Next Day ACH — The Need For Speed
As commercial applications become more complex and cater to increasingly wider audiences, the one thing that hasn’t changed all that much is the methods of moving funds. Understanding how Dwolla’s API allows businesses to move funds through the U.S. banking system can help you understand how to better utilize the platform to ensure your application is up to the standards that your end users expect.
How Funds Move With Dwolla
Let’s imagine a peer-to-peer application using Dwolla’s API where one Customer sends funds to another. While one Customer will see a debit out of their bank, and the other will see a credit into their bank, the funds actually have a few steps to travel. For the first half of the transaction, the funds are debited from the sending bank (the Receiving Depository Financial Institution, or RDFI) and sent via the ACH Network to the Federal Reserve Bank, then passed on to the customer’s account in the Dwolla Network at its Originating Depository Financial Institution (ODFI). From there, the second half of the transaction occurs; funds are debited from the customer’s account at the Dwolla Network at the ODFI, and once again passed on via the ACH Network to the Federal Reserve Bank, which then credits the receiver’s account at the destination bank (the RDFI).
In our example of two Customers sending funds to each other, in reality, the movement will look like:
Sender Bank (RDFI) → Fed → ODFI → Dwolla Network
Dwolla Network → ODFI → Fed → Destination Bank (RDFI)
Even though there are multiple steps in the transfer, API Clients and their end users will not see “Dwolla” on their bank statements, but rather, they will see the name of the Client or the party involved in the transfer.
Transfer Timing
Now that we’ve established that bank-to-bank transfers with Dwolla are really broken up into two steps, we can analyze where Next Day timing comes in.
Next Day will only be utilized during the first “step,” or the debiting side of the transfer from the sending party to the Dwolla Network.
With Dwolla’s standard ACH timing, this first step of the transfer can take three to four business days. ACH processing accounts for two days of time, as banks check for return codes such as `insufficient funds` or `transfer not authorized`. With Next Day transfers, funds are not held for as long, but rather are passed onto the destination party, resulting in funds completing their first “step” in only 1–2 business days.
Examples
Let’s walk through some examples of real Dwolla API Clients utilizing Next Day to understand how Next Day adds value to their end users.
Example 1 — Payouts to Customers
Use Case — Sellers of items on the Tophatter marketplace can be paid out via ACH after the sale of their goods.
Many Dwolla API Clients use their applications to pay out to their own Customers. Tophatter uses ACH to pay out sellers on their marketplace, who sell up to 100,000 items every day. Utilizing Dwolla’s mass payment feature, Tophatter can quickly pay out thousands of sellers with one API call. Using Next Day clearing, these payouts are efficient and sellers are incentivized to stay on the Tophatter platform with speedy payouts right into their bank account.
Example 2 — Customers to Customers
Use Case — Golf clubs and associations use foreUP to manage the ACH receipt of funds from their members.
The facilitator funds flow consists of an API Client enabling their end users to transfer funds to each other. In the case of foreUP, their end users consist of golf clubs and associations, as well as members of these clubs. These members can choose to pay via ACH for everything from their membership dues to food and drinks on the course. ACH benefits these clubs, as they can significantly cut the overhead of processing fees compared to other payment methods such as a credit card. On top of this, Next Day has allowed members of golf clubs and associations to pay their dues quickly. Rather than waiting for a week for funds to clear, golf associations can now receive and recognize their funds in as little as two to three days.
“We’ve been given a huge competitive advantage because of Next Day ACH processing. With our previous ACH provider, payments would take between seven and 10 business days to hit the customer’s account. With Dwolla and Next Day ACH processing, we are able to see payments hit customer accounts the next day and help golf courses minimize the credit card processing rates.” Christian Arntsen, Director of Product Management, foreUP
Moving Funds. Faster.
End users are increasingly expecting faster payments and quicker funds transfers. While there are even more ways that our API Clients utilize Next Day, it goes without saying that quicker clearing times can add to higher satisfaction for your end users. Because who doesn’t like getting their money quicker?
Get started testing Next Day functionality in the sandbox today.
