Maybe calling ACH bad isn’t a very nice thing to do, but there is an interesting symptom that is caused by using ACH that doesn’t fit with our modern world… time.
On average it takes three to seven business days for an ACH to clear. The key is business day. The ACH system, which stands for Automated Clearing House, doesn’t work on weekend and has most financial institutions that use the system has certain hours like 3pm where they cut off transaction for that day. Point towards the “bad” the ACH systems takes a lot of time to process.
In my initial statement the system doesn’t match with the modern world… Our lives are now used to real-time. If I want money transferred from one bank to another it can take up to five days to do that. Someone has the money for five days and it’s not me.
Follow The Process
I have always coached people that if you want to understand why something is the way it is… follow the process back to it original intent and that initial intent will explain why it exist. The ACH systems original intent was to help bank clear check in a faster and more efficient way.
In the late sixties – early seventies the primary mode of payment (especially through the mail) was check. When a check was received by a company, that company deposited it and the bank that received it had to give it to the issuing bank to make sure the funds were there. This required banks that weren’t geographically located in the same place to fly bags of checks and meet in secure location to exchange those bags of checks (I hope they had a code word they needed to use). The ACH system was created to digitize check information on a magnetic tape and the tapes were then transferred instead of the bags. The system improved over time to what it is today but the challenge is the system is built on very old technology in the programming language Cobol.
In 2012 the ACH system processed $36.9 Trillion dollars in transaction. The banking community that runs and oversees the system recently voted to update the system but the vote did not pass, mostly because the governance needs a super majority of seventy-five percent to change. The nays said that speed up the system could open it to fraud and misapplied transactions.
There will be a better way. ACH and electronic payments are ripe for suitable alternative like a credit card company, Bitcoins or a non-bank payment exchange. Whatever it is…. I can’t wait to find it!
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