Think Fast: ACH

The Quiet Payments Superhero

Payments are changing fast. When we introduced the FedNow Service to the market last year, we mentioned it was the Fed’s first new payment rail in roughly 50 years. That statement begs the question... so, what was the last one? The answer: the Automated Clearing House, or ACH for short.

ACH is probably not a familiar acronym for those outside the payments industry, but it’s a payment rail that quietly powers a substantial portion of the U.S. economy. Whether you’re paying bills, receiving your paycheck via direct deposit, sending a payment to a friend, or even writing a check for your groceries, you likely interact with the ACH network daily.

Behind the scenes, the ACH network provides a powerful utility - enabling the functionality of many of the popular payment avenues we all use, including some app-based payments on your phone. ACH electronic payment transfers have continued to increase in number and value for the past several decades. In 2023, the number of daily ACH transactions surpassed 120 million, with a staggering total value exceeding $300 billion.[1]

ACH wasn’t always this big. In 1972, the Federal Reserve Bank of San Francisco made history by becoming the first ACH operator in the United States to clear interbank transactions.[2] Just six years later, in 1978, the Federal Reserve Banks had established a national ACH network, cementing ACH's role as a cornerstone of the American payment system.[3] The 1990s marked a period of significant transformation and innovation within the ACH network. Advances in technology allowed for the consolidation of ACH operations into a more efficient and cost-effective system.

Today, we have two national ACH operators in the country, operated and maintained by Federal Reserve Financial Services and The Clearing House (TCH). The National Automated Clearing House Association (Nacha) is the governing body for the U.S. ACH network. They work, in conjunction with the Fed and TCH, to ensure ACH is continuing to meet its mission. One example led by Nacha was the introduction of same-day ACH payments, creating a faster way to settle ACH payments, all within a single business day.? ??

ACH has both grown and changed significantly over the past 50 years, while setting the bar for reliability and efficiency. It's the quiet superhero of the payments’ world, consistently ensuring the smooth flow of funds to consumers and businesses nationwide.

[1] National Automated Clearing House Association (Nacha), ACH Network Records Strong Growth in 2023 as Same Day ACH Surpasses 3 Billion Payments Since Inception, February 14, 2024, author’s calculations, https://www.nacha.org/news/ach-network-records-strong-growth-2023-same-day-ach-surpasses-3-billion-payments-inception

[2] Federal Reserve History, "Automated Clearing House Payments," September 28, 2023, https://www.federalreservehistory.org/essays/automated-clearing-house

[3] Ibid.