Automated clearing house

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An automated clearing house (ACH), or automated clearinghouse, is an electronic network for financial transactions, [1] generally domestic low value payments. An ACH is a computer-based clearing house and settlement facility established to process the exchange of electronic transactions between participating financial institutions. It is a form of clearing house that is specifically for payments and may support both credit transfers and direct debits. [2] [3]

Clearing house (finance) financial institution that provides clearing and settlement services

A clearing house is a financial institution formed to facilitate the exchange of payments, securities, or derivatives transactions. The clearing house stands between two clearing firms. Its purpose is to reduce the risk of a member firm failing to honor its trade settlement obligations.

Financial institution institution that provides financial services for its clients or members

Financial institutions, otherwise known as banking institutions, are corporations that provide services as intermediaries of financial markets. Broadly speaking, there are three major types of financial institutions:

  1. Depository institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies;
  2. Contractual institutions – insurance companies and pension funds
  3. Investment institutions – investment banks, underwriters, brokerage firms.

Wire transfer, bank transfer or credit transfer is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office.


ACHs are designed for high-volume, low-value payments, and charges fees low enough to encourage the transfer of low-value payments. The system is designed to accept payment batches, so that large numbers of payments can be made at once.


The first automated clearing house was envisaged in the US in the late 1960s by a group of banks in California as a replacement for check payments. [4]


ACHs process large volumes of credit and debit transactions in batches. ACH credit transfers include many types of payments: direct deposit, payroll, retail payments and vendor payments. ACH direct debit collections include consumer payments such as utility bills, insurance premiums, mortgage loans, and other types of bills. Transactions received by the bank during the day are stored and transmitted in batches to the ACH. ACHs are net settlement systems, so settlement may be delayed for day(s), and there is some settlement risk. ACHs may allow for the transfer of a limited amount of additional information along with payment instructions.

A direct debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person's bank account. Formally, the person who directly draws the funds instructs his or her bank to collect an amount directly from another's bank account designated by the payer and pay those funds into a bank account designated by the payee. Before the payer's banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). After the authorities are set up, the direct debit transactions are usually processed electronically.

ACH payments contrast with Real-time gross settlement (RTGS) payments which are processed immediately by the central RTGS system and not subject to any waiting period on a one-to-one basis. ACH systems are typically used for low-value, non-urgent transactions while RTGS systems are typically used for high-value, urgent transactions. [5]

Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real time" and on a "gross" basis. Settlement in "real time" means a payment transaction is not subjected to any waiting period, with transactions being settled as soon as they are processed. "Gross settlement" means the transaction is settled on one-to-one basis without bundling or netting with any other transaction. "Settlement" means that once processed, payments are final and irrevocable.


This section describes in a generic way the typical operation of an ACH system. Each ACH system has its own specifics; see, for example, quick facts [6] [7] for the NACHA ACH Network in the United States and its terminology.

NACHA creates broadly adopted payment and financial messaging rules and standards. As administrator of the ACH Network, which annually moves tens of billions of electronic payments and trillions of dollars in debits and credits, including Direct Deposits and bill payments, NACHA sets and enforces the NACHA Operating Rules, by which users of the ACH Network must abide.

ACH Network is a United States electronic payment network that processes financial transactions for consumers, businesses and federal/state/local governments. ACH processes large volumes of credit and debit transactions in batches. Short for the Automated Clearing House, ACH credit transfers include direct deposit for payroll, Social Security and other benefit payments, tax refunds, and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills.

United States Federal republic in North America

The United States of America (USA), commonly known as the United States or America, is a country comprising 50 states, a federal district, five major self-governing territories, and various possessions. At 3.8 million square miles, the United States is the world's third or fourth largest country by total area and is slightly smaller than the entire continent of Europe's 3.9 million square miles. With a population of over 327 million people, the U.S. is the third most populous country. The capital is Washington, D.C., and the largest city by population is New York City. Forty-eight states and the capital's federal district are contiguous in North America between Canada and Mexico. The State of Alaska is in the northwest corner of North America, bordered by Canada to the east and across the Bering Strait from Russia to the west. The State of Hawaii is an archipelago in the mid-Pacific Ocean. The U.S. territories are scattered about the Pacific Ocean and the Caribbean Sea, stretching across nine official time zones. The extremely diverse geography, climate, and wildlife of the United States make it one of the world's 17 megadiverse countries.

  1. The ordering customer makes a transaction initiation, which can be either manually or by sending a file of initiation requests to a bank.
  2. The bank gathers all transaction initiations for an ACH that arrive from different customers (combining manual and file-based).
  3. On a periodic basis, the bank creates a file that it dispatches to the ACH either at the end of day or in cycles throughout the day.
  4. The ACH operator combines the information submitted by the banks within each cycle (generally ACHs have several cycles throughout the day).
  5. The ACH operator informs each bank of the net settlement amount for which they are responsible for the cycle.
  6. The ACH operator ensures that the settlement amounts are received from all participants for the cycle, so that the cycle can be executed.
  7. The ACH operator informs the destinator's bank of the transaction details.
  8. When transaction arrives in the destination bank, the bank executes the transaction: such as crediting the payment to the beneficiary, while the ordering customer's bank debits the ordering customer's account.

Existing systems

There are various ACH systems around the world. The World Bank identified 87 systems in their 2010 Survey [8] and 98 systems in their 2012 survey [9] , while other sources have made qualitative analysis of a smaller number of ACH systems. [5]

AlbaniaAECH [10]
ArgentinaCOELSA (Compensadora Electrónica) [11]
Australia Bulk Electronic Clearing System (BECS)
AustriaGSA [12] and Oesterreichische Nationalbank
BahamasBahamas Automated Clearing House (BACH) [13]
BangladeshBangladesh Automated Clearing House (BACH) [14]
BelgiumCEC Centre for Exchange and Clearing [15]
BrazilCIP-SILOC [16]
CanadaRetail System, known formally as the Automated Clearing Settlement System (ACSS), run by Payments Canada
Cayman Islands [17]
ChileCentro de Compensación Automatizado (CCA) [18]
ChinaChina National Advanced Payment System (CNAPS) Bulk Electronic Payment System (BEPS) [19]
ColombiaACH-Colombia and CENIT
DenmarkEurogiro and Nets Group
EgyptEG-ACH [20]
Europea Pan-European automated clearing house for the Single Euro Payments Area, STEP2
Germany Deutsche Bundesbank
HungaryGIRO Zrt.
Hong KongInterbank Clearing Limited [21]
India National Automated Clearing House and National Electronic Funds Transfer
IsraelMasva [22] [23]
Italy Banca d'Italia, Nexi and SIA
Latvia Latvijas Banka
MexicoSICAM (Sistema de Camaras) [24]
Moldova National Bank of Moldova
Nigeria Nigeria Interbank Settlement System (NIBSS)
PakistanNIFT's ACH [25]
PhilippinesPesoNet and InstaPay
Republic of MacedoniaKIBS
RomaniaTransFonD SENT ACH [26]
Saudi ArabiaSARIE [27] : with both RTGS and ACH
SingaporeeGIRO [28] which is part of Singapore Automated Clearing House [29]
South Africa BankservAfrica
South Korea HOFINET [30]
Sweden Bankgirocentralen BGC AB
Switzerland Swiss Interbank Clearing
United Kingdom Bacs Payment Schemes Limited and VocaLink
United States Federal Reserve Bank's FedACH and The Clearing House's Electronic Payments Network, underpinned by NACHA's ACH Network
VenezuelaCCE (Electronic Clearing System) [31]

In addition, there are various ACH associations such as the European Automated Clearing House Association. [32]

Uses of the ACH payment system

There are various usages of ACH systems; [6] the terminology related to different types of transactions varying in different countries. Most ACH payment systems support the following types:

See also

Related Research Articles

A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms they are considered as cash.

Cheque clearing process of exchanging a cheque for its funds

Cheque clearing or bank clearance is the process of moving cash from the bank on which a cheque is drawn to the bank in which it was deposited, usually accompanied by the movement of the cheque to the paying bank, either in the traditional physical paper form or digitally under a cheque truncation system. This process is called the clearing cycle and normally results in a credit to the account at the bank of deposit, and an equivalent debit to the account at the bank on which it was drawn, with a corresponding adjustment of accounts of the banks themselves. If there are not enough funds in the account when the cheque arrived at the issuing bank, the cheque would be returned as a dishonoured cheque marked as non-sufficient funds.

The Australian financial system consists of the arrangements covering the borrowing and lending of funds and the transfer of ownership of financial claims in Australia, comprising:

Cheque method of payment

A cheque, or check, is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where their money is held. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated.

Clearing (finance) all activities from the time a commitment is made for a financial transaction until it is settled

In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. This process turns the promise of payment into the actual movement of money from one account to another. Clearing houses were formed to facilitate such transactions among banks.

A payment system is any system used to settle financial transactions through the transfer of monetary value, and includes the institutions, instruments, people, rules, procedures, standards, and technologies that make such an exchange possible. A common type of payment system is the operational network that links bank accounts and provides for monetary exchange using bank deposits.

Fedwire is a real-time gross settlement funds transfer system operated by the United States Federal Reserve Banks that allows financial institutions to electronically transfer funds between its more than 9,289 participants. Transfers can only be initiated by the sending bank once they receive the proper wiring instructions from the receiving bank. These instructions include: the receiving bank's routing number, account number, name and dollar amount being transferred. This information is submitted to the Federal Reserve via the Fedwire system. Once the instructions are received and processed, the Fed will debit the funds from the sending bank's reserve account and credit the receiving bank's account. Wire transfers sent via Fedwire are completed in the same day, while some are completed instantly.

Electronic funds transfer (EFT) are electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of bank staff.

Cash management refers to a broad area of finance involving the collection, handling, and usage of cash. It involves assessing market liquidity, cash flow, and investments.

Payment and settlement systems in India are payment and settlement systems in India for financial transactions. They are covered by the Payment and Settlement Systems Act, 2007, legislated in December 2007 and regulated by the Reserve Bank of India and the Board for Regulation and Supervision of Payment and Settlement Systems.

National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was established and maintained by Institute for Development and Research in Banking Technology (IDRBT). NEFT enables bank customers in India to transfer funds between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via electronic messages. Unlike Real-time gross settlement (RTGS), fund transfers through the NEFT system do not occur in real-time basis. NEFT settles fund transfers in half-hourly batches with 23 settlements occurring between 8:00 AM and 7:00 PM on week days and the 1st, 3rd and 5th Saturday of the calendar month. Transfers initiated outside this time period are settled at the next available window. No settlements are made on the second and fourth Saturday of the month, or on Sundays, or on public holidays.

The Clearing House Automated Transfer System, or CHATS, is a real-time gross settlement (RTGS) system for the transfer of funds in Hong Kong. It is operated by Hong Kong Interbank Clearing Limited, a private company jointly owned by the Hong Kong Monetary Authority (HKMA) and the Hong Kong Association of Banks. Transactions in four currency denominations may be settled using CHATS: Hong Kong dollar, renminbi, euro, and US dollar. In 2005, the value of Hong Kong dollar CHATS transactions averaged HK$467 billion per day, which amounted to a third of Hong Kong's annual Gross Domestic Product (GDP); the total value of transactions that year was 84 times the GDP of Hong Kong.

Alternative payments refers to payment methods that are used as an alternative to credit card payments. Most alternative payment methods address a domestic economy or have been specifically developed for electronic commerce and the payment systems are generally supported and operated by local banks. Each alternative payment method has its own unique application and settlement process, language and currency support, and is subject to domestic rules and regulations.

The Clearing House Payments Company L.L.C. (PayCo) is a U.S.-based limited liability company formed by Clearing House Association. PayCo is a private sector, payment system infrastructure that operates an electronic check clearing and settlement system (SVPCO), a clearing house, and a wholesale funds transfer system (CHIPS).

EBA Clearing is a provider of pan-European payment infrastructure wholly owned by shareholders that consist of major European banks.


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  2. European Central Bank. "Payments and markets glossary". Retrieved 19 November 2018.
  3. European Central Bank. "GLOSSARY OF TERMS RELATED TO PAYMENT, CLEARING AND SETTLEMENT SYSTEMS" (PDF). Retrieved 19 November 2018.
  4. James McAndrews. "The Automated Clearinghouse System: Moving Toward Electronic Payment" (PDF).
  5. 1 2 Michael Tompkins; Ariel Olivares. "Clearing and Settlement Systems from Around the World: A Qualitative Analysis" (PDF). Retrieved 19 November 2018.
  6. 1 2 "What is ACH?: Quick Facts About the Automated Clearing House (ACH) Network".
  7. "ACH Payments: A primer for subscription businesses".
  8. The International Bank for Reconstruction and Development / The World Bank. "PAYMENT SYSTEMS WORLDWIDE A SNAPSHOT Outcomes of the Global Payment Systems Survey 2010" (PDF). Retrieved 19 November 2018.
  9. The International Bank for Reconstruction and Development / The World Bank. "Global Payment Systems Survey (GPSS)". Retrieved 19 November 2018.
  10. "AECH - Albanian Electronic Clearing House".
  11. "Cash and Treasury Management Country Report: Argentina" (PDF). Retrieved 1 March 2019.
  12. "GeldService Austria" (PDF).
  13. "ACH to unveil personal money transfers in early 2012".
  14. "Bangladesh Automated Clearing House (BACH)". Retrieved 19 November 2018.
  15. "Centre for Exchange and Clearing".
  16. "Cash and Treasury Management Country Report: Brazil" (PDF). Retrieved 1 March 2019.
  17. Spencer Fordin. "Six Cayman retail banks install automated clearing house". Cayman Compass. Retrieved 19 November 2018.
  18. "Cash and Treasury Management Country Report: Chile" (PDF). Retrieved 1 March 2019.
  19. "Payment, clearing and settlement systems in China" (PDF). Retrieved 5 February 2019.
  20. "EG-ACH". Retrieved 19 November 2018.
  21. "HKICL Electronic Clearing". Retrieved 5 December 2018.
  22. "The Banks' Clearing House".
  23. "Israel's Payment and Settlement Systems" (PDF).
  24. "Cash and Treasury Management Country Report: Mexico" (PDF). Retrieved 1 March 2019.
  25. "About Automated Clearing". Retrieved 5 December 2018.
  26. "Automated Clearing House - SENT". Retrieved 19 March 2019.
  27. The Saudi Arabian Riyal Interbank Express (SARIE)
  28. "Singapore Consumer Banking". Retrieved 18 February 2019.
  29. "Singapore Automated Clearing House". Retrieved 19 November 2018.
  30. "Electronic Payment". KFTC (Korea Financial Telecommunications & Clearings Institute). Retrieved 18 February 2019.
  31. "Cash and Treasury Management Country Report: Venezuela" (PDF). Retrieved 1 March 2019.
  32. "European Automated Clearing House Association".