Automated Clearing House (ACH) is a payment network that facilitates financial transactions between banks. The NACHA, formerly known as the National Automated Clearing House Association, manages all of the electronic fund transfers that are made in the United States. The system manages the processing of payroll and direct deposits, tax payments, consumer bills and other services needed by individuals and organizations to transfer money from one bank account to another.
The ACH processed more than 24 billion payments in 2015, among them over 11 billion debit transactions and 8 billion credit transactions. The return rate on unauthorized debit transactions in 2015 was only .03 percent, and businesses continue to embrace the network as a reliable and consistent way to send information and payments.
What is unique about the ACH payment system is that originators can request direct payments in batches. An operator of the ACH, which can be a representative from the Federal Reserve or a clearinghouse, then sorts the payment batches and sends them to the financial institutions of the intended beneficiaries. There are more than 10,000 banks and financial institutions managed by the NACHA.
The ACH payment system offers businesses some of the lowest transaction costs, outside of cash. Most small business owners pay a flat fee for ACH transactions, while most credit card processors charge a percentage per transaction. For example, if a business sends a $500 credit card transaction at 2.3 percent, the cost to the business is $11.50. ACH transactions cost the business a flat fee, which is sometimes as low as 55 cents per transaction.
Many businesses can permanently do away with the payment of invoices with paper checks and multiple trips to the bank. Merchants can provide customers with more payment flexibility. Instead of writing and mailing checks to pay bills or trying to remember when payments are due, consumers can set up automatic payments and save time and money.
The ACH network gives consumers the convenience of receiving their pay via direct deposit or making online purchases. Another benefit consumers like is the freedom to transfer money to another individual’s account.
ACH payments also are considered an environmentally friendly way to conduct payment transactions since they eliminate the need for paper and the use of fuel to transport payments.
The risk of fraud associated with ACH payments is quite small. Although consumers have to provide their bank account information and other personal information, the anti-fraud systems that banks employ make it tough for criminals to access sensitive information. Additionally, the federal government regulates the ACH payment system, which adds another layer of security.
ACH payment charges vary among banks and financial institutions. For example, the Chase ACH payment service charges merchants $25 per month for 25 transactions, and each additional transaction is 15 cents.
The cost of ACH payments to consumers depends on the type of transaction. When people receive their payroll checks and government benefits via direct deposit, the actual transaction is normally free. Consumers who pay their bills online usually don’t incur any fees for the transaction itself, but companies do add fees that are separate from the ACH payment.
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