A country’s local clearing system is known as an ACH, an Automated Clearing House. This is the network that is used to automatically transfer money electronically from one bank account to another, without the need for using card networks. These networks are usually domestic, allowing payments to be made between different banks in the same country.
Examples of ACH networks
In the US, the Automated Clearing House (ACH) network has been around since the 1970s, and is governed and managed by NACHA, the National Automated Clearing House Association. It is known as the ACH network, and often the ACH scheme.
In the UK, BACS was the first ACH of its kind processing payments since the late 1960s. There are close to 60 different ACH networks managing global payments for various regions, including Swiss Interbank Clearing in Switzerland, eGIRO in Singapore, PE-ACH for SEPA-compliant payments within Europe, and BECS in Australia.
What types of ACH payments are there?
In the US, and similarly in other regions, there are two main kinds of ACH payments, direct deposit and direct payments.
A direct deposit will usually cover payments from businesses to a customer, such as their monthly payroll, or benefits from the government. In contrast, a direct payment is used for making payments by either individuals or businesses for example to pay recurring bills, subscriptions, or invoices.
Why do businesses Use ACH payments?
Using an Automated Clearing House to transfer money between domestic bank accounts is one of the most popular ways to perform financial transactions. This is because an ACH is cost-effective and simple to set up. In the U.S for example, ACH transfers cost under $1, and can often cost just a few cents, compared to credit card transactions which are usually around 2% of the transfer amount, and wire transfers which can be as much as $35 per transaction. Anyone who holds a US bank account, whether they are a business or an individual can use the ACH network.
How long do ACH payments take?
While ACH payments are simple and cost-effective, it’s important to note that ACH transfers usually take around 3 days to process, so they are not the fastest method of moving money from one bank account to another. A wire transfer can usually be done same day, and with an ACH payment, businesses will also be impacted by the time of day they submit the request.