subject: Ach - What, Who, How [print this page] ACH is an acronym for the automated clearing house. It is a batch oriented system used to transfer funds electronically. These types of payments include direct deposit, social security benefits, utility bills, mortgage loan payments, and tax payments. Other payments that may be made in this way include inter- business payments, e checks and e commerce transactions. Billions of dollars have been exchanged this way with the number growing every day. The system was developed several decades ago as an alternative payment option. Since that time, it has developed into an industry standard for the debit and credit process.
The players in the ACH process include Originators, Originating Depository Financial Institutions (ODFI), Receivers and Receiving Depository Financial Institutions (RDFI). Originators include any individual or organization that makes entries into the network. ODFI's are financial institutions that originate the entry after authorization. RDFI are financial institutions certified to be able to receive entries according to the rules and regulations of the governing body. Receivers are individuals or organizations that begin and authorize the process of the transaction. The process begins with the Receiver authorizing a debit or a credit. The transaction then makes its way through a series of steps involving the involved banks until payment is ultimately made. Financial institutions that want to take part in the process must become members and be qualified through certification and education.
The ACH system is a regulated one that is overseen by an organization called NACHA. This group is made up of representatives from several different areas of involvement including financial institutions. This group strives to keep the process secure, efficient and reliable for banks, merchants and consumers. They handle the development of new aspects of the system, educating members and the public and creating the rules and regulations that serve as a guide. The process is a secure one but is certainly not perfect. There are some issues that arise as new developments are made. Compliance must occur at every step if it is to run smoothly. The organizations and institutions involved work to eliminate human error and even the potential for it.
The ACH is a system of the Federal Reserve. Its method
of providing for this means of electronic funds transfer from bank to bank has made doing business easier for both corporations, small companies and for the customer. Although cash can still be considered king in many ways, electronic payment has become an industry standard. With the advent of the online community, the need for payment in this manner has increased. Customers not only want the option, they require it.
