An ACH transfer is an electronic, bank-to-bank transfer processed through the Automated Clearing House. ACH payments are created when a consumer, non-consumer, business or government entity creates an ACH payment to send or receive money from a savings or checking account. In many instances, this transaction requires some sort of authorization by both parties although that is not always the case
The ACH network is a highly regulated batch processing system that facilitates the transfer of funds between banks and credit unions. Traditionally, software applications looking to leverage the benefits of ACH transactions would need to negotiate a relationship with a financial partner, piecemeal a number of solution providers together and create a custom solution to accommodate a bank legacy’s infrastructure.
Often times, the costs in properly owning and maintaining this payments integration—and maintaining its compliance requirements—would wipe out the value proposition that ACH offers businesses.
It’s similar to building a car and the Dwolla Platform is an engine. If you were building a car, would you build an engine from scratch or buy a prebuilt engine that you could easily install?
A quick synopsis of ACH
Since launching in 1974, the Automated Clearing House has become one of the largest and most important payment systems in the world. It’s an electronic network allowing banks and their customers to send funds between one another in the U.S. The National Automated Clearing House Association (NACHA) is the rule-making and enforcement body that manages the development, administration and governance of the ACH network.
In 2017, the number of ACH transfers grew nearly six percent from 2016, processing over 21 billion transactions, worth an estimated $46 trillion, according to NACHA.
More network statistics can be found here.
ACH transfers—also called Entries—are processed two ways, which vary in delivery speed and cost:
- ACH debit: This involves having money pulled from an account. For example, when setting up a recurring bill payment, the company you are paying can pull what is owed from your account each month.
- ACH credit: Allowing funds to be pushed to an account at different banks.
The ACH system doesn’t set the transfer cost, it is decided between the network participants. Each file includes its own effective entry date and the ACH operator determines the settlement date. A standard ACH transfer usually settles the next business day, but financial institutions are able to hold funds for potential return codes before making them available.
Explaining the differences between ACH and wire transfers
Of the ways to move money electronically, ACH and wire transfers are two of the more popular and well-established options. But it can be easy to confuse the two.
With wire transfers, funds can be moved from bank to bank in less than one business day, but there’s almost always a hefty fee to send a wire transfer.
Verifying bank accounts
Verification is done for a variety of reasons—safety, security, etc.—and is especially helpful if you’re collecting from a connected bank account. Arguably the most important piece is verifying that the user sending and receiving funds owns the bank account to prevent problems ranging from user error to fraud.
At Dwolla, we offer three ways to verify bank accounts within our white labeled Dwolla Platform:
- Instant bank account verification ONLY
- Instant bank account verification with a FALLBACK to microdeposits
- Instant bank account verifications or OPTING for microdeposits
Our verification methods confirm the user has control of the funding source account. Instant account verification just requires their online credentials, while microdeposits will show if an account is closed and possibly frozen because a return code will be issued.
Dwolla has also partnered with Plaid to offer a tokenized method to verify bank accounts making the process simple and fast. Because Plaid partners with other banks, Dwolla customers are able to also take advantage of the additional value adds Plaid offers through its platform.
Using either Dwolla’s instant account verification or Plaid’s instant-authentication approach reduces errors typing in account and routing numbers.
Benefits of leveraging Dwolla for ACH transfers
We’re creating the ideal platform to move money between bank accounts in the U.S. The Dwolla Platform offers affordable, scalable solutions to fit with a business’ needs. Our infrastructure can securely allow your application to transfer funds between bank accounts.
While the standard transfer time is between four and five business days, tools exist to help facilitate faster ACH transfers. At Dwolla, we understand the importance of pushing forward to create and improve services in this space. We provide next day bank transfers that can cut wait times of inbound ACH transactions to two or three business days. And same day ACH further expedites ACH transfers, making funds available on the same business day for outbound transactions.
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