August 16, 2023

Modernizing ACH: How Financial Institutions Gain Efficiency, Control, and Flexibility Over a Legacy Payment System

by Kent Brown and Blake Herring in Banking Core Integration , IT Management , Payment Management 0 comments

Automated Clearing House (ACH) is a payment standard developed by Nacha, and The Federal Reserve and The Clearing House Electronic Payments Network (TCH EPN) operate compliant ACH networks in the US. Often bundled in large batch files, ACH is utilized in commonplace financial transactions in the US, such as bill payments and paychecks, due to its reliable track record. For this reason, ACH’s limitations are in the spotlight among FIs looking to transform digitally. Here, we’ll cover the pain points of ACH and what FIs can do to simplify and modernize this decades-old payment standard. 

What are the pain points of traditional ACH?

Today, FIs complete ACH transactions in one of two ways (each fraught with pitfalls):

ACH via the core vendor

One common method is to conduct ACH transactions through the FI’s core vendor, such as Fiserv or FIS. These solutions are tightly integrated with the banking core, offering a fairly reliable service. However, core-provided tools are expensive, outdated, and void of user-friendly interfaces. Moreover, these systems often lack the flexibility to accommodate APIs and other modern, agile methods for integrating transfers into the system. 

Pain points via core-provided solutions:
  • Lack of transparency – Core solutions complete transactions without informing the FI about what is taking place in the process. The transfer could be accepted, rejected, and sent back without any data to help triage the problem. 
  • Lack of control – Lack of transparency equates to a lack of control. Additionally, any data provided is limited to the format the provider has pre-formatted – not in a form that is most useful for your system. Your FI is at the mercy of your core-provided ACH solution. 
ACH via manual entry

Due to these limitations, FIs may opt to manually upload files using offerings from the Federal Reserve, like FedLine Advantage or FedLine Web. Despite its accessibility, this approach is time-consuming and laborious, with individuals needing to visually inspect and manually transfer files to the Fed multiple times throughout the day. This method is fraught with the potential for human error, risking financial loss and jeopardizing an FI’s reputation with its customers.

Pain points via manual entry:
  • Time-consuming – Staff must manually log in to a website minimum of four times daily to download and upload ACH files
  • Highly risky manual process – Threat of human error is high, and mistakes are costly
  • OFAC (Office of Foreign Assets Control) – Validation and control over the process is fixed

Fintech partners demand a modern solution

Besides the risk of human error and lack of control that traditional solutions offer, FIs also face demand for a modern ACH integration from fintech partners that follow current integration best practices, including using APIs that abstract hard-coded development work. FIs are under increasingly high pressure to demonstrate a modern integration approach to even their most legacy product offerings. Without an upgraded solution, FIs risk their business’s future.

FIs need an approach that addresses the manual and time-consuming processes currently associated with traditional ACH systems and streamlines the ACH payment process while providing enhanced flexibility and control. It needs to go beyond merely connecting to ACH to offer a comprehensive payment channel that manages the processing, workflow, and multiple integration points.

Building a modern ACH solution that’s flexible, cost-effective, and core-independent

PortX’s ACH payment solution leverages the power of our Open Banking API, spanning the gap between various financial systems and enabling seamless communication and integration with any core. This approach facilitates an automated, efficient, and flexible ACH payment system and enables payment request communication, ensuring seamless operations without being tied to a specific core. By our estimation, PortX ACH can reduce the time spent on error handling and exception by half or more. 

When users upload an ACH file, PortX parses and validates the file for format and rules compliance and conducts OFAC checks on each line item. Upon successful validation, files are pushed to the Federal Reserve via the FI’s Open Banking API connection with its core, ensuring swift and secure payment transfers while maintaining the control and flexibility the FI needs. This automation increases timeliness and reliability for any FI still handling ACH manually. It also results in fewer customer calls caused by delays in posting funds.

If you would like to learn more about PortX ACH and our commitment to providing flexible, cost-effective, and core-independent payment solutions to banks, credit unions, fintechs, and corporate customers, start a conversation with our team today. One of our ACH experts would be happy to answer questions that help your FI modernize its legacy systems.

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