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Payment Processing percentage network cost associated with ACH fees. Sure,
there is risk, and processors do need to price for that risk.
via ACH But the pricing differential within the marketplace for
ACH is many times greater than it is for credit cards.

By Ken Musante Cradle to grave
Napa Payments and Consulting The National Automated Clearing House Association,
now known simply as Nacha, was formed in 1974
CH processing is distinct from card process- to coordinate ACH movement nationwide from the
ing in many ways and often misunderstood by patchwork of ACH associations. The first ACH format was
card processing professionals. ACH process- created in 1975: the Prearranged Payment and Deposit
A ing can be lucrative and beneficial for many (PPD). My favorite application was implemented in 1982.
merchant types, but it's important to understand how it The Death Notification Entry (DNE) was adopted to allow
differs from credit card processing. In part, because ACH the government to notify financial institutions that the
processing is not as well understood, the pricing disparity recipient of a government benefit payment had died.
for ACH is many times greater than it is for credit card
processing. Same Day ACH for credits came in 2016. Same Day ACH
debits followed the next year. Though the cost for Same
Big picture Day ACH is many multiples higher than standard ACH
transactions, it is still far less than credit card transactions.
Similar to credit card processing, ACH processing is
a four-party system with an originating depository Like with Visa and Mastercard, Nacha maintains a
financial institution (ODFI) and a receiving depository negative database, called the Terminated Originator
financial institution (RDFI). (See the image accompanying Database (TOD). TOD provides a mechanism for ODFIs to
this article, which was created by Nacha, www.nacha.org/ share information regarding "for cause" terminations and
content/how-ach-payments-work.) is an additional tool for ODFIs to use when underwriting
merchants and third parties.

It can also be used during periodic reviews to validate
that their client has not been closed for cause by another
ODFI. Unlike with Visa and Mastercard, however, use of
the TOD for either merchant adjudication or monitoring
is optional.
Authorization

A main drawback for ACH transactions is there is no
authorization mechanism through which funds may be
authenticated and held. If car rental agencies utilized
ACH, they would be trusting those funds to be available
when the client returned.

NACHA has instituted micro-entries as a method for
account verification whereby small denomination debit
and credit entries are simultaneously sent with the
company entry description, ACCTVERIFY. A host of
From a merchant’s perspective, ACH fees should be far third-party verification companies have also attempted to
lower than credit card fees. ACH costs are based on the compensate for the authorization deficiency.
number of items, not the value of the item, so it can be
incredibly inexpensive for larger dollar transactions. Vendor selection should be based upon validation for
a particular use case, but ideally the solution should
Credit card interchange is typically priced with both a authenticate the account, validate the user is associated
percentage and a transaction fee: 2.20 percent plus $0.10, with the account, and provide a risk score that the
for example; then there are the 0.14 percent assessments validated user would be likely to engage in the specific
(for additional credit card cost information, see this transaction.
article: www.greensheet.com/emagazine.php?article_id=7537).
Unlike with credit card transactions, ACH transactions for
ACH on the other hand has no such percentage fee. Many consumers fall under Regulation E. Because Nacha rules
vendors charge a percentage, but there is no corresponding are typically more onerous than Regulation E, as long as
entities are following Nacha rules, they will typically also
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