Advantages of ACH
July 3, 2012
Article courtesy of SBAM Approved Partner Midwest Transaction Group
Automated Clearing House (ACH) is an electronic network for financial transactions in the United States. The Federal Reserve Banks are collectively the nation’s largest automated clearing house operator, processing the majority of commercial interbank ACH transactions. The Electronic Payments Network (EPN), the only private-sector ACH operator in the US, processes the remaining portion.
Merchants who offer ACH processing as a method of payment to their customers have the opportunity to create yet another easy, convenient way to streamline their businesses. Consumer online banking, bill paying and direct deposit are at an all-time high and growth in processing ACH transactions is projected to eclipse card and check use in the very near future.
Common ACH transactions include: direct deposit of payroll, tax refunds and government benefits (via remote deposit, a subset of the ACH) and consumer direct debit transfers, especially for recurring transactions like loan and utility payments. ACH is also in widespread use for federal, state, and local government tax payments, in the business-to-business environment and serves as a mechanism for eCommerce payments.
How does ACH work? A merchant receives written or electronic authorization from a customer to charge his or her bank account for products or services. Once a customer submits a transaction via the virtual terminal or a pay page, purchase and payment information is securely transmitted for processing. If the transaction is accepted, the transaction information is formatted and sent to the merchant’s ACH bank, who submits it to the Federal Reserve for clearing. The ACH Network instructs the customer’s bank to charge or refund the customer’s account. After the funds have cleared, a deposit is made to the merchant’s bank account.
For merchants, there is no disputing the benefits. ACH eliminates the need for highly sophisticated, technical security devices such as “physical tokens” as is required with eChecks or cards and is great for customers who do not have a credit card. The reject period is shorter than for credit cards. It also shortens the processing cycle by eliminating the need to deposit paper checks into the bank. One of the best advantages is reducing cost; elimination of paper checks, improved security, and faster, more accurate processing translates to significant potential savings. ACH doesn’t even require additional equipment.
Merchants, financial institutions, and payment processors are already enhancing their ACH options, preparing for increased adoption as we move forward to faster processing. You can too. Contact MTG to help put the ACH processing advantage into play for your business.