ACH payment
What is ACH payment?
ACH payment is a bank-to-bank transfer processed through the network, a US system that moves funds between accounts without checks, cash, or card rails. The debit or credit clears directly between the payer's bank and the recipient's bank instead of routing through a and a .
Most people use ACH without naming it. Direct-deposit paychecks, utility autopay, and peer-to-peer apps like Venmo and Cash App all settle over the network. A transfer needs only a bank account number and the bank's routing number, which makes it cheap to initiate and easy to reuse for recurring billing.
Key facts
- Two directions: an ACH debit pulls funds from the payer's account; an ACH credit pushes funds to the recipient.
- Identified by: three-letter Standard Entry Class (SEC) codes, which tell the receiving bank what kind of authorization backs the entry and therefore how long the return window runs.
- PPD (prearranged payment and deposit): pre-authorized recurring billing and payroll.
- TEL (telephone-initiated entry): also known as check-by-phone.
- WEB (web-initiated entry): the standard code for ecommerce.
- Credentials required: account number plus routing number. No card number, expiry date, or CVV.
- Scope: US domestic. Equivalent bank-transfer rails elsewhere include in the euro area, with messaging used for cross-border wires.
How it works
- Authorization. The payer authorizes the debit, in writing, by phone, or through an online checkout. The channel determines which SEC code the entry carries.
- Origination. The merchant or its bank submits the entry to the originating bank, tagged with the payer's account and routing number.
- Batching. Entries are collected into batches rather than sent individually. This is why ACH is a batch rail, not a real-time one.
- Clearing. The ACH operator sorts batches and forwards each entry to the receiving bank.
- Settlement. The receiving bank posts the entry and funds move between the two institutions during .
- Return window. The receiving bank can send the entry back after posting, most often for insufficient funds or a closed account.
Why it matters
- ACH pricing is normally a flat per-entry fee rather than a percentage of ticket value, so the cost gap versus cards widens as order value rises.
- Bank credentials don't expire or get reissued the way card numbers do, so recurring billing on ACH avoids the involuntary churn caused by expired and replaced cards.
- Funds move without a card network in the path, which removes the interchange layer from the cost stack entirely.
Common issues
- Returns after fulfillment. An entry can be returned days after goods shipped or a service was granted. The merchant sees an ACH return rather than a decline at checkout, and recovery becomes a collections problem.
- Limited real-time verification. ACH has no CVV check, no AVS, and no 3D Secure equivalent. Account and routing numbers alone authorize a debit, so the network leans on stored authorization records instead of live checks.
- No instant confirmation. A successful submission is not proof of funds. Merchants shipping on submission carry the exposure until the return window closes.
- Disputes. A payer who denies authorizing an entry can trigger an , which follows bank rules rather than card scheme chargeback rules.
