Automated Clearing House (ACH) is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit, payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the point-of-purchase (POP) check conversion pilot program sponsored by NACHA. Both the government and the commercial sectors use ACH payments. Businesses increasingly use ACH online to have customers pay, rather than via credit or debit cards.
ACH is a computer-based clearing and settlement facility established to process the exchange of electronic transactions between participating depository institutions.
Rules and regulations that govern the ACH network are established by NACHA and the Federal Reserve. In 2013, this network processed nearly 22 billion ACH transactions with a total value of $38.7 trillion. Credit card payments are handled by separate networks.
The Federal Reserve Banks, through the FedACH system, are collectively the nation's largest ACH operator. In 2005, they processed 60% of commercial interbank ACH transactions; the remaining 40% was processed by the Electronic Payments Network (EPN), the United States' only private-sector ACH operator. EPN and the Reserve Banks rely on each other for the processing of some transactions when either party to the transaction is not their customer. These interoperator transactions are settled by the Reserve Banks.
Uses of the ACH payment system
- Bank treasury management departments sell this service to business and government customers.
- Business-to-business payments
- Direct debit payment of consumer bills such as mortgages, loans, utilities, insurance premiums, rents, and any other regular payment
- Direct deposit of payroll, Social Security and other government payments, and tax refunds
- E-commerce payments
- Federal, state, and local tax payments
- Charitable Donations
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