The Automated Clearing House (ACH) Network is essentially an electronic funds transfer arrangement that has been operational in the US since 1974. It is supervised by NACHA, previously known as the National Automated Clearing House Association. This payment scheme facilitates the following types of ACH transactions in the U.S.:
- Tax refunds
- Direct deposit
- Tax payments
- Consumer bills
- Many other payment services
Bank ACH financial system: How does it operate?
An ACH financial system usually operates according to its particular norms. The following details will give you some idea regarding how the NACHA ACH finance network runs in the United States:
- At first, a customer places a transaction order. This order can be placed physically (in person) or by transmitting a file of order request to a bank.
- The bank collects all transaction entries for an Automated Clearing House that come from various customers (aggregating both physical and file-oriented).
- Based on time-to-time, the bank generates a file and sends it to the Automated Clearing House either at the close of the day or in sequences around the day.
- The ACH arranger aggregates the data furnished by the banks inside every sequence (typically Automated Clearing Houses have numerous sequences or cycles during the day).
- It then lets every bank know regarding the net settlement sum for which they are accountable for the cycle.
- The arranger makes sure or guarantees that the sums of the settlement are obtained from all partakers of the cycle to implement the cycle.
- It subsequently notifies the destination bank about the transaction particulars.
- At the time when the transaction reaches the destination bank, the bank carries it out. The transaction usually involves crediting the payment to the beneficiary account. At the same time, the bank of the customer placing the order debits the account of the ordering customer.
Application of the ACH payment system
ACH systems have different forms of applications. The jargon associated with various kinds of transactions differs in various nations. The majority of ACH payment methods support the following categories of transactions:
- Credit transfer: Credit transfer refers to the transfer of money between accounts of distinct financial or banking institutions that are not instant payments. Generally, business-to-business and retail customer transactions that are not of the immediate need to follow the credit transfer method.
- Direct debit: Direct debit is executed to pay consumer bills like loans, mortgages, insurance premiums, utility bills, rents, and any other recurrent or subscription-pattern payment. Business enterprises that receive continuous payments from the same customer typically utilize these categories of payments.
Bank ACH Systems around the world
Many countries throughout the world are adopting the bank ACH system and some of the prominent names include the following:
- Australia (BECS – Bulk Electronic Clearing System)
- Argentina (Compensadora Electrónica – COELSA)
- Bangladesh (BACH – Bangladesh Automated Clearing House)
- Brazil – CIP-SILOC
- Canada – Retail System, erstwhile ACSS (Automated Clearing Settlement System), operated by Payments Canada
- China – BEPS (Bulk Electronic Payment System), CNAPS (China National Advanced Payment System)
- Germany – Deutsche Bundesbank
- France – STET
- India – National Electronic Funds Transfer and National Automated Clearing House
- Israel – Masav
- Japan – Zengin
- Netherlands/Italy/Germany – equensWorldline
- Philippines – InstaPay and PesoNet
- Saudi Arabia – SARIE with both ACH and RTGS
- Singapore – eGIRO, a constituent of Singapore Automated Clearing House
- South Africa – BankservAfrica
- Switzerland – Swiss Interbank Clearing
- Sweden – Bankgirocentralen BGC AB
- United States – The Clearing House’s Electronic Payments Network and FedACH of the Federal Reserve Bank, supported by the ACH Network of NACHA
Besides, there are different ACH network-affiliate organizations like the European Automated Clearing House Association.