The Automated Clearing House System is Fighting for its Life

Before many smartphone-based mobile payments systems, long before bitcoin, and just a couple decades after the first appearance of a credit card, the Automated Clearing House (ACH) system offered a means to allow businesses to directly deposit workers’ paychecks in banks, essentially working as a mobile payment system of sorts from businesses to individual employees.

This long-standing system, however, is coming under fire from more advanced technologies, and is currently in the fight of its life, and potentially for its life.

The ACH system has been operating since 1974, making it not only older than me, but also many of my readers. Conceived as a way to turn paper checks into electronic impulses to transfer to banks—almost like a fax machine for payroll functions—it was highly advanced for its time.

Like so many others, however, it fell apart somewhat against more modern methods, and its multi-day lag between payment and settlement makes it aggravating for business users, and an outright impossibility for retail use.

The good news here is that ACH has seen that it’s on the block, at least somewhat, and has stepped up its offerings to bring out “same-day ACH,” which, as the name implies, can move a lot faster than the original.

It’s geared primarily to business-to-business users, but there will be a retail version on hand for business-to-consumer users with ACH Debit later on.

The bad news is that there are already other options out there to face down ACH in any form, as prepaid cards and mobile payment tools are demonstrating great capability and security.

Thus we’re left with something of a problem; other technologies are rapidly eating ACH’s lunch, and ACH is going to have something of a tough proposition on its hands, trying to convince users of its value in a market with a lot of changing technology breeds on hand.

While ACH has certainly been a market powerhouse for decades, it’s facing a much less hospitable business climate than it’s ever seen before.

ACH is going to have its work cut out for it to stay in its current market position. There’s too much working against it and not much in its favor right now, but if it can work against its technological handicap, it may be able to use its name recognition to hold its position.