If you, you have ever moved funds between accounts, made electronic payments, sent money to a friend, used any kind of a payment app, received direct deposit of your salary, etc. Congratulations! - You have used the ACH Network.
The following article was written to give a brief overview of the ACH network, what it is, what it does, how it does it, why it matters to you, along with some of the benefits of it. I will even provide a little bit of history for all you history buffs out there - Let's get started.
"So, what is this ACH thing?"
I'm glad you asked:
What is it?
In short ACH is short for Automated Clearing House Network, which happens to be an electronic payment batch processing, store and forward system that provides for interbank clearing of electronic payments for participating depository financial institutions. In other words, it is a network used to move currency between vendors, merchants and financial institutions around the world . Pretty cool, huh?
Who runs the ACH network?
Fret not, the ACH network is not run by some random person sitting in their parent's basement eating snack-pockets and drinking energy drinks. It has actually been run by the National Automated Clearing House Association (NACHA) since 1974.
NACHA works closely with various government agencies including the Federal Reserve, U.S. Treasury, and state banking authorities in order to ensure the integrity of the electronic payments systems used by U.S. financial institutions.
What does it do and how does it do it?
Transactions received and sent via the ACH Network are stored and processed later as batches. Rather than sending each payment separately, ACH Transactions are accumulated and sorted by destination for transmission during a predetermined period (cut-off time). This provides significant economies of scale, as well as faster and more secure processing than paper checks.
How long do ACH transactions take?
Payments generally take 3-5 working days to appear in your bank account but can occasionally take more. The time that the ACH file is submitted to your bank is also very important. Additionally, the process may also fail or be delayed for various reasons, resulting in potentially longer processing times.
Generally, the ACH timeline should be as follows:
Day 0
- ACH file submitted to your bank.
- Bank processes file and sends to the ACH network.
Day 1
- File is available to your customer’s bank.
- Customer’s bank receives file and debits their account.
- Funds credited to ODFI Originating Depository Financial Institution (ODFI).
Day 2
- Customer’s bank notifies ACH network of any failures.
Day 3
- Your bank receives notification from ACH network and communicates with you.
For various reasons, the process to collect an ACH debit may be delayed anywhere along the timeline. One of the most frustrating delays are usually happens on day 3. This is the “limbo period” from the time that the ACH is cleared with your financial institution and the time it shows up as available to use in your account. The reason for this is that each financial institution in our case NBKC, has multiple cut off and verification times and posting times.
Typically, banks will perform an “end of day” function each evening. Only after this function has been performed will the day’s transactions post (appear in your account). In other words, if an ACH transaction is submitted after the cut off time, the request is not likely to be processed until the next day. Another fun fact about the ACH Network is that it does not operate on weekends, or federal holidays.
What are some of the benefits of using ACH?
Convenience - With an automated payment, no need to write a check, use a stamp, or having to worry about payments getting lost in the mail. Essentially, you can go paper free! With rising costs, think of the savings on stamps, checks, envelopes, etc.
Safety - With ACH payments, you are able to see and track your payments. Plus, you won't need to worry that your payments did not make it to their destination - Hmm, I wonder if there is a way to use ACH for luggage when you travel...
Speed - Your payments will generally arrive quicker with an ACH payment than if you mail a check. Additionally, if you are away, your bills will still be paid.
$aving$ - Some companies offer a discount to consumers who opt to pay their premiums via an ACH payment.
Accuracy - With an automated payment, you don’t run the risk of forgetting to sign your check or entering the wrong amount. - Once you set up your payment, the same amount is deducted each month.
Why does ACH matter to you?
ACH touches us in many aspects of our financial lives; from direct deposit of salaries to paying our utilities, card bills, student loans etc., to sending money to our friends, and shopping online. ACH is also how funds move between large and small companies alike. Here at Envel, unless it is with your debit card, ALL transactions are completed using the ACH network.
Finally, as promised here is a little bit of history about ACH:
While the ACH network may seem like some shiny fairly new technological apparatus from the future, the truth of the matter is that according to NACHA, its roots go back to 1968, when a group of California bankers became concerned about the growing volume of paper checks. Pretty groovy huh?
Anyhow, those events led to the 1972 formation of the first ACH Association in California to handle electronic payments. Other regional ACH networks soon appeared, and in 1974 they formed NACHA to administer the ACH Network.
As the administrator, NACHA sets and enforces the Rules for ACH and educates people about the network. What it doesn’t do is operate the physical network. That’s up to the ACH Operators: The Federal Reserve and The Clearing House. They do the actual processing and routing of transactions, rather - “the moving the money,”
NACHA’s establishment led to the first national ACH Rules being drafted, and that in turn paved the way for the very first standard ACH format for Direct Deposit. In fact, The U.S. Air Force was the first employer in the nation to initiate a Direct Deposit payroll program.
Today, thanks to ACH, we are able to get paid faster by direct deposit, pay bills without worry, send money to friends and family either just across the street or clear across the world. And we can do it safely, accurately, efficiently and at minimal costs to to all of us.
I hope you found this to be informative, or at least an enjoyable way to kill off a few minutes and learn a little something about the ACH network. If you have any additional questions or comments, please contact us.