Automated Clearing House (ACH) is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the point-of-purchase (POP) check conversion pilot program sponsored by NACHA – The Electronic Payments Association. Both the government and the commercial sectors use ACH payments. Businesses increasingly use ACH online to have customers pay, rather than via credit or debit cards.
Rules and regulations that govern the ACH network are established by NACHA (formerly the National Automated Clearing House Association) and the Federal Reserve. In 2012, this network processed an estimated 21 billion ACH transactions with a total value of $36.9 trillion. Credit card payments are handled by separate networks.
The Federal Reserve Banks are collectively the nation's largest automated clearing house operator, and in 2005 processed 60% of commercial interbank ACH transactions. The Electronic Payments Network (EPN), the only private-sector ACH operator in the U.S., processed the remaining 40%. FedACH is the Federal Reserve's centralized application software used to process ACH transactions. EPN and the Reserve Banks rely on each other for the processing of some transactions when either party to the transaction is not their customer. These interoperator transactions are settled by the Reserve Banks.
ACH was created in the early 1970s, when the ever increasing amount of paper checks used by both businesses and consumers to pay their bills would eventually overwhelm available computer systems and not allow the efficient processing and sorting of checks. The Federal Reserve intervened and agreed to provide the computer systems necessary to process and settle the ACH items between the financial institutions. In 1974, NACHA (National
ACH Association) arose from regional ACH organizations and acted to coordinate the establishment of rules to facilitate the nationwide clearing of ACH payments.
NACHA is the organization responsible for developing the rules and the standards regarding ACH transactions.
In 2010, over 19.4 billion payments with a total value of more than $31.74 trillion were processed via ACH through the Federal Reserve System. Typical ACH payments include payroll, single and recurring bill payments and Social Security benefits.