Protocol | Fintech

Fintechs are at the mercy of 3-day bank transfers. Astra could change that.

Electronic payments in the U.S. are hobbled by the ACH system, which is only slowly being updated. A startup says it can make bank-to-bank transfer better, faster and cheaper.

Gil Akos of Astra

Gil Akos, co-founder and CEO of Astra, hopes to make bank-to-bank money trasnfers a lot faster.

Photo: Astra

Fintech startups need to move money quickly and safely in order to make consumer-friendly features like rent-splitting or shared savings work.

But to do that, they need help navigating the world of ACH bank transfers, which can be slow and complex.

Startup Astra provides companies with automated transfers from one bank account to another and says it does them faster. That's important for startups with features such as automatic savings when you work out or buy a latte or splitting rent payments or sharing savings — or even if neobanks want to make it easy for new customers to transfer money into new accounts.

Astra specializes in faster ACH transfers, which can be sent in one day from one institution to another. This is made possible by technology that does risk assessment to make sure that a settlement will not fail. It also has a system that can set up triggers to automatically make transfers.

NACHA, the organization that operates the ACH network, has been developing same-day ACH transfers, which it says grew quickly in the second quarter of this year. But those faster transfers only accounted for 1.3% of total ACH payment volume in the quarter.

We caught up with Gil Akos, co-founder and CEO of Astra, to find out more about Astra's work and the future of payments.

Let's clarify this first, how long does it take to do a bank transfer?

If you're doing an ACH debit pull, the bank can choose "next day" or "standard" settlement. Next day is T plus 1 day [one day transfer] and standard is T plus 3 to 4 days.

Why can't fintechs do this in one day?

A neobank could do next-day settlement for an ACH debit pull, but they don't because there's a huge amount of ACH risk. You don't want to have the transfer reversed. Return codes for "insufficient funds" or "frozen accounts" come through on the morning of the second day. That's why standard settlement is three days. You don't want a $1,000 transfer to a destination account available the next day, and the customer withdraws or spends it, but then on T plus 2 those funds get pulled back to the source account because of a return code.

How do you address that?

Our system optimizes for throughput and speed. We have a higher fidelity. When you create an ACH file [to transfer funds] as a developer, you can ask Astra's API to route funds to Tomio in T + 1 and we're most likely able to do that. For Jane, who has one or more risk factors, developers can ask for longer time. We couple settlement speed parameters with risk mitigation.

With Astra, what's being automated?

So a common use for our platform is our customers would present a user experience to their end user that says, "When my balance for my debit card goes below a certain threshold, say $200, automatically refill it from an outside source." So you specify these parameters in our system and then we track the inputs, and whenever it's been triggered, we execute the payment on their behalf. So a company like Daylight or Fold, which are our customers, can leverage that automation to make sure that there's an ongoing capture of deposits, based on conditions on the ground. So when my Fold balance goes below $100 it can be automatically refilled from an outside source.

How is what you're doing different from others?

There's three key facets to our product. One is that you can easily fund from an outside source and execute the transactions such that they're faster. Second is that because of our payment architecture, we're optimizing against risk, so your origination risk goes down to zero. So you're not on the hook for a bunch of failed transactions. And last, you get to embed this advanced capability into your product, which means you capture more deposits over time.

How do you handle the speed versus risk?

Historically, that's done through the fintech's partner bank, if a challenger bank is originating those transactions by way of the ACH system. But there's a ton of limitations there and you have to build out and operationalize a lot of capabilities around what should happen when. Do you set a blanket policy so that all transfers are slow, so you're insulated from risk, or do you take the other binary option which is, you let transfers be faster for settlement, but you have to own the losses, because you'd have to make your bank partner whole?

Astra says, you get to specify a desired settlement speed that we then optimize against, and get funds in faster, and reduce risk. And by the way, funds are continually flowing inbound by way of rules, as opposed to expecting the user to actually take action in your app.

Do you have to do any of those security checks that those institutions would do on their own?

We do that by default, because that's part of how we optimize for settlement speed.

Is some of this business rules? If for example, you were connecting my Chase to Schwab, because of a rule at Chase it's just not possible to do T + 1?

I think that's accurate. But because I think what we're teasing here is, when you're either pulling or pushing you only have a limited set of capabilities, because it's like a one-way action from either the source or destination. If you think about it like the Internet Protocol suite, the layers. So instead of staying at that same layer and doing a push or a pull, with Astra you're talking to the next layer above, and then we're routing through from BofA to Robinhood.

I thought you were going to say, well, if we partner with both sides then it can be much faster, but you're saying that's not necessary?

No, because we can create the NACHA files for ACH debits or credits, independently of either one of them. And we have the full range of parameters that we can specify. And as we build out other payment rail options into our system, like real-time payments, and push to card, it means that the developer has more and more capabilities around speed and settlement and costs that they can weigh against each other. It can be any one of those source destinations or third party entities that are sending an API request to us, to route those funds.

Is ACH the best way to send funds?

In the U.S., the three primary payment rails are ACH by a landslide; card transactions, so debit rails with Visa and MasterCard; and then new real-time payments. Cards are maybe more expensive but you have a high confidence that it's going to settle. ACH is more ubiquitous to work with and it's cheap. But it's fragile, and specifically it's around these return codes and having to understand these different nuances around push and pull. Along with that, the reason it's inexpensive is because when you as a bank are sending this list of files of what should be transferred that day, they get processed in batches.

With ACH they only batch send once a day, but now they're talking about doing it two to three times a day?

So what NACHA as a governing body is doing is making more of these batch windows available so that you can pair that with the parameters around settlement speed. Because the tailwinds of everything is, the more time goes on, the more expectation for all individuals or businesses is that the settlement is going to happen faster — as in instant.

In theory, we can get same-day ACH?

Definitely. There's a not-too-distant future where you can pair the appropriate, same-day ACH debits and ACH credits together, if you get them into the right batch windows so that they clear by the end of the business day. So it's T + zero — it's not instant.

Does that affect what you're doing at all?

We're actually doing some beta testing right now with some additional clearing windows or parameters for settlement speed. And so as that comes through and it's available through our bank partners, we can then extend that to our customers.

And your customers are mostly fintechs who are accessing the funds?

We have two types of customers. One is fintechs, such as neobanks: We typically help them get funds into customer accounts faster and more reliably.

But we also have customers who don't want to be in the flow of funds. They want to allow their customer to route funds from user A to B where our customer is not in the flow of funds [though the end user has logged in and approved this]. DoorDash could do this themselves, since they have the payment-ops chops to debit from here into our corporate treasury and credit out to drivers. But in a lot of use cases, marketplaces don't want to touch the funds. This could be a personal finance app, such as sharing or saving for couples, or an app for sharing subscriptions costs for Netflix. Funds bounce back and forth but the app doesn't want to stand up a treasury system to facilitate that, so we help them do that.

Protocol | Policy

Transparency can help fix social media — if anyone can define it

The latest buzzword in tech policy promises to give users more insight into and power over social media services, but mainly signals just how much more we need to figure out.

Social media companies, lawmakers and tech skeptics all say they want more visibility into how the sites work.

Image: dole777/Unsplash; Protocol

It's the one and only thing nearly everyone in tech and tech policy can agree on. Facebook and Twitter want it, as does the Facebook Oversight Board. Whistleblower Frances Haugen suggested it to Congress, and several lawmakers who heard her testimony agreed. Even the FTC is on board.

The vogue in tech policy is "transparency," the latest buzzword for addressing concerns about social media's reach, breadth and social effects. Companies, academics, regulators and lawmakers on both sides of the aisle all embrace transparency as a cure-all, or at least a necessary first step. But that agreement obscures a deeper problem: The various camps all have widely differing notions both of what the vague term actually means, and also what the public should do with any insights increased transparency might lead to.

Keep Reading Show less
Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

The way we work has fundamentally changed. COVID-19 upended business dealings and office work processes, putting into hyperdrive a move towards digital collaboration platforms that allow teams to streamline processes and communicate from anywhere. According to the International Data Corporation, the revenue for worldwide collaboration applications increased 32.9 percent from 2019 to 2020, reaching $22.6 billion; it's expected to become a $50.7 billion industry by 2025.

"While consumers and early adopter businesses had widely embraced collaborative applications prior to the pandemic, the market saw five years' worth of new users in the first six months of 2020," said Wayne Kurtzman, research director of social and collaboration at IDC. "This has cemented collaboration, at least to some extent, for every business, large and small."

Keep Reading Show less
Kate Silver

Kate Silver is an award-winning reporter and editor with 15-plus years of journalism experience. Based in Chicago, she specializes in feature and business reporting. Kate's reporting has appeared in the Washington Post, The Chicago Tribune, The Atlantic's CityLab, Atlas Obscura, The Telegraph and many other outlets.

Protocol | Workplace

HPE joins IBM in threatening unvaccinated workers with unpaid leave

Biden's rules for federal contractors leave little wiggle room when it comes to vaccine mandates.

As a federal contractor, HPE faces a strict vaccine mandate.

Photo: Allison Levitsky/Protocol

Hewlett Packard Enterprise just made its employee vaccine mandate tougher to dodge.

The IT company told its workforce on Wednesday afternoon that the COVID-19 vaccination is now a "condition of employment" at HPE, even for remote workers.

Keep Reading Show less
Allison Levitsky
Allison Levitsky is a reporter at Protocol covering workplace issues in tech. She previously covered big tech companies and the tech workforce for the Silicon Valley Business Journal. Allison grew up in the Bay Area and graduated from UC Berkeley.
Hirsh Chitkara
Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
Hirsh Chitkara
Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
Latest Stories