What is an Automated Clearing House (ACH) and how does it work?

An Automated Clearing House (ACH) is a local clearing system used to electronically transfer money between bank accounts within the same country, without relying on card networks. ACH networks facilitate automatic, secure, and cost-effective financial transactions between different banks.

Can you provide examples of ACH networks in different countries?

Certainly! Examples of ACH networks include:

• In the United States: The Automated Clearing House (ACH) network, is governed by NACHA (National Automated Clearing House Association).
• In the United Kingdom: BACS (Bankers' Automated Clearing Services) was one of the first ACH networks.
• In Switzerland: Swiss Interbank Clearing manages local payments.
• In Singapore: eGIRO facilitates electronic fund transfers.
• In Europe: PE-ACH handles SEPA (Single Euro Payments Area) compliant payments.
• In Australia: BECS (Bulk Electronic Clearing System) is responsible for electronic transactions.

What are the main types of ACH payments in the United States and other regions?

ACH payments typically fall into two main categories:

• Direct Deposit: This category covers payments from businesses to customers, such as monthly payroll or government benefits.
• Direct Payments: These are used for payments made by individuals or businesses to cover recurring bills, subscriptions, or invoices.

Why do businesses prefer to use ACH payments?

Businesses opt for ACH payments because they are cost-effective and straightforward to set up. ACH transfers in the United States, for example, can cost under $1, compared to credit card transactions that often incur fees of around 2% of the transfer amount. Wire transfers, on the other hand, can cost as much as $35 per transaction. ACH payments are accessible to anyone with a US bank account, whether they are individuals or businesses.

How long does it take for ACH payments to process?

ACH payments are cost-effective but typically take about 3 days to process. They are not the fastest method for transferring money between bank accounts. In contrast, wire transfers can often be completed on the same day. The processing time for ACH payments may also be affected by the time of day the request is submitted.