What is an ACH payment gateway?

on Mar5
ACH payment gateway
Written by
James Davis
Written by James Davis
Senior Technical Writer at United Thinkers
Author of the Paylosophy blog, a veteran writer, and a stock analyst with extensive knowledge and experience in the financial services industry that allows me to cover the latest payment industry news, developments, and insights. Read more
ACH payment gateway
Reviewed by
Kathrine Pensatori
Product Specialist at United Thinkers
Product specialist with more than 10 years of experience in the Payment Processing Industry. I help payment facilitators and PSPs solve their various payment processing issues. Read more

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.

What is the difference between ACH and credit card transaction processing?

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.

What is a lifetime of an ACH transaction?

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.

What is an ACH return and how should it be handled?

An ACH return is a rejection of an ACH transaction due to insufficient funds on the account or for some other reasons. 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.

What is the role of ACH reserves in ACH payment processing?

ACH reserves represent one of the ACH fraud protection mechanisms. ACH reserve is a certain amount withheld by a PSP\underwriter 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 can be found here.

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