While easy payment apps may be a relatively new trend, the technology that powers them has most likely been in your life for quite some time. The ACH (Automated Clearing House) network facilitates payments to pass between depository institutions, like banks. It’s the same technology that enables direct deposit for paychecks. NACHA is the entity that sets and enforces the rules that govern ACH payments, ACH Debits, ACH Credits.
What is NACHA?
NACHA stands for National Automated Clearing House Association. They oversee guidelines regarding electronic payments in the United States. Whether it’s a transfer of funds from financial institution to financial institution, or a cutting edge solution provided by a fintech, the movement of money is made possible by ACH payments. We at Envestnet | Yodlee were proud to be named a NACHA-preferred provider in Summer 2019. Our partnership solidifies our commitment to safe, fast and robust payment systems.
What's the difference between ACH and NACHA?
The ACH Network is at the center of moving payments between bank accounts. That network is overseen by NACHA, which operates the set of rules that govern financial institutions and fintechs as they set up their own unique solution that transfers funds. NACHA does not operate the physical electronic payment network itself. ACH operators (The Federal Reserve and the clearing house) take responsibility for that.
Why is NACHA important?
NACHA is becoming increasingly vital to the financial system. As ACH payment systems become a staple of how businesses and consumers operate, NACHA’s role will only grow larger. In 2019, the ACH network was responsible for moving $55.8 trillion. With so much at stake and that number certain to rise in the coming years, it’s important that the standards keep up with the pace of change. NACHA’s oversight contributed to the establishment of “Same Day ACH” leading to faster payments. For consumers in desperate need of an insurance claim or businesses requiring a last-minute emergency payroll, an efficient ACH is essential.
NACHA Operating Rules – For Both Now and the Future
- NACHA Has Very Specific Operating Rules
We here at Envestnet | Yodlee are in lock step with the security measures that NACHA institutes to protect consumer data. It’s all part of being a NACHA-preferred provider. One vital requirement that NACHA enforces is account validation to ensure the validity of a source account and help mitigate fraud. NACHA does this in a variety of ways including unique NACHA file formats, which have increased in popularity in recent years as ACH payments become more common.
- NACHA File Formats Can Be Complicated
NACHA files are uploaded to bank portals to execute payments, often in mass quantities. For risk management and security purposes, NACHA operating rules require these files to have a specialized NACHA file format.
Creating a NACHA files can be a complicated task and many banking software organizations are working to simplify this process. Envestnet | Yodlee's financial data APIs can help facilitate the process.
- Faster payments are the future
The explosion of demand for payment solutions has inspired NACHA to launch their own Faster Payments Playbook, in order to help financial institutions and fintechs develop and deliver faster payment strategies.
Coupling the advice of NACHA with Envestnet | Yodlee APIs can help take payment solutions to the next level by supercharging the end-user experience, while ramping up account verification and overall fraud protection.
Preparing for NACHA’s March 2021 Rule
NACHA will take a massive step toward bolstering fraud protection next year. Starting in March 2021, businesses that debit funds from ACH payments will require account validation to protect against phony accounts and keep customers safe.
This is an important step in the right direction, but will also require payment providers to take steps to ensure they abide by new rules. Envestnet | Yodlee services help power solutions while ensuring the correct guidelines are in place. When implemented correctly, account validation takes only seconds to confirm an account number, routing number, balance and holder. Importantly, there is no major impact on user experiences.