It's the back end of your debit card, more or less. Think about ACH as a kind of secure method in which money gets emailed or file transferred from one database record to another in a secure fashion.
Most companies who actually pay their employees use ACH for direct deposit bi-monthly payments. If you have automatic payments from your bank, it's likely that the ACH network is pinged for each of those transactions. The world's key financial institutions have all agreed to conform to the ACH network standards, such that they can talk to each other from their financial vaults, AKA databases.
In managing an ACH network, the cost of transferring money from one database record to another within the network is almost nothing. This is in stark contrast to the method in which credit card payments are made, where there is credit risk and other elements that make their per transaction fees (painfully) much higher.
One note: ACH is not pronounced like you're clearing a hairball, or reading a Cathy cartoon. Just say the letters.
Related or Semi-related Video
Finance: How Do Credit Card Companies Wo...115 Views
finance a la shmoop. how do credit card companies work? you could write a
book on this but don't. it'll hurt instead think about a credit card [man carries huge book and grimaces]
company is kind of twisted moneylender who really makes money in two ways.
well first they make money from the people who take your credit cards like
when you use your credit card to lovingly pay shmoop 20 bucks a month for our
awesome content. thank you very much. that $20 charge carries about a 1% hit. from
the credit card company that is the hard-working elves here at shmoop only
keep about nineteen dollars and 80 cents from that twenty you just paid. credit [equation]
card companies need to pay for their jets right? well that one transaction was
just 20 cents but there are gujilion's of them so the dough adds up to billions
and billions really fast. unless do you think the job of being a credit card
company is easy, note that every few thousand transactions is done by some
bad actor like no different kind of bad actor. you know meaning of theif someone
behaving badly they've stolen your card and if race to Best Buy [man runs out of store carrying TV]
hoping to abscond with ten flat screens to sell on the street corner and make a
fast buck. while the credit card company is generally responsible for those
frauds against mankind and have to hunt down the bad guys .so that's one way
they make money. the other way credit card companies get paid is that they get
money from consumers who use them either directly or indirectly directly. means
something like an annual fee. and then there are charges well you know that is
if you don't pay off your credit card bill each month you carry what is called [credit card rates listed]
a balance. and on those amounts you pay huge interest. like for many buyers on
credit the fee is 15 to 20 percent per year these days and sometimes more. so if
you bought a thousand dollar television set with your 20% credit card and didn't
pay it off for three years you'd have paid $200 a year in interest for three
years or $600. do you think Visa Mastercard or Amex pay 20% interest for
the money they borrow to lend to you? hardly they pay very very low interest
rates like just a few percent in there so on the [visa employees pictured]
20% they charge you an interest to punish you for not paying off your
credit card their cost is more like 2% I either making like an 18% spread or
profit margin on that money. the 600 bucks you paid for renting the grand for
3 years from the kindly loving people at visa
Oh made visa over 500 bucks on that money nice. work if you can get it and [equation]
you know a really nice jet.
Up Next
What is PayPal? Wire us $20 to our PayPal account and we’ll tell you. Or just watch this video.
What are Credit Scores and Worthiness? One of the most ubiquitous ways that digital society now dictates our lives is with business and personal cr...
What is the Fair Credit Reporting Act? The Fair Credit Reporting Act that governs credit reporting agencies and all activities that occur involving...
What is a line of credit? A line of credit is kind of like a loan. A bank gives a borrower a line of credit, which basically says they can borrow â...