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What is ACH?
What is ACH?

 

Automated Clearing House (ACH) is a nationwide electronic funds transfer (EFT) system that provides for the inter-bank clearing of credit and debit transactions and for the exchange of information among participating financial institutions.

The Automated Clearing House is a secure, private electronic payment transfer system that connects U.S. financial institutions. Direct paycheck deposits is an example of electronic fund transfers that go through this network.

Utilizing ACH payments is cheaper and faster than processing paper checks, both B2B and B2C e-commerce payment activities heavily rely on the ACH system and have helped give the system tremendous traction.
 

A Little History on ACH

ACH was created in the early 1970s, when the ever increasing amount of paper checks used by both businesses and consumers to pay their bills would eventually overwhelm available computer systems and not allow the efficient processing and sorting of checks. The Federal Reserve intervened and agreed to provide the computer systems necessary to process and settle the ACH items between the financial institutions. In 1974, NACHA (National ACH Association) arose from regional ACH organizations and acted to coordinate the establishment of rules to facilitate the nationwide clearing of ACH payments.

NACHA is the organization responsible for developing the rules and the standards regarding ACH transactions.

In 2010, over 19.4  billion payments with a total value of more than $31.74 trillion were processed via ACH through the Federal Reserve System. Typical ACH payments include payroll, single and recurring bill payments and Social Security benefits.