The Automated Clearing House (ACH) is a payment processing network electronically enabling bank account-to-bank account transactions by connecting all 12 Federal Reserve banks to the 5,000 or so member financial institutions in the US.
Businesses utilize ACH for a wide variety of payments to their employees, such as payroll and T&E reimbursement, and smaller dollar value business-to-business bill payments. Consumers may not realize it but they also use ACH when a credit or debit card is presented for payment; the back-end settlement is an ACH business-to-business payment from the card issuing institution to that retailer’s bank. Furthermore, any time a consumer writes a check to another individual or a business, that instrument is settled between the two parties’ bank accounts over the ACH network. Originally designed to electronically deliver government benefits, like Social Security in the 1970s, today it moves $15 trillion by direct deposit into consumer bank accounts for payroll and other services on an annual basis. Consumer bill payments constitute about $10 trillion. So, when combined with direct deposits the total is commensurate with the U.S.’ GDP annually, or approximately $25 trillion dollars.
The biggest change to ACH over the years has been speed – what once required three or more days to clear is now one or two. What’s more, same day ACH is now available for certain fees. Non-member Federal Reserve banks may utilize ACH if they meet certain criteria or participate on a similarly functioning but different network for real-time-payments called The Clearing House.
ACH is such an integral part of everyday economic activity.
