How Governments Navigate ACH Payments Innovation

As local- and state-level government entities continue to run, it’s not business as usual for the public sector — particularly in the way these entities make and receive payments.

In-person payments of transactions like parking violation fines or sanitation fees is no longer possible, leaving government entities to accelerate their electronic and online payment acceptance capabilities. It’s been a boon for ACH payments, said Jeff Thorness, president of Forte Payment Systems, a CSG company.

He told PYMNTS in a recent interview that as consumers prioritize cost savings over shoring up rewards and airline miles, citizens are preferring to use ACH to pay their government bills and fees online rather than pay the processing fees often associated with cards.

As a result, it’s placing greater pressure on government entities to digitize payment acceptance capabilities. As Thorness explained, their embrace of ACH processing technologies is likely to have far-reaching impacts into how they send and receive payments with government suppliers, too, particularly as ACH innovation accelerates.

“We’ve been helping governmental agencies for about 20 years now, and over that timeframe, we have definitely seen that ACH has played a much bigger role than it used to, and governments are embracing that,” he said.

Business-To-Government Payments

Governments and businesses alike face similar challenges when it comes to embracing payments digitization. Shifting away from paper checks and integrating ePayments functionality within broader back-office workflows remains one of the tallest hurdles that maintains the reality of paper and manual processes for many entities.

Yet ACH volume is on the rise, and that includes in the B2B payments context. The latest figures from NACHA revealed a 7.1 percent year-over-year increase in ACH transaction volume for the first quarter of 2020, with B2B payments adoption accelerating even faster, posting an 11.7 percent volume increase in Q1 — and accounting for 1 billion transactions.

According to Thorness, government entities may even be ahead of the private sector when it comes to ACH adoption.

“On the government side, I feel they have been even more successful at implementing ACH, whether it be G2B or B2G payments,” he said.

Yet there is one factor that continues to thwart ACH adoption for both government and business transactions.

“I think the biggest challenge is not the payments themselves, but all of the parameters and business logic that needs to be wrapped around that payment,” Thorness said. “That’s where the complexity and challenge comes. The key is the remittance information that needs to be associated with B2B payments.”

Accelerating ACH Innovation

While key ACH industry stakeholders like NACHA, The Clearing House and the Federal Reserve work to accelerate innovation in ACH payments, the focus in the U.S. has largely been on the speed of a transaction. Yet while ACH moves toward Same Day and, eventually, Real Time transaction speeds, that movement of transaction data remains a key hurdle for both B2B and B2G uptake.

“I think there’s more work to be done on adoption of standard across industry types,” said Thorness. “What kind of data comes along with the payment, how is it formatted, what does it look like, and how are systems capable of accepting that information to apply payments in back-end systems?”

For the government payments arena in particular, payments security will also continue to be a difficult challenge as ACH innovation progresses and as transaction speed accelerates, thereby decreasing the window of opportunity to catch fraudulent activity. This not only means ensuring that government systems are protected to prevent a data breach or unauthorized access of consumer or government payment data, but also means safeguarding government entities’ entire supply chains, too.

“There is a great emphasis on data security,” he said. “Government entities cannot be in a position where their suppliers are compromised. Let’s say they were to contract with someone that had challenges with data security. That’s something that could end careers. Governments are very in-tune with data security as a paramount issue.”

The biggest investments in ACH innovation continue to focus on speed, which stands to benefit government agencies and the citizens they serve through faster access to funds and improved cash flow. Yet as in the B2B payments space, B2G and G2B payments will continue to watch the ACH arena closely not only as payments accelerate, but as disruption progresses into how transaction data moves, and how automated fraud technologies can safeguard data and funds.

Government entities will be tasked with understanding their own risk exposures and assessing the potential technology service partners that can address these concerns as ACH adoption climbs.

“There is no silver bullet,” said Thorness. “You have to employ the full breadth of capabilities in order to reduce fraud and risk exposure associated with real-time and near-real-time payments.”