In the alphabet soup that floats the credit card processing industry, the initials ACH stand for Automated Clearing House, a vast electronic network that connects banks, credit unions and all other financial institutions. Initially introduced in the 1970s as an alternative to traditional check payments, today it is the secure system used by all issuing banks, merchant account providers (including TransFirst®) and third-party processors to process, clear and settle electronic fund transfers (EFT), including transferring funds from credit card transactions to a merchant’s direct deposit account.
The ACH network is governed by rules and regulations established by NACHA (previously known as the National Automated Clearing House Association) and the Federal Reserve. Both the government and the commercial sectors use ACH payments. Direct deposit payroll and vendor payments, consumer payments of insurance premiums, mortgage loans, check conversions, B2B payments and some local, state and federal tax transactions are all processed through ACH. Some businesses offer ACH online as a payment alternative to credit and debit cards.
ACH processes large volumes of credit and debit transactions in batches throughout the day in a store-and-forward system. This means transactions are accumulated throughout the day and remain in a sort of holding pattern until sorted by destination, cleared and transmitted in groups at specified times.
Entities that transmit or receive ACH entries do so through ACH operators — the American Clearing House Association, the Federal Reserve, the Electronic Payments Network, and Visa. As the sole public sector institution serving as a central clearing facility, the Federal Reserve handles the majority of ACH transactions, primarily retail transactions in low dollar amounts.
Think of ACH as an information super highway used by every financial institution in the country. Anything that slows down the system will impact on all users. Since all payment card transactions are settled using ACH, beware of a merchant account provider who claims that they can deposit funds into your bank account faster than another provider.
If you have merchant account-related questions, trained TransFirst representatives are standing by to handle them. Take the time to educate yourself about merchant accounts and credit card processing so you can better understand the many benefits they offer for your business.