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Q: Overview of ACH system ( Answered 5 out of 5 stars,   1 Comment )
Subject: Overview of ACH system
Category: Business and Money > eCommerce
Asked by: bonzo-ga
List Price: $25.00
Posted: 19 May 2004 14:21 PDT
Expires: 18 Jun 2004 14:21 PDT
Question ID: 348981
I need a brief (2 or 3 paragraph) general overview of the ACH system,
by which money is transferred to and from bank accounts in the US.  
Also, I need the answers to the following specific questions.

1.  Who can originate the transfer of funds from one account to another?  
2.  How much does it cost to transfer these funds?  
3.  If you were running a website and wanted to allow users to
transfer money to each other using the ACH system (*not* to the
company behind the website), what kinds of relationships would you
need to form?  Whom would you contact?

I've already done the basic google search on "ACH System", and I
haven't been able to find a single source that answers the questions
above (a single source might exist, I just haven't found it).  I need
someone to aggregate the information from a variety of different
sources, providing links wherever possible.
Subject: Re: Overview of ACH system
Answered By: netcrazy-ga on 20 May 2004 23:13 PDT
Rated:5 out of 5 stars
Hello bonzo,

I?ll break my answer in 4 parts for your question.

1. What is ACH?
Automatic clearing house (ACH) is a nationwide electronic funds
transfer (EFT) system that provides for the inter-bank clearing of
credit and debit transactions and for the exchange of information
among participating financial institutions.

ACH is one of the groups of processing institutions that have
networked together to exchange (clear and settle) electronic
According to Computer world magazine, 
?The Automated Clearing House is a secure, private electronic payment
transfer system that connects all U.S. financial institutions. Direct
paycheck deposits and debit card purchases are two examples of
electronic fund transfers that go through this network.?

?Executing ACH payments is cheaper and faster than processing paper
checks, both business-to-business and business-to-consumer e-commerce
activities are becoming ever more dependent on the ACH system, thus
forcing it to evolve.?,10801,59309,00.html

A little history on ACH-

The ACH was conceived in the early 1970s, when it seemed that the
increasing volume of paper checks used by businesses and consumers to
pay their bills would eventually exceed the ability of the existing
computer systems to process and sort the checks efficiently. The
Federal Reserve participated in the early discussions and offered to
provide the computer systems necessary to process and settle the ACH
items between the depository institutions. In 1974, the regional ACH
associations formed NACHA to coordinate the establishment of rules to
facilitate the nationwide clearing of ACH payments.

The National Automated Clearing House Association (NACHA) develops the
rule and the standards about ACH transactions.

?In 2000, over 4.8 billion payments with a total value of more than
$12 trillion were processed by ACHs through the Federal Reserve
System. Typical ACH payments include salaries, recurring bill
payments, and Social Security benefits?

2. Who can originate the transfer of funds from one account to another
OR How ACH process works?

An ACH entry starts with a Receiver authorizing an Originator to issue
ACH debit or credit to an account. An Originator can be a person, the
gas company, your local cable company, or your employer. Depending on
the ACH transaction, the Originator must receive written (ARC, POP,
PPD), verbal (TEL), or electronic (WEB) authorization from the
Receiver. Once authorization is acquired, the Originator then creates
an ACH entry to be given to an Originating Depository Financial
Institution (ODFI), who can be any financial institution who does ACH
origination. This ACH entry is then sent to an ACH Operator (usually
the FED) and is passed on to the Receiving Depository Financial
Institution (RDFI), where the Receiver's account is issued either a
credit or debit depending on the ACH transaction.

More details around this process can be found here. Scroll down after
clicking on this link for ACH Process- 

Also check some more details regarding this-

Diagram of ACH Network

3. How much ACH cost?

A single ACH transaction may cost from 2.5 to 25 cents and this is one
of the important reasons why ACH has become so popular payment
mechanism. ACH transactions cost considerably less than wire payments.,10801,59309,00.html

4. How to setup ACH system?

From your question, it sounds to me that you are asking about how to
be an ACH. For this, you need to contact all the banks, merchants and
financial institutions with which you want to setup your ACH process.

?Simply contact the company in which your debit or credit will
originate to see if they participate in the ACH program. Your
employer, power company, insurance company, telephone company, and
your cable television company are just a few of the firms that may
participate in the ACH program.?

Check this answer on Google answers. The question is some what related
to what you?ve asked, and the answer has some details about how ACH
can be setup-

This site offers ACH processing services-

Check this out too-

These are some of the website offering ACH processing-

Advantage of using ACH system: 
Fast payments, Less expensive, quick cash flow and more flexible

Not enough information is available to the corporations doing electronic payments

You can check this link on Google Answers to get further details -

Search terms used -
"automated clearing house"

automatic clearing house

Let me know if this answered your question. In case of any questions,
feel free to request for clarification.

bonzo-ga rated this answer:5 out of 5 stars
Thorough, thoughtful answer with links to backup.  Great answer.

Subject: Re: Overview of ACH system
From: netcrazy-ga on 25 May 2004 11:06 PDT
Thanks bonzo-ga for a 5 Star rating.

Have a great day.

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