ACH is an acronym for Automated Clearing House. Established in the mid-1970s in US, ACH is an electronic funds-transfer system that facilitates payments in the U.S, and it is run by Nacha. Thanks to the ACH, especially with some recent rule changes, most credit and debit transactions can be cleared on the same business day, making international money transfers quick and easy.
Besides the Nacha-run ACH in the United States, each major financial center has their own automated clearing house, with the UK-based BACS being the world’s first. BACS (short for Bacs Payment Schemes Limited) was already functional in 1968 and is still active.
The US- based Automated Clearing House represents more than 10,000 financial institutions, working as a peer to peer network that enables people and organizations to quickly transfer funds between their banks. In a way, the ACH acts like a financial hub for all sorts of deposits and payments including B2B transactions, governmental transactions and consumer transactions as well, although most transactions going through ACH are domestic low value payments.
It requires a debit or credit from the originator and a credit or debit on the recipient's end in order to work. Some ACH systems may also allow the transfer of a limited amount of information alongside the funds being transferred.
ACH payments are opposite to real-time gross settlement (RTGS) payments, a more modern type of transactions, which are processed immediately by the central RTGS system, whereas Automated Clearing House payments are still subjected to a one-on-one waiting period. Due to this newer and faster system taking root, ACH systems are nowadays mostly used for low-value, non-urgent transactions. More urgent and high-value payments are preferably done with the help of RTGS systems.
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