Finance:Automated Clearing House

Automated Clearing House (ACH) is an electronic network for financial transactions, generally domestic low value payments. An ACH is a computer-based clearing and settlement facility established to process the exchange of electronic transactions between participating financial institutions. It is a form of clearing house that is specifically for payments and may support both credit transfers and direct debits.

ACHs are designed for high-volume, low-value payments, and charges fees low enough to encourage the transfer of low-value payments. The system is designed to accept payment batches, so that large numbers of payments can be made at once. ACH payments contrast with Real-time gross settlement payments which are processed immediately by the central RTGS system and not subject to any waiting period on a one-to-one basis. ACH systems are typically used for low-value, non-urgent transactions while RTGS systems are typically used for high-value, urgent transactions.

Key points

• An ACH is a batch processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing.
• Instead of using paper to carry necessary transaction information, such as with checks, ACH transactions are transmitted electronically, allowing for faster processing times and cost savings.
• A Credit Transfer processed as an ACH credit pushes funds into an account. An example of this is when a consumer initiates a payment through his/her bank or credit union to pay a bill.
• A Direct Debit processed as an ACH debit pulls funds from an account. An example of this is when a consumer establishes a recurring monthly payment for a mortgage or utility bill, and his/her account is debited automatically.
• ACH credit transfers and ACH direct debit transactions process quickly. Settlement, or the transfer of funds from one financial institution to another to complete the transaction, generally happens next day.

Operation

ACHs process large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit, payroll, retail payments and vendor payments. ACH direct debit transfers include consumer payments such as utility bills, insurance premiums, mortgage loans, and other types of bills. Transactions received by the bank during the day are stored and transmitted in batches to the ACH.

ACHs are net settlement systems, so settlement may be delayed for day(s), and there is some settlement risk. ACHs may allow for the transfer of a limited amount of additional information along with payment instructions.

Operations

1. The payer manually initiates an ACH transaction or submits a file of ACH transactions to its bank, containing a batch of payment information.
2. The bank assembles all ACH payments from different sources (manual and uploaded files) into periodic batches which are handled in cycles at the ACH and sends it to the ACH operator.
3. The ACH operator nets the payment information submitted by the banks within each cycle and notifies them of the settlement amounts for which they are responsible for that cycle.
4. If settlement amounts are received from all participants for the cycle, the ACH operator informs the beneficiary's bank of the payment details.
5. When payments arrive in the accounts of beneficiary bank, the bank credits the payment to the beneficiary, while the ordering customer's bank debits the ordering customer's accounts for the related amount.

ACH systems around the world

• United States : NACHA's ACH Network
• Europe: a Pan-European automated clearing house for the Single Euro Payments Area, STEP2
• 27 ACHs from 22 countries across Europe:, including
  • Austria: GSA and Oesterreichische Nationalbank
  • Belgium: CEC
  • Bulgaria: BORICA AD
  • Croatia: FINA
  • Denmark : Eurogiro and Nets Group
  • France : STET
  • Germany : Deutsche Bundesbank
  • Greece: DIAS
  • Hungary: GIRO Zrt.
  • Italy: Banca d'Italia, Nexi and SIA
  • Latvia: Latvijas Banka
  • Netherlands/Germany /Italy: equensWorldline
  • Macedonia: KIBS
  • Moldova: National Bank of Moldova
  • Poland : KIR
  • Portugal: SIBS
  • Romania: TransFonD
  • Slovenia: Bankart
  • Spain : Iberpay
  • Sweden: Bankgirocentralen BGC AB
  • Switzerland : SIX Interbank Clearing
  • United Kingdom : Bacs Payment Schemes Limited and VocaLink
• 2 ACH's in Colombia: ACH-Colombia and CENIT
• India : National Automated Clearing House and National Electronic Funds Transfer
• Japan : Zengin
• Singapore: Singapore Automated Clearing House
• South Africa : BankservAfrica

Uses of the ACH payment system

• Credit Transfer
• Direct debit payment of consumer bills such as mortgages, loans, utilities, insurance premiums, rents, and any other regular payment
• Business-to-business payments, typically non-urgent
• Non-immediate transfer of funds between accounts at different financial institutions

See also

• Clearing
• Clearing house
• Electronic funds transfer
• Pan-European automated clearing house
• Payment system
• Society for Worldwide Interbank Financial Telecommunication
• Wire transfer