The Automated Clearing House network is responsible for much of the money movement in the United States. It is overseen by an organization known as NACHA, which, while not directly involved in any ACH transactions, regulates the network, ensures that it runs smoothly, and unites its participants under a single umbrella. Under NACHA’s guidance, the ACH network saw more than $41 trillion in transfers in 2015.
NACHA is a non-profit organization that plays various roles within the payments industry. Its primary role is to develop and administer the operating rules for the ACH network. It’s a role NACHA has played since 1974, ensuring that all participating financial organizations are on the same page and that ACH transactions are reliable and secure. The operating rules themselves are updated often—in NACHA’s words, they are a “living document.” This concept—and NACHA’s involvement in it—is perhaps best illustrated by a recent and major rule change: Same Day ACH. With Phase 1 implemented in September 2016, and Phases 2 and 3 set to begin in the next two years, NACHA has taken steps to allow money to be moved faster between accounts to keep up with the changing face of payments and customer expectations—responding, in its own way, to competition across the payments landscape.
As the designated administrator of the ACH network, NACHA also takes on roles related to network enforcement and risk management, drawing on informed opinions from members, researchers, and other parties to ensure the maintenance of the network. NACHA also runs the Payments Innovation Alliance, providing its members and others interested in the electronic payments landscape a place to share ideas. Often, these groups have a big impact on how changes will practically play out.
Finally, NACHA also acts as a trade organization for the payments industry. By providing education and advocacy for industry professionals, NACHA helps ensure that necessary resources reach the right people and the network can continue to evolve. In this role, NACHA also engages with financial institutions, business and government end users, and public sector organizations like the Federal Reserve and the Treasury.
In the early 1970s, a group of bankers formed the Special Committee on Paperless Entries (SCOPE) in California in order to combat the astronomical rise in checks that banks were experiencing—and, frankly, ill-equipped to deal with. SCOPE was tasked with figuring out a way to make payments electronically. SCOPE laid the foundation for the first regional ACH association in 1972, the California Automated Clearing House Network (CACH). Soon, other regional associations followed suit, and NACHA was founded in 1974, to unite CACH the Georgia Automated Clearing House Association, the Upper Midwest Automated Clearing House Association, and the New England Automated Clearing House under a single banner. Together, they formed the National Automated Clearing House Association, or NACHA, which has since then dropped its full name and only goes by the acronym. This early iteration of NACHA operated as part of the American Bankers’ Association and established rules for electronic payments that paved the way for the trillions of dollars in transactions that now occur annually.
In 1974, NACHA helped establish the first direct deposit payroll program, which occurred at the U.S. Air Force. By 1978, two financial institutions anywhere in the country could exchange funds electronically through the network.
The network continued to grow and experienced a particular boom in the early 2000s when phone- and internet-initiated transactions entered the scene. The new ease of paying through ACH, especially when making bill payments, rapidly overtook checks as a preferred means of payment. 1 billion annual transactions were made across the network in 1988—a number that had grown to 22 billion by 2013.
NACHA represents more than 10,000 financial institutions across the country, which are either members of 11 Regional Payments Associations (RPAs) that belong to NACHA or are direct members.
The 11 RPAs—which include organizations like the Mid-Atlantic Payments Association, EPCOR, and the Southern Financial Exchange—are licensed providers of ACH education, publications, and support, according to NACHA.
30 financial institutions are direct members of NACHA, a benefit which allows them to participate in the rule-making process, directly participate in the Payments Innovation Alliance, serve on the NACHA Board of Directors, and contribute to NACHA’s education and advocacy efforts. Many of the nation’s largest banks are direct members, including Bank of America, Capital One, J.P. Morgan Chase, and Wells Fargo, which is also the largest ODFI on the ACH network.
Under NACHA’s governance, the ACH network is able to move more than 20 percent of the country’s electronic payments. Many of these transactions include direct deposits, electronic bill payments, P2P and B2B transactions, and government benefit payments. In 2015, the ACH network saw more than 24 billion payments—an increase of 5.6 percent over the previous year and the second year in a row that the number of transactions grew by more than 1 billion. This suggests that the influence of the ACH network is only gaining in popularity.
In 2014, NACHA founded the Payments Innovation Alliance to further encourage industry dialogue, especially among organizations who are not financial institutions, per se, but are directly involved or interested in electronic payments and ACH. More than 200 companies, including Plaid, are members of the Alliance and support projects, research, and conversation surrounding technology trends, security, innovation, and education in the electronic payments sphere.
As it works with so many different parties, NACHA makes tangible efforts to reduce fraud. For example, one of the rules the group established requires a transaction originator to authenticate an account before initiating the transaction. NACHA specifies five ways by which to do so: microdeposits, check verification, pre-notification entry, debit card number authorization, and account verification via online banking credentials. Plaid works with businesses to encourage this fifth method, which eliminates friction in the verification process and streamlines transactions.