The PAYTECH Book

How ACH and Real-Time Payments Clearing and Settlement Works

By Imran Ali

Managing Principal, Answer Digital

Introduction

In the beginning, payments were processed individually and settled at the same time. This was reliable, but costly. As volumes grew, banks introduced the concept of an ACH (automated clearing house) as a more cost-effective way of processing payments. ACH payments soon became the new standard for clearing payments in most geographies. In the UK there are approximately 6 billion ACH payments processed each year.¹ In the USA, NACHA processes about 23 billion transactions a year. By and large, ACHs still represent the cheapest way of processing non-urgent payments.

However, a few years ago a revolution began with the introduction of real-time payments (RTPs). As societies moved to a digital age where services are available in an instant on the end of a computer or mobile phone, customer expectations moved accordingly. Three-day or even next-day clearing systems started to be perceived as slow. Customers couldn’t understand that goods ordered online could arrive the same day yet payments made between two banks would take two days. RTP addressed that problem by delivering a payments capability that processed payments in seconds. This chapter describes how ACH payments are processed, how RTPs function, the differences between them and the issues that still exist.

ACH Payments

ACH payments are processed in bulk and often on an overnight basis, although some take ...