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The Automated Clearing House (ACH) is an electronic network for financial transactions in the United States.
The ACH network processes large volumes of credit and debit transactions in batches. These batches are used for all kinds of funds transfer transactions, including direct deposit of paychecks and monthly debits for routine payments, such as insurance payments or subscriptions.
Created in the 1970s to introduce electronic payments and reduce the overwhelming number of check payments, the ACH network now serves every bank in the United States and reliably provides cost-effective payments for consumers and businesses. Rules and regulations that govern the ACH network are established by Nacha for commercial sector payments and the U.S. Treasury for federal payments. The Federal Reserve Banks and the Electronic Payments Network (EPN) are collectively the nation's ACH operators and rely on each other for the processing of some transactions when either party to the transaction is not their customer. These inter-operator transactions are settled by the Federal Reserve.
The ACH Network: The Workhorse of American Payments
Although new technologies have captured the imaginations of policymakers and business leaders, the workhouse of the U.S. payment system is the ACH network.
The ACH network is well-established as one of the most critical payment systems in the country. ACH provides services to every American almost every single day. There are always credits, like payroll, or debits, like utility payments, flowing to and from consumer and business accounts.
In 2022 the ACH network processed a combined 30 billion debits and credits worth an estimated $72.62 trillion. ACH credits added up to $50.22 trillion dollars, providing consumers fast funds on their payroll day.
Faster Payments and the ACH Network
The ACH Network is a dynamic payment system with a long history of adapting to new technologies and payment needs, such as internet payments. More recently, the ACH Network has spearheaded efforts to improve the U.S. payment system by delivering faster payments.
In fact, the ACH Network was the first major payment system to offer faster payments to businesses and consumers nationwide. The first phase of Same Day ACH launched on Sept. 16, 2016, more than a year before The Clearing House’s RTP Network tested its first transaction.
Since its debut, Same Day ACH has continued to evolve and enhance the capabilities for banks and their customers. In 2022 an industry-led rule change introduced a higher dollar limit for individual transactions—the ACH Network now permits $1 Million Same Day ACH payments. By increasing the dollar limits, banks now have more flexibility to partner with their customers to identify how electronic payments can improve inefficient processes that may rely on checks.
The future looks bright for Same Day ACH as banks and their customers continue to find new ways to integrate faster payments. In the first year with the new higher limit Same Day ACH volume swelled to 697.5 million transactions, and the total value rose 86.3 percent to $1.7 trillion. The first year with $1million limits aligned with a 44% increase in business-to-business payments using Same Day ACH.
Only time will tell what is next for the ACH Network, but its history demonstrates a commitment by Nacha, the payments industry, and community banks to find new ways to grow and innovate.
ICBA supports changes to the ACH that promote efficiency, competition, and sound risk management while ensuring fair and open access to all community banks regardless of size and operational capability to meet the existing and evolving global payment needs of their customers.
ICBA supports the Federal Reserve System in its dual role as a payment systems regulator and provider of services. ICBA also supports EPN as an ACH operator and service provider for banks. ICBA welcomes the new areas of strategic focus for Federal Reserve Financial Services that include collaborating with the entire payments supply chain, incorporating innovators and end users, to shape the end-user payment experience. ICBA will actively inject the community bank perspective in these and related areas of focus.
ICBA supports Nacha as the private-sector rule-maker for the ACH.
ICBA encourages the Federal Reserve Board and Nacha to uniformly enforce rules and timely refine rules to address new products and technologies, operational enhancements and other issues as they arise. ICBA promotes active community banker involvement in payment rulemaking and standards-setting, operations and governance.
ICBA strongly supports Same Day ACH and recommends community banks:
Adopt Same Day ACH services to support a variety of consumer and business needs.
Encourage correspondent banks and processing providers to adopt and support Same Day ACH services.
Encourage payments associations to educate operational staff about Same Day ACH rules and use cases.
Given that private-sector rules govern the ACH, community banks should participate in the rulemaking, operations, and governance of these organizations, particularly at the regional level through regional payments associations.
At the national level, ICBA actively represents the community bank perspective before Nacha as new ACH rules and innovative products are vetted and implemented.
Last update 9/25/23