Some payment gateways allow you to process both credit card transactions and ACH transactions.
An ACH payment gateway is a kind of payment gateway that allows to process ACH transactions. Usually it connects to various banks or ACH processing networks to provide access to all of its financial institutions for its merchants.
We should stress, that ACH transactions do not involve payment cards – just bank accounts, so credit card transaction processing is usually performed by credit card processors/acquirers, while ACH transaction processing is, mostly, handled by banks. However, in today’s merchant services industry there are payment gateways, allowing merchants to process both credit card and ACH transactions through one and the same API.
The basic lifecycle of an ACH transaction is as follows. ACH transaction file is submitted to the bank, which, usually, forwards it to Federal Reserve, which funds a 1005 of transactions in the file. Subsequently the Federal Reserve will dispatch a request to respective banks to complete money transfers.
Thank you for clarifying these things for me. So, are there some ACH-specific risks I should know about?
Well, the unpleasant thing, associated with ACH transaction processing is ACH returns and related ACH fraud.
An ACH return is a rejection of an ACH transaction due to insufficient funds on the account or for some other reasons (complete list of ACH return codes can be found here). If at the stage, when Federal Reserve requests money from the bank, it turns out that the transaction cannot be processed, since Federal Reserve has already funded the respective merchant, it takes the money back from the bank, while the bank takes it back from the merchant. Verification of availability of funds on the account can take up to two months, during which ACH fraud can occur. Consequently, the best way to deal with ACH returns is to avoid them, i.e. check whether all the information necessary for ACH payment processing is up-to-date, whether account is not included into some blacklist, whether the account (or IP) does not come from some high-risk location, etc.
One of the key ACH fraud protection mechanisms is ACH reserve. An ACH reserve is a certain amount withheld by a PSPunderwriter from deposit of a merchant (fixed amount or percentage of ACH transactions, processed by its sub-merchants) to protect its business from potential ACH-returns.
More information on the subject can be found in the respective articles on ACH returns and merchant services reserves on this blog.