ACH
PROBLEM
Unlike the credit card network, the ACH network is unable to provide real time authorization of funds.
COUNTERPARTIES
ODFI = originating depository financial institution RDFI = receiving depository financial institution ACH Operator - Federal Reserve - The Clearing House
COUNTERPARTY RISK = ODFI for ACH Credit Transfers
need instant, prefunding
If all ODFI are RDFI (Nacha requirement), tokenized deposits work. No ACH operator
COMMON SERVICE PROVIDERS
Jack Henry FIS Fiserv Visa
ACH Transfer Requirements
1. Name 2. Routing/ABA number 3. Account number 4. Whether the bank account is a business or personal account 5. Transaction amount
ACH debit = pull
ACH credit = push
USE CASES
Payroll
Paying bills online
Unemployment payments
Social security benefits
Tax refunds or payments
The automated clearinghouse (ACH) system is a nationwide network through which depository institutions send each other batches of electronic credit and debit transfers.
An ACH transfer is an electronic transfer of funds from one bank account to another over the ACH (Automated Clearing House) network.
ACH MONEY TRANSFER TYPES
The main difference between an ACH credit and an ACH debit is that an ACH credit transaction is initiated by the sender of funds (typically a bank), whereas an ACH debit transaction is initiated by the receiver of funds, where the bank receives a payment request by the payee, and then sends the funds per request.
ACH debits are requests for the ACH network to "pull" money from an account that the requestor doesn't control, such as an auto-bill payment. The direct deposit of payroll, social security benefits, and tax refunds are typical examples of ACH credit transfers.
ACH credits are requests to "push" money from the requestor’s account. This is the type of ACH transfer used for payroll or government benefit programs (often referred to as “direct deposits”). The direct debiting of mortgages and utility bills are typical examples of ACH debit transfers.
While the ACH network was originally used to process mostly recurring payments, the network is today being used extensively to process one-time debit transfers, such as converted check payments and payments made over the telephone and Internet.
WIRE TRANSFER VS. ACH PAYMENTS
SUMMARY
ACH transfers are a secure and cost-effective way to send and receive money electronically between bank accounts using the Automated Clearing House (ACH) Network.
They are widely used for payroll, government benefits, and bill payments.
The two main types of ACH transfers are direct deposits and direct payments.
While ACH transfers are convenient and typically free, they have some limitations.
RESOURCES
FedNow and Faster Payments in the US Automated Clearinghouse Services What is an ACH transaction? The ABCs of ACH ACH Payments Fact Sheet Visa Commercial Banks (ODFI, RDFI) Federal Reserve Master Account FedACH® Services Forms FedLine Examiners Guide
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