Article

ACH payments: Changes and opportunities in government

Jeff DeLong, Director of Vertical Growth for Government, Utilities and Telco at Worldpay from FIS

February 23, 2022

ACH payments have been with us since the 1970s, starting life as an electronic alternative to paper checks. As technology has advanced, ACH payments have evolved with it, helping ACH to remain a popular payment method.1 In fact, ACH use is still growing today.2

Governments, from local to federal, rely on ACH to make and receive payments in a fast, cost-effective manner. As ACH payments continue to develop, they open up new opportunities for governments across the U.S.

What are ACH payments?

An ACH (automated clearing house) transfer facilitates the moving of funds from one bank account to another. They can be used to send or “pull” funds, which makes them useful for paying vendors or depositing paychecks and other payments directly into checking accounts.

One of the reasons this payment method is so popular is that rules enforced by the governing body, Nacha, ensure payment via ACH is very safe, and secure.3 Plus, ACH payments are often cheaper than wire transfers, as they do not require a paper checkbook or interchange fees. They are usually recommended as an ideal option for repeat high-volume, low-dollar transactions.

Evolution of ACH payments

The ACH network proved a lifeline throughout the pandemic, allowing payments to be transferred quickly and securely among American consumers, businesses, and governments, while minimizing face-to-face contact.

Even when lockdowns were lifted, ACH usage remained stable. In the second quarter of 2021, 7.3 billion payments were made using the ACH network, representing an increase of 24.6% compared to the same time in 2020. 2

“ACH payments are the most preferred method of receipt for the government for large payments like taxes, because they are cheap, fast and designed to be secure.”

Jeff DeLong, Director of Vertical Growth for Government, Utilities and Telco at Worldpay

To ensure the ACH network continues to serve users’ needs, improvements were put in place on March 19, 2021. Explicit account validation is now a requirement for transfers, which should help to minimize fraud.4 This change to account validation could also save time for staff and customers, due to fewer payment failures.5

New, expanded Same Day ACH rules also made effective in March 2021, have opened up a wider window for same-day transfers, cutting down overall payment transfer time.6

Benefits of ACH for government

The value of ACH payments to state and local governments is high. The security standards and validation that underpin ACH transfers means that both government employees and members of the public can feel more confident that their money will land in the right hands.

According to Nacha, direct deposit via the ACH network is already used by government and the public for:7

  • 99.5% of federal salaries
  • 99% of social security benefits
  • 90% of tax refunds
  • 86% of child tax credit payments
  • 79% of economic impact payments

But there are still opportunities to expand ACH use within government. For example, ACH payments offer plenty of automation potential. They could be particularly valuable for paying regular invoices, contractors or third-party vendors.

Perhaps most importantly, it’s easy to enroll in the ACH network, easy to transfer and easy to access. ACH transfers could be a powerful, time-saving and cost-effective tool, particularly for small government bodies.

ACH from FIS Global

FIS Global offers ACH processes designed to be secure and reliable for a wide variety of institutions and could be the ideal provider for state and local governments looking to take advantage of the network. We place an emphasis on keeping those transactions as safe, compliant and efficient as possible, and we can enable same-day payments.

FIS Global is a name you may not be familiar with, but we are an essential component of the financial industry today. One or more of our products touches almost every financial transaction conducted by a government entity, merchant, bank, investor or the public. Simply stated, if you have used Apple Pay, Zelle Pay, conducted a bank transaction, taken out a loan, invested, or made a payment of any kind, FIS’ technology most likely served you.

For more information on FIS Global’s ACH offering, visit
https://www.fisglobal.com/en-gb/banking-solutions/payments/card-issuing-and-processing/ach-processing

[References]

1 Nacha (2019) History of Nacha and the ACH Network [Accessed 14/12/21]
https://www.nacha.org/content/history-nacha-and-ach-network

2 Nacha (2021) Strong Growth Continues for ACH Network as Volume Climbs Nearly 10% in Second Quarter of 2021 [Accessed 14/12/21]
https://www.nacha.org/news/strong-growth-continues-ach-network-volume-climbs-nearly-10-second-quarter-2021

3 Nacha (2021) Rules & Enforcement [Accessed 14/12/21]
https://www.nacha.org/content/rules-enforcement

4 Nacha (2021) Supplementing Fraud Detection Standards for WEB Debits [Accessed 14/12/21]
https://www.nacha.org/rules/supplementing-fraud-detection-standards-web-debits

5 PDCflow (2021) ACH Payment Processing Rule Change 2021: WEB Transaction Account Verification [Accessed 14/12/21]
https://www.pdcflow.com/ach-payments/ach-payment-processing-rule-change-2021-web-transaction-account-verification/

6 Nacha (2021) Expanding Same Day ACH [Accessed 14/12/21]
https://www.nacha.org/rules/expanding-same-day-ach

7 Nacha (2021) Government Affairs [Accessed 14/12/21]
https://www.nacha.org/content/government-affairs