ACH transfers are electronic, bank-to-bank transactions used to send or receive money from a personal or business bank account. When a consumer, business or government entity in the United States chooses to pay a bill online by entering bank account and routing information, they are initiating an ACH transfer.

Think of ACH as an electronic checkbook and a modern alternative to cash, credit and debit card payments. 

Facts About the ACH Network

ACH transfers travel electronically through the Automated Clearing House Network, a highly regulated batch-processing system that facilitates the transfer of funds among banks and credit unions. 

In 2019, the ACH Network processed nearly 25 billion payments, a 7.7% increase from 2018. The value of these payments totaled $55.8 trillion, a 9% increase from 2018. 

Nacha, the nonprofit association that oversees the ACH Network, reported 2019 was the seventh consecutive year in which the ACH Network value increased by more than $1 trillion—and the fifth straight year to have a volume gain of more than one billion payments. 

Here are other ACH Network facts:

  • In 2019, direct deposit of payroll and other payments to consumers increased 6% to 7.2 billion payments.
  • In 2016 there were 6.1 billion direct deposits. 
  • In 2019, internet payments increased by 13% to 6.7 billion. 
  • In 2016 there were 4.7 billion internet payments. 
  • During 2019, 250 million Same Day ACH payments were processed, totaling $247 billion. 
  • In 2018 there were more than 160 million Same Day ACH payments, totaling $178 million. 

How ACH Payments Work

ACH Transaction Flow: Business, ODFI, ACH Operator, RDFI

The ACH Network processes two types of transactions: direct deposits via ACH and direct payments via ACH. Direct deposit via ACH is the deposit of funds for payroll, government benefits and other refunds. It includes any ACH credit payment from a business or government to a consumer.

Direct payment via ACH is the use of funds to make a payment. 

An ACH credit or push transaction is initiated by the payer of funds and sends money to the receiving party. An ACH debit or pull transaction is initiated by the receiver of funds and pulls money from the paying party. 

In both cases, the ACH transaction is entered into the ACH payments system by an originator that is responsible for obtaining the required authorization for the transaction. 

The originator delivers the ACH transaction to its bank, called the ODFI or originating depository financial institution. The ODFI is liable for the action of its originator. 

The ODFI forwards the transaction to its chosen ACH operator, either the Federal Reserve or the Electronic Payments Network. If the transaction is a “push,” the ODFI will also debit its customer’s account before forwarding the transaction to its ACH operator. The ACH operator performs a switch role, passing the transaction on to the RDFI, or receiving depository financial institution. 

If the transaction is a “pull,” the RDFI will debit its customer’s account upon receipt. 

If the ODFI and RDFI use different ACH operators, the first operator switches the transaction to the second operator. 

The ACH operators will calculate the net settlement totals for their banks on a daily basis. These totals are submitted to the Federal Reserve, which manages the actual settlement process using its National Settlement Service. After settlement, the ODFI and RDFI will credit its respective customer’s account based on the type of transactions. 

In a “push” transaction, the RDFI will credit its customer’s account; in a “pull” transaction, the ODFI will credit its customer’s account.

For a more detailed understanding of the key terms and players involved in an ACH transaction, a glossary of ACH keywords can be found here

How ACH Payments Differ From Other Payment Methods

Businesses of all sizes can offer a variety of payment options that benefit both them and their customers. When customers pay the way they prefer, friction is removed from each transaction, creating a positive user experience. 

Electronic transactions can appear similar on the surface but the way they are processed—and the cost of each transaction—is very different. 

Paper Checks

According to the Federal Reserve, check payments fell 7.2% per year from 2015 to 2018. But if you are part of the 10% of Americans that don’t use the internet, paying with a check provides an option for consumers rather than paying in person with cash. 

And checks do cost money, along with the money spent each month on envelopes and stamps if checks are used to pay bills by mail. 

The terms “eCheck” and ACH payment are often used interchangeably and both transfer funds electronically between bank accounts. However, it is important to note the difference between the two.  An eCheck is a one-time electronic funds transfer; ACH transactions, in contrast, utilize customer bank account information that can be stored and used for recurring payments. 

Debit & Credit Cards

Debit card transactions function like a check to pull funds from a bank account. However, a debit card transaction requires a PIN or signature for authorization; ACH payments require a user’s account and routing number or online banking credentials to authorize a transaction. 

Debit card transactions rely on connections with the card networks and payment processors, which in turn communicate with the banks. With more players involved in a debit card transaction, there are additional processing and interchange fees. 

With credit cards, three components make up processing costs: interchange fees, assessments and markups. The first two aren’t negotiable, the last one is.

Markup charges can be negotiated between a  business owner and the company’s credit card processing company. Several factors determine what each business will pay each month, for instance:

  1. What industry your business is in
  2. How much you sell in an average month
  3. How you accept cards (in person, over the phone, online)

This article goes further into the relationship of credit cards and small businesses. 

Interchange fees are paid to the banks that issue the credit cards and typically are a small percentage of each sale. Then there are the assessment fees, which are charged on every transaction. These are not negotiable, so shop around for the best values. 

Here’s an estimate of fees for the four main credit card providers:

  • Visa – 0.13% assessment fee for every debit or credit charge 
  • Mastercard – 0.13% for credit transactions of $1,000 or less; 0.14% for transactions $1,000 or more 
  • Discover – 0.13% as an assessment fee on its credit cards 
  • American Express – 0.15% 

Wire Transfers

A wire transfer is handled by two individual banks to verify funds and complete the transaction. It’s not uncommon to have both the sending and receiving banks charge a fee for the transaction to reflect the extra work each bank has to do. 

With wire transfers, funds can move from bank to bank in less than one business day, but there’s almost always a hefty fee. A typical fee can be between $20-$40 per transfer within the United States. 

Why Offer ACH Payments?

ACH payments are a cost-effective way to send money online by transferring funds between bank accounts with incredibly reliable processing timelines.

Some ACH payment providers charge a flat fee per transaction, which can range from free to $1.50. 

Use this calculator from Nacha to estimate how much you are spending on payments and how much could be saved by using ACH payments. 

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