Banks, corporations, the Federal Reserve and the U.S. government use Automated Clearing House (ACH) accounts to wirelessly transfer sums of money between accounts. These groups register their accounts with the National Automated Clearing House Association (NACHA), a private organization that sets operating rules and business practices for ACH accounts and transfers.
History
Many large institutions took full of advantage of computer technology starting in the 1970s to transfer money between each other. Regional ACH systems were set up, but they did not have a standard set of guidelines that regulated the entire industry. These regional ACH associations came together in 1974 to form NACHA. Originally, ACH account payments were transferred via magnetic tapes and disks, as the Internet had not been developed yet. In 1994, the Federal Reserve passed a mandate requiring banks to record ACH payments electronically.
Process
An ACH account transaction takes place between many parties. The receiver of the transfer notice authorizes the originator to initiate the transfer of funds. The originator then provides the routing and account number provided by the receiver to the bank. The bank then presents this information to the ACH operator. The ACH operator then processes this transaction, taking the money from the receiver's bank account where it is deposited in the originator's account. Much of this process is now done using computer software.
Benefits
ACH accounts allow customers to use direct debit and check cards. With direct debit, customers can pay bills without having sent in a check. Check cards allow individuals to pay for items without having to carry around cash. Many large businesses use an ACH account to provide their employees with direct deposit. Direct deposit sends an employee's paycheck directly to their bank account. The U.S. Treasury uses direct deposit to pay income tax refunds.
Considerations
The most common form of ACH transfer is between financial institutions. Banks frequently make inter- and intrabank loans when either giving loans or taking them. These include transfers or payments to the Federal Reserve. When a customer from Wachovia makes a payment to a customer at Bank of America, for example, Bank of America will use an ACH account to transfer money to Wachovia. Millions of these transactions occur per day. At the end of the business day, banks will figure out how much they owe each other, and they will balance their accounts by transferring money between each other.
Fees
With the growth of ecommerce, more and more institutions are using ACH accounts to process payments electronically. Companies that receive credit card payments over the Internet pay about 2.5 percent of the transaction amount plus an estimated 25 cents per transaction. With an ACH account transfer, the entire fee is between 2.5 and 25 cents, which is a considerable savings.
Membership
To obtain an ACH account, registrants need to apply directly to NACHA. Registrants may also choose to join one of NACHA's membership programs, which set ACH regulations for particular fields of business. Seven programs are available, including the Affiliate Program, Council for Electronic Billing and Payment, Electronic Check Council, Global Payments Forum, Internet Council and the National Council for Uniform Interest Compensation.
