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ACH transactions are electronic payments created when a customer gives an originating institution, corporation or third party authorization to debit or credit their checking or savings account. Authorization could be to “buy now, pay later,” make an investment on a savings application or load funds into a digital wallet that will exchange those funds into bitcoin.

Dwolla helps businesses solve complex payments challenges with sophisticated account-to-account solutions via an ACH API.

We love seeing ACH payments become a key part of a solution for so many innovators.

What gives ACH its advantage is that processing fees are generally lower than other payment methods and you have much control over the timing of each transaction.

Each time a new customer integrates the Dwolla API for ACH payments, we learn something new. And as we continue to empower our customers, we want to share what we’re learning along the way.

Topics covered in this article:

If you have specific questions about how ACH payments could benefit your company, please contact our sales team.

ACH Payments

Aside from cash, ACH transfers are the lowest cost option when you’re looking to implement a way to receive funds from your customers or partners. Don’t overpay for payments when you can go with ACH transfers that are efficient and inexpensive.

Keep in mind that ACH transfers normally take between three to four business days to complete, but you do have some options to receive the funds much quicker.

Dwolla’s customers have the opportunity to enable Next Day ACH transfers allowing payments to clear quicker than standard timing. Or, you could enable Same Day ACH to receive payments even faster if you’d like to significantly speed up the process. Understand, though, that faster transfers do come with additional risks that must be weighed before enabling.

What is an ACH API?

The goal of an ACH API is to seamlessly connect your business to the ACH Network. The API is what allows developers to build software on top of U.S. banking infrastructure (ACH Network) to simplify initiating and accepting ACH transactions.

The ACH API is what allows two distinct technologies (i.e. the bank and your platform) to talk to each other and transfer data.

More than 25 billion ACH transactions are processed each year by the ACH Network, an electronic network of banks and financial institutions supporting ACH credit and debit payments. Every year, this powerful network moves the equivalent of the GDP of the United States—the largest economy in the world—twice.

ACH API Developer Documentation

ACH Origination vs. Leveraging an ACH API

Any company can act as an ACH Originator of electronic debits and credits while using a financial institution as the ODFI (Originating Depository Financial Institution).

You’ll need to create your own Nacha-formatted ACH file to submit to your ODFI to process payments. If you’ve been looking into sending funds via the ACH Network as part of your business, understand that you must do the diligent work of making sure you’re setting up everything in accordance with applicable compliance rules and procedures.

Instead of struggling to set up an Origination program and losing months of valuable time reading up on the Nacha rule book, companies integrate with an established ACH API provider.

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Benefits of Using an API for ACH Payments

An ACH API allows a business to automate and simplify complex processes. Whether you need to pay, collect or facilitate payments, integrate with our seamless API and use Dwolla to facilitate your payment requests through the ACH Network.

When comparing the fees between credit cards and ACH payments, credit card payments have higher processing fees since they are typically calculated as a percentage of the transaction.

ACH transactions can cost pennies to initiate and in some cases are free. Excluding cash transactions, ACH transactions have some of the lowest transaction fees. These low fees are another benefit of a payment integration.

In addition to lower processing fees, funds that are transferred directly to a verified bank account can save on fraudulent activity. A 2018 Federal Reserve report found ACH payments had the lowest fraud rate, by value, among the top three non-cash payment types in the United States: cards, checks and ACH. Participation in ACH requires adhering to strong security and data requirements.

Bank account verification is done to ensure funds are going to and coming from actual bank accounts without a suspicious history. Dwolla offers additional integrations for businesses needing bank account and identity verification services.

A high level overview of the benefits include:

  • More cost-effective than card payments and wire transfers.
  • Higher-confidence payment confirmations (ACH returns are not chargebacks).
  • Better insight into payment failures.
  • Scalable subscription model that can grow with your customers.
  • Easily white labeled into an existing business operation that already contains automated payment processes.

Types of ACH Transactions

Understanding how an ACH transaction works first requires understanding what type of transaction is being initiated.

ACH transactions can be executed in many ways, such as through your bank, or through a payments platform like Dwolla. Companies will typically implement Dwolla’s ACH API when they execute a high volume of transactions.

There are two types of ACH transactions, credits and debits.

The ACH debit process is the withdrawal of funds from a bank account (such as setting up an automatic monthly car payment).

After providing the correct bank account information and authorization to withdraw funds each month, an ACH entry is created by the lender’s bank when payment is due. That entry is then sent to the consumer’s bank—which then debits the account for the amount due—and sends a credit to the lender’s bank account.

The ACH credit process is most commonly used by employers to deposit payroll directly into a bank account. Think of an ACH credit as money coming to you; an ACH debit is when money is deducted from your account.

There are ways to expedite processing times and additional functionality can enhance the payment experience for both the user and business.

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Explaining ACH Credits & Debits

An ACH credit or “push” transaction is initiated by the payer of funds and pushes money to the receiving party.

An ACH credit is when the funds are electronically deposited into a bank account. Think of an ACH credit as money coming to you, rather than being deducted from your account like an ACH debit.

There’s a good chance that you have seen a ‘pending ACH credit’ listed on a statement entry line on your bank’s website. One of the most common pending ACH credits that people encounter is through an employer’s direct deposit.

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. The originator is responsible for obtaining the required authorization for each transaction.

Then, the originator delivers the ACH transaction to its chosen ACH operator—either the Federal Reserve or the Electronic Payments Network. If the transaction is a “push,” the ODFI (Originating Depository Financial Institution) will also debit its customer’s account before forwarding the transaction onto the ACH operator.

The ACH operator performs a switch role, passing the transactions on to the RDFI (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. ACH operators calculate net settlement totals for their banks on a daily basis and are submitted to the Federal Reserve—who manages the actual settlement process.

After settlement, the ODFI and RDFI will credit its respective customer’s account based on the type of transaction.

ACH withdrawals are commonly associated with online transactions to pay bills and make purchases.

After providing your bank account and routing number for an ACH debit, an ACH withdrawal happens when funds are deducted from your account after providing bank account and routing information.

Consumers can associate an ACH withdrawal with online transactions to pay bills or make purchases online.

Contact Dwolla to Learn More About ACH

How long do ACH transfers take?

Standard ACH transfers will take 3-4 business days to complete, but there are faster ACH payment options available with Dwolla.

The ACH Network uses batch processing. Financial institutions are responsible for sending ACH entries into the ACH Network at specific times during each business day.

This resource explains and compares several account-to-account payment types such as ACH, Real-Time Payments and Push-to-Debit.

eBook: ACH 101

Recurring Payments Using ACH

Recurring payments are automatic payments that a user authorizes to be made from a bank account or credit card on a regular billing cycle. Generally, the billing cycle is on a set day of every month. Recurring payments can be beneficial for both the party being billed and the party receiving the funds.

Users benefit from setting up recurring payments because they’re less likely to miss future payments. Additionally, the potential for human error in authorizing payments is reduced when you automate the process with your online payment solution. This also means that for the receiver of the funds, recurring payments offers a more reliable source of payment.

Situations where you could use recurring payments:

  • Bills
  • Memberships
  • Subscriptions
  • SaaS products

Churn is one of the main considerations for businesses that have implemented recurring payments. This discontinuation can be due to the customer actually canceling the service, or it can be due to the customer failing to consistently continue payment. The latter, in which the customer fails to have consistent payment, can often be referred to more specifically as payment churn.

A portion of payment churn can be involuntary due to an expired or canceled credit card.

Often companies focus their energy solely on acquisitions, giving little time or attention to the value of reducing payment churn even though growth can also be achieved with less exhaustion by reducing payment churn.

ACH has much lower payment churn because it’s linked to a bank account. You might go through four or five credit and debit cards before you change banks. With our bank transfer API, Dwolla can empower you to set up and improve recurring payments. Using Dwolla, you can put a powerful payments integration behind your user experience design.

In some instances, a business might need to have recurring payments that are not the same amount each time, but varying amounts from week-to-week or month-to-month. This is where on-demand bank transfers come into play.

On-demand bank transfers allow your users to authorize recurring payments for variable amounts. This is especially useful for services that charge based on usage or other factors.

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How to Accept ACH Payments

For most businesses, accepting ACH payments requires a little bit of help. ACH payments are transfers between bank accounts and an ACH file can only be entered into the Network by certain types of organizations, usually bank. However, a business or even an individual can start the process with an account with an ACH financial institution (which includes most banks and credit unions) and a third-party ACH partner—like Dwolla.

Dwolla acts as an onramp to the ACH Network for businesses looking to accept ACH payments through their website or application. Dwolla provides an application programming interface (API) that allows two electronic entities to communicate with each other. In this case the two entities are the Dwolla customer’s application and Dwolla.

Use Cases for ACH Payments via API

“…I think ACH in general makes sense so investment returns aren’t impacted by high transaction fees. And once you decide to go with ACH, Dwolla was really the only game in town.”Chris Bruno, CEO of Rally Rd, a classic automobile investment platform

An ACH API is a solution for simple and sophisticated payment flows.

Common use cases include programming and automating various payment flows:

  • Disbursements – Send funds to your end users.
  • Receivables – Collect funds from your end users.
  • Accounts Payable and Receivable – Collecting and disbursing via ACH.
  • Facilitator Fee – Earn revenue on top of the transfers you facilitate between end users on your application.
  • Me to Me – Allow end users to move funds between accounts they own.

Investment Platform, Masterworks, Facilitates Art Buying with ACH Transactions

  • Masterworks uses standard ACH transaction timing not only as a check against fraud but also as a peace-of-mind payment method that lets them know how much money is in the bank and when it will arrive.
  • Since going live with Dwolla, Masterworks went from transferring “a couple hundred thousand dollars” through the Dwolla Platform to facilitating tens of millions a month in art investments.
  • For Masterworks’ end users, having the ability to make a quick and easy investment is a significant step in making art acquisition more accessible. The flexibility and ease of ACH payments with Dwolla means the API works in the background with little to no intervention from the company’s engineers.
  • Payment volumes scaled by 200% using ACH transactions

Real Estate Platform Uses ACH for Inexpensive, Quick and Reliable Payments

  • Real estate companies and escrow holders use DepositLink to collect earnest money deposits and commissions electronically, eliminating the need to manually deliver paper checks or conduct real estate transactions in person
  • When DepositLink first implemented Dwolla’s payment API, the company used standard ACH transaction timing to facilitate real estate payments. When clients started requesting faster payment options, DepositLink added Same Day ACH payments to their suite of features.
  • After adding Same Day ACH transactions they experienced 212% growth in new client contracts, 376% growth in payment transactions and 483% growth in the dollar amount of funds transferred through the platform.
  • The technology team can easily toggle between standard ACH and Same Day ACH depending on the end user, risk factors or use case.

ACH Returns

Because the ACH Network is based on the assumption of good funds and correct information between both parties, a bank transfer can fail for a number of reasons even after the transfer has been processed (examples include insufficient funds, payment dispute, closed bank account, etc.).

ACH returns can be referred to as “ACH disputes” or “ACH chargebacks” but while those terms might seem like synonyms, they are crucially different.

“Disputes” and “chargebacks” are terms used heavily in the credit card space and imply that there is a third-party arbiter looking at evidence to determine a fair outcome. That does not happen during the ACH return process.

With nearly 70 ACH return codes, an ACH transaction is not “disputed” nor is it “charged back”– it is simply returned.

Some of the most common questions we hear about ACH returns and reversals are:

  • What are ACH return codes?
  • Why am I receiving an ACH return?
  • What are the return codes and their respective time frames?
  • What are return rates?
  • What is my recourse for a return that I don’t agree with?
  • When can I request a reversal?

Please follow this link to view details on these questions.

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Questions About APIs and ACH Payments

What does ACH stand for?

ACH stands for Automated Clearing House. The ACH Network is a network of banks and financial institutions that process billions of transactions each year. The network is governed by Federal Reserve Bank regulation and the National Automated Clearing House Association (Nacha), which makes its rules.

Are ACH payments the same as debit card payments?

ACH transactions are not the same as paying with a debit card, nor is the integration the same. Although a debit card is linked to your bank account, these debit card transactions still leverage the credit card network. ACH transactions are account-to-account payments and do not run through the same networks as credit card processing.

Can I facilitate transactions between two parties without touching the funds?

Yes. This is what makes Dwolla unique as an ACH API provider. With our API you can build an application that allows you to simply facilitate transactions. This means the funds never have to touch your Dwolla Balance or bank account as the owner of the application. You’re simply providing the means for the money to be transferred. It’s possible to even charge a fee for your services on each transaction.

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Guides and Documentation on Dwolla’s API

  • Resource Guides – Review API and dashboard status updates as well as a change log.
  • API Documentation – Read our API documentation for information on integrating the Dwolla API.
  • Sandbox Testing Environment – Start building in the sandbox for free, right now. From creating customers to initiating transactions, get a feel for how our API works before going live in production.
  • Developer Support – Ask questions related to the API or other more general questions to be answered in this community support channel.

Whether you’re building a platform for investing, a marketplace or service that needs to send mass ACH payouts programmatically, or an app that needs peer-to-peer bank transfers—we’ve got you covered.


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