In that, there was a 42% increase in peer-to-peer transfers via ACH using apps such as Cash app and Venmo.
When money transfer happens between banks, ACH is the most preferred way.
Ever wondered how payment platforms like Paypal and Venmo provide transfer of funds so seamlessly? Well, the magic behind the process is via ACH transfers.
Automated Clearing House or more commonly known as ACH is an electronic money/fund transfer between banks that allows funds to be pulled from accounts and then pushed forward digitally/online to other bank accounts/ accounts from other banks.
In today’s time, ACH transfers are the preferred method for financial transactions online. ACH transfers account for your bank deposits, online bill payments, and other financial transactions that can occur online.
Simply put, the electronic movement of funds between banks using the ACH network. As mentioned above many third parties like Paypal and Venmo make use of the ACH network. Coincidentally, even Government bodies like Social Security also utilize the ACH network for transactions.
For a fair idea of what kind of transactions occur via the ACH network, here are a few examples:
Transactions in the ACH network are mainly processed in two ways.
Debit transactions in the ACH network allow you to pull funds from an account.
So when you set up automatic payments or auto-pay bill payments for services like your Spotify or your Netflix account, it allows those companies to regularly deduct money from your account as payment (the money owed of course!).
Here’s where it gets quite complex. Think of ACH transfers as a form of bulk mail.
Each fund transfer request is compiled as one message within a large batch of outgoing digital mail bundles from the requesting bank.
The bank making the request is known as the originating depository financial institution (ODFI)
The ACH network then repackages these large batches of transactions by a receiver and then distributes them to the bank that receives the requests.
These banks are regarded as the Receiving Depository Financial Institution (RDFI).
These transactions usually occur at five scheduled intervals every business day. The latest schedule for ACH transfers occurs at 6 AM, 12 PM, 4 PM, 5.30 PM, and 10 PM ET.
Now there are several factors that affect how these transfers work:
ACH transfers can process and be completed within a few hours to a certain number of business days. The difference in time mainly depends on the following factors:
Below is the typical timeframe for Credit and Debit ACH transactions.
The delivery of ACH transfers can vary from immediate to several business days (because of situations such as banks not being open or operational on holidays and weekends).
Because these transfers are run by a network operator at certain times of the day, they cannot be done at any time and instantaneously like a wire transfer.
Banks and financial institutions have the option to have ACH Credit transfers processed within the same day or two or three business days.
On the other hand, ACH Debit transactions can only be processed by financial institutions on the following business day.
These timelines have to be adhered to and are set by the National Automated Clearing House Association (NACHA).
NACHA is the trade group that oversees the ACH network. Financial institutions have a strict set of rules to follow set by the NACHA as well.
You must be thinking about which is the better option to make a transaction. ACH transfers and Wire Transfers have many benefits to their own, but let’s compare them:
|ACH Transfers||Wire Transfers|
|ACH transfers are usually free and will only cost $2-3 for same-day or expedited services||Wire transfers cost much higher, ranging from $10 to $35 for domestic transfers and up to $50 for international transfers|
|ACH transfers take a lot of time to process and can range from the same day to several business days||Wire transfers in the US can be transferred and received within hours and often can occur within a few minutes from initiation|
|ACH Transfers unfortunately cannot be used to make international transfers. They are solely domestic and can only be used within US accounts||Wire transfers are the best and most common option for international transfers. They have additional costs and are the fastest and safe way to transfer funds outside the country|
|ACH Transfers are always done in specific batches throughout the day. This is the reason for a longer turnaround time||Funds via a wire transfer are usually cleared before the money even reaches the recipient’s account|
|The process is automated as well||However, the process is not entirely automated and a bank employee needs to finalize the transfer/funding|
While ACH transfers are free and reliable, there are quite a few limitations as well. Do keep this in mind when prioritizing your transfers:
ACH Transfers have a daily and monthly cap on how much money can be transferred.
As ACH transfers work based on bank timings and batches, you need to make transactions at certain times to ensure quick processing. For eg: if you request on a Friday evening, your transaction will only occur on Monday.
In the case of having insufficient funds for the transaction, your bank will charge you a fee and even stop the transaction entirely.
Most banks will not allow transactions to foreign accounts outside the US via ACH
ACH transactions will only be free for the first six transactions for a US savings account. Any transaction made after six times will be charged a convenience fee. This limits the free benefit of ACH transfers for savings account holders.
Nothing is fraud-proof in this digital world, however, there are a few pointers that you must keep in mind:
We’ve spoken in detail about how ACH can be beneficial to a consumer or an individual.
However, to know if ACH transactions would be beneficial to your business, your answer needs to be YES to the following questions:
If the answer to these questions is YES, then ACH will be a benefit to your business venture.
If you are already worried about ACH implementation, it makes sense to be even more worried about its security.
Cyvatar’s managed services take care of all the security woes and provide you with cutting-edge technology to secure your fintech organization.
Circa Las Vegas
Thurs. Aug 5th
Cybersecurity Reunion Pool Party at BlackHat 2021