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How Automated Clearing House or ACH Works


The very mention of the term, Automated Clearing House or ACH, invariably conjures up images of financial transactions, payrolls and the like. Given the current need for speed in current day transactions, it is one of the sure and easiest routes for large-scale commercial transactions.

In fact, in many ways, it is one of those channels of financial transaction that can help boost the pace of financial dealings as well as bring in a whole lot of transparency in the entire system.

Automated Clearing House Definition

Therefore the automated clearing house definition is an electronic network for the financial transaction that is prevalent in the United States. Overall then a huge volume of credit and debit transactions are processed through automated clearing house or ACH.

So the ACH transactions are pretty comprehensive comprising a wide array of wire and online dealings on any day. They comprise of many types of credit transfers like

  • Direct deposit
  • Payment to vendors
  • Payroll payments

ACH covers many direct debit transfers that are undertaken by the consumers or even transfers that comprise of consumer payments like

  • Insurance premiums
  • Different types of consumer bills
  • Mortgage loans
  • Point of purchase check

In fact, the automated clearing house is used by both government as well as the commercial sectors. The use of ACH for businesses, especially online transactions to facilitate payment to customers is fast catching up. This is being seen as a more effective mode of payment compared to credit or debit card transactions.

This is mostly because of the fact that it is a clearing and settlement process that is entirely based on computers. The depository exchange between the participating depository institutions happens totally electronically. Of course, the rules for this ACH or automated clearing house network across the US have been established by the US Federal Reserve and the NACHA.

If you simply look at the statistics for 2015, you will see that this single network processed close to

  • 24 billion transactions in just one year
  • The total value of the ACH transactions across the US in 2015 by at $41.6 trillion

This transaction, however, did not include credit card transactions. They were dealt with by a separate network. In fact the Federal Reserve thereby becomes one of US’ biggest automated clearing houses. If we go back to 10 year old data, it reveals that they had

  • Processed as much 60% of the commercial interbank ACH transactions in 2005
  • The Electronic Payment Network, which was US’ largest private-sector ACH operator, had processed 40% of the payment

In fact over the years it has worked out so that the EPN and the US Fed have been working in tandem to process transactions efficiently and effectively even when either part involved in the transaction is not their direct customer. It goes without saying that the US Fed by virtue of its positioning is solely responsible for these inter-operator transactions.

Automated Clearing House Architecture:

Automated Clearing House Architecture

What Is Automated Clearing House?

The Automated Clearing House, therefore, acts as a key financial hub that allows easy passage of transactions. It allows the movement of money from one source to another through bank accounts fast and directly. The fact that it essentially comprises of direct deposits and B2B transactions ensures that the overall transfer of money becomes swifter across multiple channels.

It facilitates a strong Government and consumer transactions with a completely different degree of speed and alacrity. The ACH is also instrumental in bringing about a higher level of transparency in money dealings across the United States of America.

A quick look at some of the key statistics as collated and updated in 2014 indicates that the Automated Clearing House is instrumental in facilitating a broad direct payment outlet

  • Its network grew by almost 5% to 23 billion electronic payments in 2014
  • By 2014, the total value of ACH Network transactions in dollar terms rose to $40 trillion
  • The rise in the net value of the ACH transactions indicated a strong 3% jump in year on year basis
  • The total amount of WEB transactions amounted to 3.6 billion by 2014
  • The net amount transacted through WEB equalled to $1.7 trillion
  • Eve if you measured the B2B transactions, there was a robust 7% rise on year on year basis between 2013 and 2014
  • Even recurring payments grew by 4% overall, and this added up to nearly half of automated clearing house

Just wanted to remind our readers that all the details that we have put forth to you have been updated as far as 2014 and the trend indicates that the last two years have recorded a significant growth even if transactions grew at the pace they recorded in 2014.

National Automated Clearing House Association

That brings the discussion to the next point about what is NACHA or the National Automated Clearing House? Well, it is the primary organization that manages the development, the overall administration and the basic governance of the ACH Network. It many ways the NACHA can be considered as the hub and the very backbone of smooth and effortless money transaction across the United States. This organization funded by the financial institution is responsible for the transaction of payment worth billions and involves direct and indirect payment.

Another big advantage of dealing with the NACHA is the fact that it being a Government organization there is a decided amount of risk management norms and guidelines that govern its operations. These steps go on to make the National Automated Clearing House extremely safe proposition, and it goes a long way in protecting consumer rights and transaction safety.

Therefore the fact remains that the automated clearing house is one of the most transparent fastest network of money transfer followed across the United States. It is a comprehensive network with both private and Government players, and that brings in greater traction and better growth in the overall operations. The projection going forward is that the National Automated Clearing House is set to ring in larger and double-digit gains with an increase in electronic transfer.



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