What Are ACH Payments, and Why Is ACH Data Important?

National Automated Clearing House Association (Nacha) reports that 93 percent of U.S. workers use direct deposit to get paid. The majority of Americans use this electronic payment method for business and personal use because it is quick, efficient, and reliable. A bonus is that there aren’t any additional fees to receive money, unlike using PayPal. Let’s look at what ACH payments are and why this data is important.  

How Do ACH Payments Work? 

The Automated Clearing House (ACH) refers to a nationwide network that allows U.S. financial organizations to send each other credit and debit transfers. ACH is regulated by Nacha and enables businesses and individuals to send and receive direct deposits and direct payments via electronic funds transfer (EFT). This process works by transferring money between the payer’s and payee’s bank accounts. The ACH network uses a batch processing system in which financial institutions use the network to gather ACH transactions for processing, which typically occur three times each business day. Everyday use cases for ACH include recurring and one-time payments, which can be quicker and safer than paper checks, wire transfers, credit cards, or debit cards.

 

There are a wide variety of ACH payments, which include: 

• Direct deposit paid from an employer to employees 
• Direct payment via ACH transactions 
• eChecks 
• IRS tax payments 
• One-time payments (e.g., weekly paycheck, bonuses, or salary)
• Paying bills online via a checking account
• Recurring payments (e.g., for a mortgage, car loan, or student loan) 
• Transferring funds between different accounts 

Types of ACH Payments 

There are two main types of ACH payments – direct deposit and direct payment.  

Direct Deposit 

Direct deposit is a fast, secure, and popular method to receive electronic payments from an organization to an individual. People can access their money quickly and avoid any pesky fees to receive their pay. This payment method can also be used to receive refunds from a business.  

Additionally, split deposit is a common method that employees can use to receive a fixed amount of their pay into a different account for each pay period. For example, an employee may want 90 percent of their paycheck to go into a checking account and the remaining 10 percent deposited into a retirement or savings account.  

 

Examples of ACH Direct Deposits: 

• Annuity payments 
• Employer-reimbursed expenses
• Interest payments (e.g., from loans or credit cards)
• Paychecks 
• Tax refunds 

Direct Payment 

Direct payment is the electronic transfer of funds to make ACH payments. This payment method enables customers to pay for bills and loans, make donations, purchase goods and services, and send money to others via a checking or savings account. Indeed, everyone from businesses and non-profits organizations to individuals and governments can utilize ACH credit or debit to send direct payments. Direct payments will send funds to another bank account via a bank or credit union for ACH credit. As for ACH debit, these funds will automatically be taken from a bank account for recurring payments, such as to pay monthly subscriptions or utility bills. 

 

Examples of ACH Direct Payments: 

• Sending money to a friend or family member 
• Paying for a product purchased online
• Donating to a favorite local charity 

Is ACH the Same As a Direct Deposit? 

In short, no. Direct deposit is a payment method made through the ACH network. This method refers to transferring funds from one bank account to another, such as payroll, job benefits, and tax refunds. Thus, ACH and direct deposit do not mean the same thing but rather describe the financial network used to process these bank-to-bank transfers, such as for direct deposit. 

How to Secure ACH Payment Data 

Nacha requires those participating in the ACH process to use best practices to secure sensitive ACH data (or Protected Information) and use access restrictions to protect this payment information further. This Protected Information refers to sensitive financial like primary account numbers (PANs) and non-financial information, such as driver’s license numbers. 

 

Security Best Practices: 

• Maintain privacy policies that include ACH data
• Store sensitive information in a secure manner
• Use strong passwords
• Protect physical and electronic documents with encryption or data masking
• Restrict access to ACH data 
• Limit the number of locations where this data is stored 
• Provide monthly staff training to maintain internal security 
• Stay up to date with the latest changes to Nacha data security requirements 
• Implement layered security solutions to prevent data from being compromised, like tokenization or encryption 

How Can Payment Tokenization Help Protect ACH Data? 

Payment tokenization replaces sensitive data like ACH data with randomly generated sets of numbers known as tokens. ACH data includes bank account numbers, bank names, and addresses. To secure customers’ payment information, tokens do not contain sensitive information that could be compromised due to a data breach. Tokens can be stored and accessed in a financial organization’s internal systems, while the original data is kept in a secure external environment.

Unlike encryption, tokenization produces tokens that are unique and irreversible. Since tokens do not directly relate to the original data, tokens cannot be reverted to the original form. Even if an organization suffers from breach, the sensitive data will not be compromised due to payment tokenization. This will help prevent the business from experiencing lawsuits and fines. If you’re interested in learning more about ACH data or payment tokenization, contact one of our TokenEx experts today. We would love to meet you and discover how we can help secure your sensitive data, enable your most critical business processes, and protect your payment data from breach.