Automated clearing house

An automated clearing house (ACH) is a computer-based electronic network for processing transactions,[1] usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits.[2][3] The ACH system is designed to process batches of payments containing numerous transactions, and it charges fees low enough to encourage its use for low value payments.

This article is about the generic concept. For the specific payment system in the United States, see ACH Network.
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    History

    The first automated clearing house was BACS in the United Kingdom, which started processing payments in April 1968.[4]

    In the U.S. in the late 1960s, a group of banks in California sought a replacement for check payments.[5] This led to the first automated clearing house in the US in 1972, operated by the Federal Reserve Bank of San Francisco.[5]

    BACS operated from the beginning on a net settlement basis. Netting ACH transactions reduces the amount of deposits a bank must hold.[5]

    Operation

    ACHs process large volumes of credit and debit transactions in batches. ACH credit transfers are initiated by the payer and include payments such as: direct deposits, payrolls, retail payments and vendor payments.[5] ACH direct debit collections are initiated by the payee with pre-authorization from the payer; ACH direct debits include consumer payments such as utility bills, insurance premiums, mortgage loans, and other types of bills.[5] 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 days, and there is some settlement risk. ACHs may allow for the transfer of a limited amount of additional information along with payment instructions.

    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.[6]

    Operations

    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[7][8] for the Nacha ACH Network in the United States and its terminology.

    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[9] and 98 systems in their 2012 survey,[10] while other sources have made qualitative analysis of a smaller number of ACH systems.[6]

    CountrySystem
     Albania AECH[11]
     Argentina COELSA (Compensadora Electrónica)[12]
     Australia Bulk Electronic Clearing System (BECS)
     Austria Payment Services Austria GmbH (PSA)[13]
     Bahamas Bahamas Automated Clearing House (BACH)[14]
     Bangladesh Bangladesh Automated Clearing House (BACH)[15]
     Belgium Centre for Exchange and Clearing[16] (CEC)
     Brazil CIP-SILOC[17]
     Bulgaria BISERA[18]
     Canada Retail System, known formally as the Automated Clearing Settlement System (ACSS), run by Payments Canada
     Cayman Islands Cayman Islands Automated Clearing House[19]
     Chile Centro de Compensación Automatizado (CCA)[20]
     China China National Advanced Payment System (CNAPS) Bulk Electronic Payment System (BEPS)[21]
     Colombia ACH-Colombia and
    CENIT
     Costa Rica SINPE (Spanish: Sistema Nacional de Pagos Electrónicos; National System of Electronic Payments)[22]
     Croatia Financial Agency (FINA)
     Czech Republic CERTIS (Czech Express Real Time Interbank Gross Settlement System)
     Denmark Eurogiro and
    Nets Group
     Egypt EG-ACH[23]
     Ethiopia EthSwitch[24]
     Europe a pan-European automated clearing house for the Single Euro Payments Area, STEP2
     France STET
     Germany Deutsche Bundesbank
     Greece DIAS Interbanking Systems
     Hungary InterGIRO2 GIRO Zrt[25]
     Hong Kong Hong Kong Interbank Clearing Limited[26]
     Iceland Reiknistofa Bankanna (RB)
     India National Automated Clearing House and
    National Electronic Funds Transfer
     Iran PAYA system (Paayaa, پایا)[27][28]
     Israel Masav[29][30]
     Italy Banca d'Italia,
    Nexi and
    SIA
     Japan Zengin (banking)
     Latvia Latvijas Banka
     Mexico SICAM (Sistema de Camaras)[31]
     Morocco GSIMT (The Moroccan Interbank Remote Clearing System)[32]
     Moldova National Bank of Moldova
     Netherlands/ Germany/ Italy equensWorldline
     Nigeria Nigeria Automated Clearing System (NACS)
     Norway Norwegian Interbank Clearing System (NICS)[33]
     Pakistan National Institutional Facilitation Technologies (NIFT) ACH[34]
     Philippines PesoNet
     Poland Krajowa Izba Rozliczeniowa (KIR)
     Portugal Sociedade Interbancária de Serviços (SIBS)
     Peru Camara de Compensacion Electronica (CCE)
     Republic of Macedonia Clearing House KIBS AD Skopje (KIBS)
     Romania TransFonD SENT ACH[35]
     Saudi Arabia SARIE[36] with both RTGS and ACH
     Singapore eGIRO[37] which is part of Singapore Automated Clearing House[38]
     Slovenia Bankart
     South Africa BankservAfrica
     South Korea HOFINET[39]
     Spain Iberpay
     Sweden Bankgirocentralen BGC AB
      Switzerland Swiss Interbank Clearing
     Taiwan Taiwan Clearing House
     Ukraine National Bank of Ukraine's System of Electronic Payments[40]
     United Kingdom Bacs Payment Schemes Limited
     United States Federal Reserve Bank's FedACH and
    The Clearing House's Electronic Payments Network, underpinned by Nacha's ACH Network
     Venezuela Cámera de Compensación Electrónica (CCE)[41]
     Vietnam NAPAS 247, run by National Payment Corporation of Vietnam (NAPAS)[42]

    In addition, there are various ACH associations such as the European Automated Clearing House Association.[43]

    Uses of the ACH payment system

    There are various usages of ACH systems;[7] the terminology related to different types of transactions varying in different countries. Most ACH payment systems support the following types:

    • Credit Transfer: non-immediate transfer of funds between accounts at different financial institutions for payments by retail customers and non-urgent business-to-business payments.
    • Direct debit payment of consumer bills such as mortgages, loans, utilities, insurance premiums, rents, and any other regular or membership style payment. These type of payments are usually used by businesses that collect ongoing payments from the same customer.

    See also

    References
    1. Dr. B.S. Sawant. "Technological Developments in Indian Banking Sector". www.researchgate.net. Retrieved 20 November 2018.
    2. European Central Bank. "Payments and markets glossary". www.bankingsupervision.europa.eu. Retrieved 19 November 2018.
    3. European Central Bank. "GLOSSARY OF TERMS RELATED TO PAYMENT, CLEARING AND SETTLEMENT SYSTEMS" (PDF). www.ecb.europa.eu. Retrieved 19 November 2018.
    4. "Half a Century of Bacs Payments". Bacs. April 17, 2018. Archived from the original on June 18, 2020.
    5. James McAndrews. "The Automated Clearinghouse System: Moving Toward Electronic Payment" (PDF). www.philadelphiafed.org.
    6. Michael Tompkins; Ariel Olivares. "Clearing and Settlement Systems from Around the World: A Qualitative Analysis" (PDF). www.payments.ca. Retrieved 19 November 2018.
    7. "What is ACH?: Quick Facts About the Automated Clearing House (ACH) Network". www.nacha.org.
    8. "ACH Payments: A primer for subscription businesses". www.chargebee.com. 22 December 2015.
    9. The International Bank for Reconstruction and Development / The World Bank. "PAYMENT SYSTEMS WORLDWIDE A SNAPSHOT Outcomes of the Global Payment Systems Survey 2010" (PDF). www.worldbank.org. Retrieved 19 November 2018.
    10. The International Bank for Reconstruction and Development / The World Bank (5 May 2013). "Global Payment Systems Survey (GPSS)". www.worldbank.org: 1–9. Retrieved 19 November 2018.
    11. "AECH - Albanian Electronic Clearing House". www.bankofalbania.org.
    12. "Cash and Treasury Management Country Report: Argentina" (PDF). www.afponline.org. Retrieved 1 March 2019.
    13. "GeldService Austria" (PDF). www.geldservice.at. Archived from the original (PDF) on November 20, 2018.
    14. "ACH to unveil personal money transfers in early 2012". Archived from the original on December 18, 2018.
    15. "Bangladesh Automated Clearing House (BACH)". www.bb.org.bd. Retrieved 19 November 2018.
    16. "Centre for Exchange and Clearing". www.cecbelgium.be.
    17. "Cash and Treasury Management Country Report: Brazil" (PDF). www.afponline.org. Retrieved 1 March 2019.
    18. "REGULATED AND PAYMENT SERVICES". www.borica.bg. Retrieved 11 February 2022.
    19. Spencer Fordin. "Six Cayman retail banks install automated clearing house". Cayman Compass. Retrieved 19 November 2018.
    20. "Cash and Treasury Management Country Report: Chile" (PDF). www.afponline.org. Retrieved 1 March 2019.
    21. "Payment, clearing and settlement systems in China" (PDF). www.bis.org. Retrieved 5 February 2019.
    22. "National System of Electronic Payments". www.bccr.fi.cr. Retrieved 30 May 2022.
    23. "EG-ACH". www.egyptianbanks.com. Archived from the original on 19 November 2018. Retrieved 19 November 2018.
    24. "How BPC and EthSwitch are interconnecting Ethiopian banks". Intelligent CIO Africa. 2016-09-15. Retrieved 2020-10-08.
    25. "GIRO - Services - Interbank Clearing System". www.giro.hu. Archived from the original on 15 April 2021. Retrieved 23 February 2021.
    26. "HKICL Electronic Clearing". www.hkicl.com.hk. Retrieved 5 December 2018.
    27. "Paya". www.cbi.ir. Archived from the original on 2021-05-27. Retrieved 2020-01-27.
    28. "Payment & Clearance Systems". www.cbi.ir. Archived from the original on 2021-04-27. Retrieved 2020-01-27.
    29. "The Banks' Clearing House". www.boi.org.il.
    30. "Israel's Payment and Settlement Systems" (PDF). www.boi.org.il.
    31. "Cash and Treasury Management Country Report: Mexico" (PDF). www.afponline.org. Retrieved 1 March 2019.
    32. "GSIMT - Groupement pour un Système Interbancaire Marocain de Télécompensation". www.gsimt.ma. Retrieved 12 May 2022.
    33. "NICS". www.bits.no. Retrieved 16 March 2021.
    34. "About Automated Clearing". www.nift.pk. Archived from the original on 23 May 2020. Retrieved 5 December 2018.
    35. "Automated Clearing House - SENT". www.transfond.ro. Retrieved 19 March 2019.
    36. "The Saudi Arabian Riyal Interbank Express (SARIE)". Archived from the original on 2020-08-11. Retrieved 2019-03-07.
    37. "Singapore Consumer Banking". abs.org.sg. Retrieved 18 February 2019.
    38. "Singapore Automated Clearing House". www.mas.gov.sg. Archived from the original on May 22, 2013. Retrieved 19 November 2018.
    39. "Electronic Payment". KFTC (Korea Financial Telecommunications & Clearings Institute). Retrieved 18 February 2019.
    40. "System of Electronic Payments". bank.gov.ua.
    41. "Cash and Treasury Management Country Report: Venezuela" (PDF). www.afponline.org. Retrieved 1 March 2019.
    42. "National Payment Corporation of Vietnam (NAPAS)". hongtien.vn. Retrieved 28 March 2023.
    43. "European Automated Clearing House Association". www.eacha.org.
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