What is the Automated Clearing House (ACH)?

The Automated Clearing House (ACH) Network refers to an electronic funds-transfer system operated by NACHA since 1974, previously the National Automated Clearing House Association. This method of payment deals with direct deposit, consumer bills, tax refunds, tax payments, payroll, and more payment services in the U.S. NACHA is a self-regulating institution, and it prescribes management, administration, rules, and development to the ACH network. The operating rules of the organization are designed to increase growth in the scope and size of electronic payments within the network.

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How the ACH Network Works

The ACH Network refers to an electronic system used by financial institutions in facilitating financial transactions in the United States. According to NACHA, it represents above 10,000 financial institutions and also moves more than $43 trillion per announcement by enabling over 25 billion electronic financial transactions. The ACH Network basically functions as a financial hub and assists organizations and individuals transfer money from one bank account to another. ACH transactions comprise direct deposits, as well as, direct payments, including government transactions, B2B transactions, and consumer transactions. An originator begins a direct payment transaction or direct deposit using the ACH Network. Originators can be organizations, government bodies, individuals, and ACH transactions can be either credit or debit. The bank of the originator also referred to as the originating depository financial institution (ODFI), takes the automated clearing house transaction and batches alongside other ACH transactions to be sent out regularly throughout the day. An ACH operator, be it a clearinghouse or the Federal Reserve, gets the batch of ACH transactions from the ODFI along with the originator's transaction. The ACH operator classifies the batch and makes transactions available to the intended recipient's financial institution or bank, also referred to as the receiving depository financial institution (RDFI). The bank of the recipient gets the transaction, thereby reconciling the two accounts and ending the process.

Academics research on Automated Clearing House (ACH)

• Automated Clearing HouseGrowth in an International Marketplace: The Increased Flexibility of Electronic Funds Transfer and its Impact on the Minimum Contacts Test, O'Keefe, B. (1994). Automated Clearing House Growth in an International Marketplace: The Increased Flexibility of Electronic Funds Transfer and its Impact on the Minimum Contacts Test.U. Pa. J. Int'l Bus. L.,15, 105.
• Post Consolidation Estimates ofACHScale Economies, Technical Change and Cost Efficiency, Bauer, P. W. (2002). Post Consolidation Estimates of ACH Scale Economies, Technical Change and Cost Efficiency. Federal Reserve banks have been processing Automated Clearing House (ACH) payments, a consumer oriented product intended to be an electronic substitute for paper checks, since the mid-1970s. Previous studies by Humphrey (1982, 1984, 1985), Bauer and Hancock (1995), and Bauer and Ferrier (1996) have found strong evidence for increasing returns to scale (falling unit costs as volume transacted increases). Employing data from the early 1990s, the latter two studies also found evidence of rapid technical change (falling unit costs as better technology is implemented over time). Using data through 2000, we find that the ACH cost function still exhibits both of these properties, yet there are some signs that the technology may be maturing. The rate of technical change, while still rapid, appears to have slowed. Scale economies, at least as estimated by the GLS technique, still appears to exist far beyond the current range of output. Both of these findings have important implications for Reserve Banks that are facing increasing Federal Reserve banks have been processing Automated Clearing House (ACH) payments, a consumer oriented product intended to be an electronic substitute for paper checks, 
• Automated Clearing Houses: The Case for Barring Thrift Institutions, Karr, F. H. (1978). Automated Clearing Houses: The Case for Barring Thrift Institutions.Banking LJ,95, 823.
• The effect of pricing on demand and revenue in Federal ReserveACHpayment processing, Stavins, J., & Bauer, P. W. (1999). The effect of pricing on demand and revenue in Federal Reserve ACH payment processing.Journal of Financial Services Research,16(1), 27-45. Because the automated clearinghouse (ACH) has been found to have lower social costs than paper checks, the Federal Reserve has been promoting more widespread use of ACH by lowering ACH processing fees. In this paper, we have obtained the first numerical estimates of ACH demand elasticities, a measure of the responsiveness of ACH demand to price changes. Various methods are employed to estimate the demand elasticities to determine how robust the estimates are. During the period 19851996, the Federal Reserve lowered the per-item price of interregional ACH, while the per-item price of intraregional ACH stayed constant. We take advantage of this unique pattern of historical price changes implemented by the Federal Reserve to estimate the effect of price changes on demand for ACH. 
• Electronic checkclearingalternatives take shape, Murphy, P. A. (1993). Electronic check clearing alternatives take shape.American Bankers Association. ABA Banking Journal,85(5), 62.