What is ACH? Automated Clearing House Payment Network Explained

ACH stands for Automated Clearing House and is best recognized for Direct Deposit payments. Also known as direct debit, EFT, electronic bank transfer and eCheck, ACH payments move on the ACH Network, a payment system that reaches all U.S. bank and credit union accounts. Consumers, businesses, governments, and third-party providers access the ACH Network through their banks and credit unions.

ACH is a batch payment system, meaning that multiple payments get aggregated and pushed to the bank or credit union for processing as a single group or a batch versus as individual payments. This system is helpful to businesses and governments processing large volumes of payments for services like payroll and taxes. These transactions can be processed on the same business day or scheduled for the following day or up to two business days away.

ACH offers both credit payments (push transactions from the payor’s bank account) and debit payments (pull transactions from the payor’s bank account). ACH transactions can be returned.

Nacha serves as the administrator of the ACH Network. The Federal Reserve acts as an ACH Operator and offers an ACH product called FedACH^® to banks and credit unions. The Clearing House is the second ACH Operator and provides an ACH product called EPN to banks and credit unions.

Same Day ACH is a type of ACH payment where money moves from one bank account to another and settles on the same business day, while standard ACH transactions can take up to two business days to process and settle.

FedNow^® and RTP^® are both real-time payments offered by the Federal Reserve and The Clearing House, respectively. Real-time payments process and settle instantly—within seconds—and are irrevocable once sent, whereas Same Day ACH happens on the same day.

ACH payments are a cost-effective, efficient, electronic payment option for banks and credit unions to offer to their customers/members for those payments that don’t need to be received immediately or should be irrevocable in nature.

Banks and credit unions can leverage ACH payments for such offerings as:

• Internal account-to-account transfers for moving funds between bank accounts at the bank or credit union
• Standard business offerings like payroll of employees
• Treasury Management packages for business customers/members to send and receive electronic payments versus writing checks or using other payment methods
• Person-to-Person (P2P) payment options like Zelle^® that allow consumer and business customers/members to send and receive electronic payments via the Zelle platform and app
• And more.

Historically, ACH has most often been used for payroll (Direct Deposit), government payments like Social Security and taxes, recurring payments like utility or mortgage payments, bill payments, and all types of recurring payments. Businesses also use ACH to make vendor payments to other businesses.

Nacha, the ACH administrator, reports that Internet payments, Direct Deposit payments, healthcare payments, and P2P payments also are major transaction types for the network.

ACH payments are governed by the Nacha Operating Rules which establish clear guidelines for banks and credit unions and their customers/members. The Nacha Operating Rules work in conjunction with and point to specific regulatory requirements to ensure that banks and credit unions remain in compliance with both specific ACH and broader payments rules and regulations.

Payment regulations are being updated all the time. Working with the right payments partner to facilitate ACH payment offerings will help ensure ACH payments adhere to the latest regulatory requirements and industry standards.

ACH fraud has risen in recent years, in part due to business email compromise, ransomware, money mules, phishing, and other forms of cyberattacks. Nacha has issued a comprehensive Risk Management Framework for the ACH Network that guides banks and credit unions on strong risk mitigation practices.

In addition, banks and credit unions should seek out a payments partner who provides solutions that help them in addressing fraud through:

• Credit exposure minimization
• Custom risk thresholds
• Precise transactional monitoring
• Debit Block solutions
• Positive Pay to filter ACH debits
• And more.

Starting with ACH begins with finding the right payments partner to help enable modern services that can grow with a payments program.

When considering offering or expanding ACH services, banks and credit unions should seek out a payments partner who:

• Operates a payment hub with easy API integrations to bring all payment rails together into one system or support existing systems through payment orchestration.
• Can help them bypass network fees with internal routing capabilities for on-us transactions.
• Offers straight‑through processing of payments and seamless EDI integration.
• Provides support for all ACH payment types and all Standard Entry Class (SEC) codes.
• Supports ACH Return, Reversal, and Notification of Change (NOC), from either an ODFI or RDFI point of view.
• Integrates with existing banking platforms and systems including core, AML, GL, fraud management and account analysis.
• Provides a central view of incoming and outgoing ACH transactions and helps manage transactions from other payment rails centrally.
• Allows for high-volume processing.
• Enables credit exposure minimization, custom risk thresholds, and precise transactional monitoring.
• Offers Debit Block to prevent fraud and Positive Pay to filter ACH debits.
• Enables prefunding so that transactions can be processed seamlessly and without the risk of insufficient funds causing delays or failures in the ACH network.
• Introduces a platform with a modern interface and a tailored teller experience.
• Allows for payments to flow via Same Day ACH or standard rails based on business customer/member needs.
• Delivers to customers/members the convenience of automatically sweeping funds into and out of their accounts through ACH rails, optimizing liquidity and cash positioning.
• Keeps customers/members informed of their transaction status with real-time status updates by their chosen channel.
• Supports business customers/members with best-in-class digital ACH processing.

For general information on ACH, visit Nacha.org. To explore more about enabling ACH with Finzly,  speak with one of our payment experts