When a consumer, business or government entity in the United States chooses to pay a bill by entering bank account and routing information, they are initiating an ACH transfer.

An ACH transfer is an electronic, bank-to-bank transfer processed through the Automated Clearing House Network. ACH transfers are used to send or receive money from a personal or business bank account.

Those funds travel electronically through the ACH Network, a highly regulated batch processing system that facilitates the transfer of funds between banks and credit unions. Traditionally, software applications looking to take advantage of the benefits of ACH transactions negotiate a relationship with a financial partner, piecemeal a number of solution providers together and create a custom solution.

Often times, the costs in properly owning and maintaining a payments integration in-house—and maintaining its compliance requirements—will wipe out the value proposition that ACH offers businesses.

Which is why some of the most innovative companies in the United States are using  Dwolla’s ACH payment API to connect to the ACH Network. It’s similar to building a car and Dwolla’s ACH payment API 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?

How ACH Transfers Work

Since launching in 1974, the Automated Clearing House Network has become one of the largest and most important payment systems in the world. This electronic network allows banks and their customers in the United States to send a giant volume of transactions including more than 23 billion payments in 2018.

A glossary of key ACH terms can be found here.

Nacha, the National Automated Clearing House Association, 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 more than 21 billion transactions, worth an estimated $46 trillion, according to Nacha.

More network statistics can be found here.

ACH transfers are processed two ways, which can vary in processing speed and cost:

  • ACH debit: Having funds pulled from a bank account and sent to another bank account. For example, when setting up a recurring utility bill payment, the utility company you are paying can pull what is owed from your account each month.
  • ACH credit: Sending or pushing funds to a bank account. For example, direct deposit of payroll from an employer.

Learn more about ACH credits and debits.

Each file includes its own effective entry date and the ACH operator determines the settlement date.

Standard ACH transfer timing usually settles a transaction the next business day, but financial institutions are able to hold funds for potential return codes before making them available.

Financial institutions will hold funds to ensure they are being sent to and from real bank accounts, while also checking for suspicious activity and identify verification.

Transfer Timeline of Events

Dwolla offers several expedited transfer options for your business. It is important to note that increased transaction speed might create additional risk.

transfer timeline


Explaining the Differences Between ACH Transfers 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 move from bank to bank in less than one business day. But, there’s almost always a hefty fee to send a wire transfer, with typical fees of $25 per transfer within the United States.

ACH transfers are much more cost-effective. ACH credit transfers are typically free, but banks may charge a fee of $3 for sending money between accounts at different banks. Using Dwolla’s ACH payment API, businesses can access the bank transfer network for reliable and affordable ACH payments.

And because Dwolla offers a white-label API, businesses are able to keep their branding and user experience in the spotlight—while Dwolla powers payments in the background.

chris bruno rally rd
“Dwolla custom tailored a solution to something that we needed. We have a full money moving system without having to do any of it, and it looks like it’s coming from us with our look and feel.”
Chris Bruno
CEO & Co-Founder

Read more about the difference between ACH and wire transfers.

Verifying Bank Accounts

Before initiating an ACH transaction, a user or business must attach a bank account. Verifying that bank account is done for a variety of reasons and ensures that you’re collecting funds from a connected bank account.

Arguably the most important piece in verifying bank accounts is ensuring the funds are being sent to and from actual bank accounts. This helps to prevent user error issues and potentially identify suspicious activity or fraud.

Dwolla offers three ways to verify bank accounts within our white-labeled ACH payment API.

  1. Instant bank account verification ONLY
  2. Instant bank account verification with a FALLBACK to micro-deposits
  3. Third-party integration with Plaid

Our verification methods confirm the user has control of the funding source account. Instant bank account verification requires the user’s online banking credentials, while micro-deposits will show if an account is closed and possibly frozen because a return code will be issued.

By partnering with Plaid, Dwolla helps customers offer a tokenized method to verify bank accounts—making the bank verification process simple and fast. Because Plaid partners with other banks, Dwolla customers are able to 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 and provides a delightful user experience.

Benefits of Dwolla for ACH Bank Transfers

We’ve created 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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