International ACH Slow to Catch On

International ACH Slow to Catch On

Reasons International ACH Transactions are Lagging

Two years after the passage of the International ACH Transaction (IAT) code, most businesses are not using the service due to three main reasons:

  • Complying with the IAT rules is an added expense.  These days, businesses are focused on decreasing costs.
  • IAT requires companies to implement technology and process changes in order to conform with file format and data transmission standards.
  • Banks have been slow to modify systems and procedures for IAT transactions so companies have little guidance for implementation.

According to NACHA, IAT ACH transactions increased 520% to 9.53 million from 1.54 million transactions in Q3 from the same period in the prior year.

History of International ACH

NACHA, the electronic payments association governing ACH standards in the US, amended its operating rules to include IAT in September, 2009.  From that point, international payments made through the ACH network had to be identified as IAT transactions. 

This change affected all parties in the payments hierarchy, including corporate treasuries, financial institutions, third-party financial software vendors, and payment service providers.

According to a survey conducted by Logica, most US companies are not ready to send or receive IAT – only 36% are live, 14% are in the implementation stage, 39% have a business case in development and 11% are in the review or selection process of technology providers.

International ACH Regulators

Under the NACHA regulations, IAT entries are subject to the US Department of Treasury Office of Foreign Assets Control (OFAC) screening. NACHA implemented the rules in response to OFAC and anti-money laundering (AML) issues associated with previously-used codes which were unable to be checked against the OFAC Specifically Designated Nationals list (SDN).

The goal of the IAT rule change was to be sure that US organizations were not doing business with blocked entities or banned countries.

IAT payments must include specific data elements defined by the Bank Secrecy Act ’s (BSA) Travel Rule.  The file format must include a detailed record and at least seven addenda records needed for compliance with the BSA Travel Rule. 

These include information about the originator, receiver, beneficiary, and all domestic and foreign banks involved in a transaction. The format is similar to data requirements for wire transactions and are compatible with global formats such as SWIFT and ISO 20022.

Penalties Associated with Non-Compliance

There are civil and criminal penalties associated with non-compliance to IAT rules.  These include jail sentences and fines ranging from $10,000 to $10,000,000 per occurrence by OFAC.  Fines up to $500,000 per month in NACHA rule violations can also be imposed.

It’s often complex to determine whether a transaction is domestic or international.   Whether a transaction is considered an IAT or a domestic transaction is based on the location of the financial institution involved in the processing and settlement of the transaction as well as the location and status of the final beneficiary.


International ACH transfers, while slow to take off, are sure to grow over the coming years.  Regulatory compliance has been one of the main reasons for the laggard growth.

The regulations that govern international ACH transactions are becoming wide-spread across the entire banking sector. AML and OFAC regulations have decreased financial institutions’ tolerance for risk. Regulatory compliance, especially as it relates to international money transfer, is not going away anytime soon.  

Still, there are some companies that may benefit from the effort required to process international ACH transactions. It’s always worthwhile to investigate all of your options.

Are you interested in exploring international ACH for your business?

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ACH Payments on the Rise

ffaab3a6-6cd7-4b14-9ac2-7922cf2f2a70 The growth of ACH payments for electronic bill payment continues.  As paper check writing declines, ACH payments are on the rise.

NACHA released its report for Q4 2011 ACH transactions.  WEB entry classifications for online bill payments rose 6.9% to 685.9 million transactions, compared to 641.5 million for the same quarter of 2010.  WEB transactions are usually payments from biller websites or made through a third party processor.

Consumer entry bill pay (CIE) increased 11.2%, with growth to 40.6 million transctions compared to 36.5 million for the previous year.  CIEs are credit transactions made through an online banking portal.  CIEs include Secure Vault Payments and EBIDS bill payment services.  EBIDS generated 19 million new ACH transactions in 2011.  EBIDS was launched commercially in February of 2011.

Secure Vault Payments, a payment method that allows consumers to “push” payments to merchants through online banking sites, continues to add new bank partners.  About 40 banks offer Secure Vault Payments now, including Regions Financial Corp, U.S. Bancorp, PNC Financial Services Group Inc., Union Bank of California, and many other smaller regional banks.

Secure Vault should be adding more banks to the platform later this year.  eWise, the technology operator for the switch, is enhancing the platform to make it easier for banks to participate without the need for the banks to pay for developmental and operational expenses

WEB and CIE codes are projected to grow to  3 billion yearly.  At the same time, accounts receivable conversion (ARC) transactions, which convert paper checks to electronic transactions, continues to shrink.  ARC transactions slid 9.7% to 484.8 million transactions compared to 536.8 million in Q 4 2010.

Telephone (TEL) transactions increased slightly with gains of 0.7% in Q 4 211.  There were 92.9 million TEL transactions compared to 92.3 million the previous year.

Back-office conversion (BOC) volume grew 7.6% to 55.1 million transactions compared to 51.2 million in Q4 2010.  Point of purchase (POP) classifications dropped 7.6% to 126.9  million transactions form 137.4 million the year before.  The drop in POP indicates that fewer consumers are writing checks to pay for retail purchases.


Speeding up ACH Processing

Same Day Settlements Approved Yet Few Banks Participate

Federal Reserve same day settlement for ACH transactions has been available for over a year.  However, very few banks have chosen to participate, making it extremely difficult for merchants to take advantage of quicker clearing of ACH payments.

The Electronics Payments Association, the governing body for for ACH payments, is now creating a new system for faster payment processing.  The proposed Expedited Processing and Settlement system (EPS) will go into effect on March 15, 2013, if it is approved by the members of the association. Approval will require the affirmative votes of two-thirds of the membership.

Banks Need to Jump Onboard

It’s obvious that banks and the ACH network must do something to speed up clearing of transactions.  We live in a real time world.  In order to stay competitive, the ACH system must find a way to modernize itself.

Banks no longer have the luxury of processing at their leisure.  Banks have to realize that paper checks are not the competition for electronic funds transfer.

Other methods of accepting payments are already significantly faster than ACH.  And allow merchants to ship goods without waiting a to be sure a check clears.


Banks are facing new competition from new systems that give consumers and merchants’ ways to accept payments quickly and without unnecessary risk.  EPS is a step in the right direction.  It will force banks to step up to the plate and provide real-time payment processing for those of us that live in the real world.

Interested in how ACH payments can help you increase sales & profits?

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Overview of ACH Payments

What are ACH Payments?

For over 40 years, ACH payments have been used for electronic funds transfer in the US. 

The ACH network began mainly as a way to pay large number of people with direct deposits from the federal government for benefit payments (such as Social Security) and for corporate payroll.  ACH credits were the primary use of the network

As ACH became popularized, use expanded to include one time and recurring payments as well as for ACH debits initiated on the web or by phone. 

ACH payment formats allow information about the payment to be transmitted along with the transaction, creating efficiencies for senders and receivers.  

According to the Federal Reserve, ACH makes up 18% of noncash retail payments (and 51% of their value)  The combination of low cost and information sent with payments has made ACH a crucial component for back-office settlement in many payment systems.

Pros & Cons of ACH Processing

Although the ACH system is highly effective, safe, and inexpensive, it does have certain drawbacks for internet merchants.  One of the biggest issues for online merchants is that the system is batch, not “real time”.

ACH transactions clear through the Federal Reserve at midnight, rather than when the actual sale is made.  This introduces an element of risk as, an echeck can “bounce” in the same way as a paper check can.

Because of the batch nature of ACH processing, merchants often wait a few days to ship a product to be sure the echeck has cleared and there are no returns. 

Low ticket items, such as digital or virtual goods, often require immediate fulfillment.  In these cases merchants frequently will go ahead and deliver the product digitally.  Because, even if the transaction bounces, the loss can easily be absorbed.


The ACH network is one of the oldest and most reliable electronic payment systems in the world. Millions of Americans regularly purchase goods and services through ACH. 

When you accept echecks, you capture sales from shoppers that don’t have cards. And from buyers that are maxed out on cards. And many US consumers simply prefer to pay with an electronic check rather than a card.

Interested in ACH payment processing?

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