# ACH

<mark style="color:red;">PROBLEM</mark>

Unlike the credit card network, the ACH network is unable to provide real time authorization of funds.

<mark style="color:red;">COUNTERPARTIES</mark>

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

<mark style="color:blue;">COMMON SERVICE PROVIDERS</mark>

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

<mark style="color:orange;">ACH debit = pull</mark>

<mark style="color:orange;">ACH credit = push</mark>

<mark style="color:purple;">USE CASES</mark>

* Payroll&#x20;
* Paying bills online&#x20;
* Unemployment payments&#x20;
* Social security benefits&#x20;
* Tax refunds or payments&#x20;

The automated clearinghouse (ACH) system is a nationwide network through which depository institutions send each other batches of electronic credit and debit transfers.&#x20;

An ACH transfer is an electronic transfer of funds from one bank account to another over the ACH (Automated Clearing House) network.&#x20;

<mark style="color:purple;">ACH MONEY TRANSFER TYPES</mark>

The main difference between an ACH credit and an ACH debit is that an ACH credit transaction is <mark style="color:red;">initiated by the sender of funds</mark> (typically a bank), whereas an ACH debit transaction is <mark style="color:red;">initiated by the receiver of funds</mark>, where the bank receives a payment request by the payee, and then sends the funds per request.

1. <mark style="color:red;">**ACH debits**</mark> are requests for the ACH network to <mark style="color:red;">"pull"</mark> 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 <mark style="color:red;">ACH credit transfers</mark>.&#x20;
2. <mark style="color:red;">**ACH credits**</mark> are requests to <mark style="color:red;">"push"</mark> 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 <mark style="color:red;">ACH debit transfers</mark>.&#x20;

While the ACH network was originally used to process mostly recurring payments, the network is today being used extensively to process <mark style="color:red;">one-time debit transfers</mark>, such as converted check payments and payments made over the telephone and Internet.

<details>

<summary>Credit </summary>

* [Direct deposits](https://www.investopedia.com/terms/d/directdeposit.asp) for employee paychecks, commissions, and bonuses
* Employee travel and employee reimbursements
* Tax and other refunds
* Money from payment apps, like [Zelle](https://www.investopedia.com/what-is-zelle-7097991) and [Venmo](https://www.investopedia.com/articles/personal-finance/010715/venmo-its-business-model-and-competition.asp)
* Government benefits, like Social Security and unemployment&#x20;

</details>

<details>

<summary>Debit</summary>

Mortgages, utility bills. Converted check payments. Telephone and internet payments.

</details>

<mark style="color:purple;">WIRE TRANSFER VS. ACH PAYMENTS</mark>

<figure><img src="/files/e9KKRi2LwX1a08fDDm3w" alt=""><figcaption></figcaption></figure>

<mark style="color:purple;">SUMMARY</mark>

* 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.&#x20;
* They are widely <mark style="color:red;">used for payroll, government benefits, and bill payments.</mark>
* The two main types of ACH transfers are direct deposits and direct payments.&#x20;
* While ACH transfers are convenient and typically free, they have some limitations.

***

<mark style="color:purple;">RESOURCES</mark>

[FedNow and Faster Payments in the US](https://xft.finance/downloads/fednow_bostonfed_20241108.pdf)\
[Automated Clearinghouse Services](https://www.federalreserve.gov/paymentsystems/fedach_about.htm)\
[What is an ACH transaction?](https://www.consumerfinance.gov/ask-cfpb/what-is-an-ach-transaction-en-1065/)\
[The ABCs of ACH](https://www.nacha.org/content/abcs-ach)\
[ACH Payments Fact Sheet](https://www.nacha.org/content/ach-payments-fact-sheet)\
[Visa Commercial Banks (ODFI, RDFI)](https://usa.visa.com/dam/VCOM/regional/na/us/pay-with-visa/documents/eligible-financial-institutions.pdf)\
[Federal Reserve Master Account](https://www.frbservices.org/financial-services/accounting/service-setup/master-account.html)\
[FedACH® Services Forms](https://www.frbservices.org/forms/ach)\
[FedLine Examiners Guide](https://publishedguides.ncua.gov/examiner/Content/ExaminersGuide/ElectronicPaymentSystems/EPSTypes/FedLineAccessSol.htm)

<https://publishedguides.ncua.gov/examiner/Content/ExaminersGuide/ElectronicPaymentSystems/EPSTypes/ACH/ACH_Overview.htm>


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