A (Brief) History of The Automated Clearing House
The Automated Clearing House (or ACH) is an electronic network for transferring funds from one bank account to another. In the early 1970s, the ACH created a solution for merchants processing large volumes of checks. ACH payment processing allows merchants to process checks in large batches, whether they are accepting payments from customers or issuing paychecks to employees.
In the 21st century, however, with e-commerce processing millions of transactions a day, ACH transfer became a slower payment processing option compared to credit card processing causing merchants to favor the faster method.
The payments industry, however, has found that ACH payments are an inherently safer way to send money between customer and merchant. With same-day ACH processing to begin this year (2016), more merchants are sure to migrate to it.
How ACH Payment Processing Works
- A customer purchases an item on your website using an electronic check.
- Before you can process the check, you need the customer’s authorization by having them read and agree to a statement of understanding.
- Convert all of your electronic check transactions into ACH transactions.
- Submit your ACH transactions in a batch to your Originating Depository Financial Institution (ODFI)–a financial institution that supports ACH payments.
- An ACH operator at your ODFI will send the transaction to the customers’ Receiving Depository Financial Institution (RDFI)–their financial institution where they have their checking account.
- The customer’s account receives a debit for the purchase.
- The funds transfer to your acquiring bank and go into your merchant account until you receive your payout.
Although it sounds complicated, ACH payment processing simply debits money from your customer’s bank account, and deposits it to your merchant account. Same-day ACH processing will simplify this process even further.
Other ACH Benefits for Merchants
- Safe and Secure: EFT transactions—those completed with debit or credit cards—come under constant attack from hackers and international fraud rings. It is a faster and more convenient method than an ACH bank transfer, it is a more dangerous one. The fraud rates for ACH transactions are significantly lower, meaning ACH merchants would, in turn, be at a lower risk for fraud.
- Attention Recurring Billing, Subscription Merchants: If your business offers memberships or subscriptions that require you to charge your customers monthly, ACH is the best solution. You can seamlessly arrange for funds to be deducted from your customer’s bank account and deposited to yours on a set time each month.
ACH Processing With Instabill
Instabill offers the best credit card processing solutions and high risk merchant account services, but we also offer payment services for merchants interested in ACH processing. If you run a magazine subscription, fitness club membership or a recurring billing business, apply for ACH processing services today.
Contact one of our expert merchant account managers today to learn more about your options.