ACH payments are electronic payments that are created when the customer gives an originating institution, corporation or other customer authorization to debit directly from their checking or savings account to pay a bill.

Common examples of ACH transactions are:

  • A customer paying a service provider
  • Employers depositing money into their employees’ checking accounts
  • Consumer moving funds from one bank account to another
  • Businesses paying suppliers for products

Sometimes an ACH hold is placed on your bank account, meaning a payment you’ve authorized is about to be deducted or deposited. When an ACH hold is placed on your account, it signals that your bank is aware of the transaction.

To complete an ACH payment, the organization requesting the payment (whether they want to send or receive funds) needs bank account information from the other party involved.

Real World Examples of ACH Payments

To understand how ACH payments work through the ACH Network, let us use Bill.

Bill was just hired by an insurance company and on his first day of work Bill gave his employer his bank account information for the purpose of the direct deposit of his paycheck.

In this example, the insurance company is initiating an ACH transfer (ACH payment) to send money to Bill.

The insurance company will send the ACH entry to its bank which will debit the insurance company bank account and forward the entry to its ACH operator. The ACH operator will pass the entry onto Bill’s bank which, after settlement by the Fed, credits Bill’s bank account.

This ACH payment example is of an ACH credit or “push” transaction.

Additionally, Bill has given his utility company his banking information and has authorized the company to pull funds directly from his bank account for his electric bill.

The utility company sends the ACH entry to its bank which forwards the entry to its ACH operator. The ACH operator passes the entry onto Bill’s bank which debits Bill’s bank account. After settlement by the Fed, the utility company’s bank credits its bank account.

This ACH payment example is of an ACH debit or “pull” transaction.

Explaining the ACH Network

The Automated Clearing House is a payment method that has evolved since its beginnings in 1974 and runs on banking networks in the United States to allow consumers to pay for transactions by debiting from their bank account directly, as opposed to using a credit card.

According to NACHA: The Electronic Payments Association, the number of ACH payments totaled more than 5.6 billion in Q3 of 2018, a 6.7 percent increase from Q3 in 2017. The increase was due in large part to business-to-business payments, which increased nearly 10 percent from 2017.

“The ACH Network is thriving,” says Jane Larimer, Chief Operating Officer of NACHA, in a release. “Governments, financial institutions, businesses and consumers are all reaping the benefits the ACH Network provides.”

The simplicity, broad reach and economic efficiency of the ACH Network makes it one of the most important electronic transfer systems in the United States. With its ability to carry large amounts of data along with ACH payment transactions, innovative applications are leveraging the ACH Network.

Connecting to the ACH Network for ACH Payments

Businesses can use Dwolla as an onramp to the ACH Network and take advantage of its offerings.

Innovative companies that make it easier to save for retirement, buy rare sneakers, pay rent online or invest in real estate or collectable cars use the ACH Network through Dwolla to send and receive funds.

And they all connect to the ACH Network through a payment integration with Dwolla’s ACH optimized API. Regardless of the industry, the most innovative brands are using Dwolla to move money through the ACH Network and the applications are limited only to the imagination of the businesses.

For example, Om Suthar, the founder and CEO of financial and wellness application SQRL, is helping people invest in their physical and financial well-being. By linking their existing checking and saving accounts and reaching a preset number of steps a day, a user can authorize SQRL to move a predetermined amount of money from their checking to savings account.

Suthar just needed the ACH Network and Dwolla’s ACH API.

I’m a non-technical founder and I was able to integrate with Dwolla’s ACH API,” Suthar says. “That speaks volumes about the work Dwolla is doing. All of the success SQRL has had is directly related to Dwolla. It comes down to that value offering where we are moving funds between your bank accounts, especially moving funds into a savings account. All of this is not possible without Dwolla.”

Each year, more and more businesses come to the exact same realization.

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