.
If you can really perform one using your account and routing number, it might also be RTP.
From "FedNow FAQ" https://news.ycombinator.com/item?id=32515531 :
> W3C ILP Interledger Protocol [1] specifies addresses [2]: [...]
>> Neighborhoods are leading segments with no specific meaning, whose purpose is to help route to the right area. At this time, there is no official list of neighborhoods, but the following list of examples should illustrate what might constitute a neighborhood:
>> - crypto. for ledgers related to decentralized crypto-currencies such as Bitcoin, Ethereum, or XRP.
>> - sepa. for ledgers in the Single Euro Payments Area.
>> - dev. for Interledger Protocol development and early adopters
> From "ILP Addresses - v2.0.0" [2]:
>> Example Global Allocation Scheme Addresses
>> - g.acme.bob - a destination address to the account "bob" held with the connector "acme"
>> - g.us-fed.ach.0.acmebank.swx0a0.acmecorp.sales.199.~ipr.cdfa5e16-e759-4ba3-88f6-8b9dc83c1868.2 - destination address for a particular invoice, which can break down as follows:
>> -- Neighborhoods: us-fed., ach., 0.
>> -- Account identifiers: acmebank., swx0a0., acmecorp., sales, 199 (An ACME Corp sales account at ACME Bank)
>> -- Interactions: ~ipr, cdfa5e16-e759-4ba3-88f6-8b9dc83c1868, 2*
> And from [3] "Payment Pointers and Payment Setup Protocols":
>> The following payment pointers resolve to the specified endpoint URLS:
$example.com -> https://example.com/.well-known/pay
$example.com/invoices/12345 -> https://example.com/invoices/12345
$bob.example.com -> https://bob.example.com/.well-known/pay
$example.com/bob -> https://example.com/bob
<meta
name="monetization"
content="$wallet.example.com/alice">
> And then you realize you're sharing payment address information over a different but comparably-unsecured channel in a non-stanfardized way; From https://github.com/interledger/rfcs/blob/master/0009-simple-... :
>> Relation to Other Protocols: SPSP is used for exchanging connection information before an ILP payment or data transfer is initiated
> To do a complete business process, [there's] signaling around transactions, which then necessarily depend upon another - hopefully also cryptographically-secured and HA Highly Available - information system with API version(s) and database schema(s) unless there's something like Interledger SPSP Simple Payment Setup Protocol and Payment Pointers [...]
Clearing (finance) > US: https://en.wikipedia.org/wiki/Clearing_(finance)#United_Stat...
ACH Network: https://en.wikipedia.org/wiki/ACH_Network :
> The Federal Reserve's FedACH and The Clearing House Payments Company's Electronic Payments Network (EPN) are the two ACH operators in the United States.[3]
From https://news.ycombinator.com/item?id=28232243 :
> FWIU, each trusted ACH (US 'Direct Deposit') party has a (one) GPG key that they use to sign transaction documents sent over now (S)FTP on scout's honor - on behalf of all of their customers' accounts.
Payment rail: https://en.wikipedia.org/wiki/Payment_rail
EFT: Electronic Funds Transfer: https://en.wikipedia.org/wiki/Electronic_funds_transfer
From "Ask HN: What security is in place for bank-to-bank EFT?" (2021) : https://news.ycombinator.com/item?id=26111184 :
> AFAIU, no existing banking transaction systems require the receiver to confirm in order to receive a funds transfer. [...]
> ILP: Interledger Protocol > RFC 32 > "Peering, Clearing and Settling" describes how ~EFT with Interledger works: https://interledger.org/rfcs/0032-peering-clearing-settlemen...
Why do we have such a slow, fragmented, unsecured system(s) for banking and finance?
What are the solutions; how do we unify and eliminate waste?
This isn't true, it depends on the bank. Some banks only do 9-4 Monday through Friday, Truist is one of those. Some banks process ACH transfers immediately, Wells Fargo is an example.
It’ll be several years before consumers are splitting checks on fednow, an infinitesimally small use case.
It may be slightly vendor dependent, my rent is usually maybe a day or so faster depending on when I do it, but again, no reason it shouldn’t be instant. (Yes I couldn’t use my debit card but I’m not paying 5% oR so surcharge for that)
I pay my Amex card from Fidelity and the balance updates on the Amex immediately and the money comes out of Fidelity the next day.
We've been doing it for years in Europe thanks to instant SEPA payments ("SCT Inst"), and even those behind-the-times banks in the Eurozone which don't support SCT Inst have been required to support non-instant SEPA Credit Transfers, which settle next business day, since 2015.
And, by law, it cannot cost more than sending a payment within your own country (which is generally free).
Arguably, this is the real paradigm shift FedNow will bring, if I understand it correctly: Consumer-initiated push payments to an account number.
For whatever historical, regulatory, or business reasons, US banks generally don't offer this to individual/consumer accountholders, even though it's clearly possible within the ACH framework, unlike most other countries with a developed "traditional" banking system. (In Europe, for example, this is a very common way to pay bills or rent – checks are practically unheard of.)
I've found this to be the case when transferring funds using the external account transfer feature for a number of banks where I have an account. For example, it does take 3 business days to transfer from an account I have at Bank A to another account I have at Bank B.
The banks in question also offer Zelle transfers, but since I used the same email address for both bank's accounts, I'm unable to use it for money transfer from one account I have to another.
And won't this be just as cumbersome, requiring precisely typed recipient bank information?
There is no escaping the need for identification. The easy approach is probably debit card number which most accounts already have and is check summed to catch most input errors. QR codes could be used to transfer the info easily between friends and eliminate input.
If banks won't address this properly, 3rd parties will step in and add this on top of the underlying payment rails with wallet apps. Obviously, the essential thing is to get the rails in place first.
I believe the Nacha rules stipulate that the originator must have obtained authorization for the debit (and there are rules governing this in more detail), but the practices around “validating” or “verifying” that it is permitted are done for risk management purposes rather than because the rules mandate them. It is hard to point to proof of this from the horse’s mouth because the operating rules are not freely available.
> Venmo runs on ACH
At least the way I use it, at least the funding side of it (i.e. when I pay somebody) runs on debit card rails. Instant payouts also usually happen that way.
For example if you send 100$ to a friend at another bank, you will submit the instruction, the bank will then screen it against an TMS/AML system, then once that passes 1 submit the instruction. If this time is say 10pm, you will be instructed first thing next day when the scheme opens again. In RTGS or similar real time systems, you get settlement within a shorter time period (like say a few mins to hours) meaning the next at someone will have it (pending receiving banks TMS/AML checks)
The real issue with this in the US is that they do not have a widespread account name confirmation service that is rolled out for all so it will be hard to do real-time “Confirmation of Payee” which is something that is relatively normal in other countries.
This is an oversimplification of most the steps but as a consumer, it will be a big benefit to speeding up the whole system as private networks like Venmo or Cashapp do the exact same thing (well to a lesser degree) but those services are built into the schemes themselves.