The Decline of the 'Three-to-Five Business Day' Disclaimers

The Decline of the 'Three-to-Five Business Day' Disclaimers
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By Blair Thomas

The anywhere/anytime ethic that has grown around online and mobile technology has made consumers and merchants increasingly demanding of near real-time payments. They are no longer content to accept the “funds make take three-to-five business days” disclaimer that accompanies many transactions. In the years since I co-founded my credit card processing company, pressure to increase the speed of payment processing has led to a number of initiatives that are beginning to make a significant difference — programs that will bring benefits to all areas of the payments ecosystem.

Why are payments processed so slowly?

The short answer is that payments are still be being processed following regulations and using systems that are many years old. These legacy technologies and processes no longer reflect the needs of merchants, businesses and their customers.

In the United States, payment processing between financial institutions has relied on something called the Automated Clearing House (ACH). The ACH is a centralized electronic system that collects all of the credit and debit transactions from all financial institutions once a day. The transactions are checked, processed and then settled the following day. The system works, but slowly. There are a couple of issues with it. First, each bank has a set time each day when their batch of transactions is uploaded to ACH. If you submit a payment after the batch has gone, your payment has to wait until the following day to be processed. Further, if there are any accidental errors in your data (big-thumb, small-button type things) then processing can be further held up, with the result that your payment could take anywhere from two-to-five days to process.

So, what are financial institutions, payments companies and fintech doing to speed up the rate of payments?

In recent years, the Federal Reserve has set out to improve the ACH system and provide “same day ACH.” Under this new implementation, banks will be able to designate certain transactions as same day. And ACH will provide financial institutions two or three windows each day in which to process batches. The new setup is being rolled out in three phases: credit settlement in 2016, debit in 2017 and 5 p.m. same-day settlements for all ACH Payment Processing transactions in 2018.

It’s a good start. And, in addition to same-day ACH, the Federal Reserve is also leading the Faster Payments Initiative (FPI).

The Faster Payments Task Force was launched two years ago. 300 organizations from all across the payments ecosystem are involved. The focus of the task force is to develop secure, faster, ubiquitous payments in the U.S. To do this, they are looking at new technology to be the backbone of a faster payments system. Proposals for that new technology are being evaluated this summer. And, following the analysis, the Federal Reserve will release a report outlining the way forward when it comes to speeding up payments. Even as this is happening, new, faster payment technology and solutions are already being brought to market. And the task force is trying to ensure these solutions can work together and provide all types of payment processing capability within the U.S. The idea is to make ACH, debit and credit faster, with real-time payment processing being the ultimate goal.

What benefits can FPI bring, and to whom?

Faster payments will benefit different aspects of the payments industry:

  • The vendors businesses use to complete important work will get paid faster. This creates a better experience and stronger working relationships between those partnering businesses. More work gets done more quickly, and overall satisfaction increases. In the aggregate, faster settlement and release of services should bring real improvements to supply chains and distribution in general.
  • Much of the pressure on the financial industry to speed up payments is driven by customer demand. Millennials especially are used to being able to make purchases and pay for them in an instant. Their expectation is that the same standard should apply to all transactions. Overall, faster payments allow the industry to deliver better consumer experiences.
  • Faster payments should lead to greater adoption of easy-to-use fund transfers between individuals. For instance, there should be a greater uptake in apps that make it possible to instantly transfer funds from your bank account to a friend’s account to pay your half of the dinner check.
  • Customers will not have to wait as long for payments from businesses. Faster settlement times will increase client satisfaction and decrease the likelihood customers will look elsewhere for the services a business offers. Overall, client retention will rise.

Security Issues Related to Faster Payments

Clearly, the benefits of the move towards faster payment processing are real, but the transition is not without its risks.

If payments are made in real time, the transaction becomes final almost instantaneously. So how can financial institutions build in the proper checks without slowing down the process? The Federal Reserve’s Secure Payments Task Force is looking at making recommendations for the framework within which new solutions should be created to mitigate risk. They are looking at areas like identity management, fraud mitigation and information-sharing protection. Solutions may include the creation of a fraud database and new standards for authentication, tokenization, dynamic credentialing and encryption.

The Future of Payments

As the payments industry evolves over the next few years, we can expect to see a number of substantial changes. It is likely that new technical developments and increased automation will result in the optimization of the payments chain. The speed and ease with which business is transacted will increase. Customers will have more security and greater satisfaction. Whatever form it takes, the updated, more efficient payments system will benefit all stakeholders. Nobody, in any area of the payments ecosystem, is going to mourn the death of the three-to-five business day disclaimer.


Electronic payments expert Blair Thomas co-founded eMerchantBroker in 2010, America’s Top Rated high-risk credit card processing company, serving both traditional and high-risk merchants.

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