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ACH Network is an electronic network for the Automated Clearing House of financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit, payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the point-of-purchase (POP) check conversion pilot program sponsored by the National Automated Clearing House Association (NACHA). Both the government and the commercial sectors use ACH payments. Businesses increasingly use ACH online to have customers pay, rather than via credit or debit cards.
Rules and regulations that govern the ACH network are established by NACHA and the Federal Reserve. In 2015, the network processed nearly 24 billion transactions with a total value of $41.6 trillion. Credit card payments are handled by separate networks.
The Federal Reserve Banks, through the FedACH system, are collectively the nation's largest ACH operator. In 2005, they processed 60% of commercial interbank ACH transactions; the remaining 40% was processed by the Electronic Payments Network (EPN), the United States' only private-sector ACH operator. EPN and the Reserve Banks rely on each other for the processing of some transactions when either party to the transaction is not their customer. These interoperator transactions are settled by the Reserve Banks.
The ideas that would lead to the ACH were first developed in the late 1960s. One of the early predecessors was a US federal initiative used to help United States Air Force personnel get their pay checks on time. The success of this initiative led to an expansion to other employees and the government adopted it as a major payroll standard.
Separately in the early 1970s a group of bankers in California set up The Special Committee on Paperless Entries (SCOPE) to build an automated payment system after concerns for the number of checks being cleared for payrolls.
This led to the first ACH association being formed by them in 1972. The difficulty in compliance between different organizations led to them join together to form National Automated Clearinghouse Association (NACHA) in 1974.
NACHA consolidated and added new rules which led to ACH going into effect soon after. As computer and telecommunication technology advanced over the next few years the system continued to develop. By 1978 electronic funds transfers were available.
Between the late 1980s through to the 2000s the system continued to develop with a number of enhancements. In 2001 there was a major reorganization of NACHA which led to financial institutions insured by the Federal Deposit Insurance Corporation becoming direct members making it much easier for the ACH network to be used by banks. This year also saw internet payments go into effect which would go on to be big part of ACH payments.
Uses of the ACH payment system
- Bank treasury management departments sell this service to business and government customers
- Business-to-business payments
- Direct debit payment of consumer bills such as mortgages, loans, utilities, insurance premiums, rents, and any other regular payment
- Direct deposit of payroll, Social Security and other government payments, and tax refunds
- E-commerce payments
- Federal, state, and local tax payments
- Non-immediate transfer of funds between accounts at different financial institutions (when a real-time transfer is required, a wire transfer using a system such as the Federal Reserve's Fedwire is employed instead)
Some common Standard Entry Class (SEC) codes: AT
|ARC||Accounts receivable conversion||A consumer check converted to a one-time ACH debit. The difference between ARC and POP is that ARC can result from a check mailed in whereas POP is in-person.|
|BOC||Back office conversion||A single entry debit initiated at the point of purchase or at a manned bill payment location to transfer funds through conversion to an ACH debit entry during back office processing. Unlike ARC entries, BOC conversions require that the customer be present, and that the vendor post a notice that checks may be converted to BOC ACH entries.|
|CBR||Corporate cross-border payment||Used for international business transactions, replaced by SEC Code IAT.|
|CCD||Corporate Credit or Debit Entry||Used to consolidate and sweep cash funds within an entity's controlled accounts, or make/collect payments to/from other corporate entities.|
|CIE||Customer Initiated Entries||Use limited to credit applications where the consumer initiates the transfer of funds to a company for payment of funds owed to that company, typically through some type of home banking product or bill payment service provider.|
|CTX||Corporate trade exchange||Transactions that include ASC X12 or EDIFACT information.|
|DNE||Death notification entry||Issued by the federal government.|
|IAT||International ACH transaction||This is a SEC code for cross-border payment traffic to replace the PBR and CBR codes. The code has been implemented since September 18, 2009.|
|PBR||Consumer cross-border payment||Used for international household transactions, replaced by SEC Code IAT.|
|POP||Point-of-purchase||A check presented in-person to a merchant for purchase is presented as an ACH entry instead of a physical check.|
|POS||Point-of-sale||A debit at an electronic terminal initiated by use of a plastic card. An example is using your debit card to purchase gas.|
|PPD||Prearranged payment and deposits||Used to credit or debit a consumer account. Popularly used for payroll direct deposits and preauthorized bill payments.|
|RCK||Represented check entries||A physical check that was presented but returned because of insufficient funds may be represented as an ACH entry.|
|TEL||Telephone-initiated entry||Oral authorization by telephone to issue an ACH entry such as checks by phone. (TEL code allowed for inbound telephone orders only. NACHA disallows the use of this code for outbound telephone solicitations unless a prior business arrangement with the customer has been established.)|
|WEB||Web-initiated entry||Electronic authorization through the Internet to create an ACH entry.|
|XCK||Destroyed check entry||A physical check that was destroyed because of a disaster can be presented as an ACH entry.|
- Clearing (finance)
- Clearing house (finance)
- Clearing House Association
- Electronic funds transfer
- Wire transfer
- Directo a México
- Originating Depository Financial Institution
- Pan-European automated clearing house
- Universal Payment Identification Code
- Century Business Solutions (March 24, 2017) ACH Payments
- "ACH Volume Grows by 5.6 Percent Adding 1.3 Billion Payments in 2015". NACHA. 2016-04-14. Retrieved July 25, 2016.
- Wayne Hamilton (June 10, 2014). "The History And Future Of ACH".
- "THE HISTORY OF ACH". Cachet Services. June 27, 2016.
- "ACH Glossary". Ach.com. Archived from the original on 2012-10-28. Retrieved 2012-10-24.
- "POP, ARC & BOC comparison". Witsends.com. Retrieved 2012-01-08.
- "NACHA Moves Back IAT Deadline to Allow More Time for Testing". Retrieved 2014-07-22.
- "Understand the ACH Network: An ACH Primer" (PDF). Retrieved 2013-11-26.
- NACHA, The Electronic Payments Association
- ACH Rules Online
- Electronic Payments
- Federal Reserve Payment Systems
- Intro to the ACH Network
- Federal Reserve's ACH Number Lookup
- Regulation E
- ACH Return Codes & Explanations
- ACH Terms and Definitions
- ACH vs Credit Cards
- Report to the Congress on the Use of the Automated Clearinghouse System for Remittance Transfers to Foreign Countries
- International ACH Transactions (IAT) Solutions Center
- ACH Payment Integration | ACH API