From a previous post we have already covered exactly what an ACH is and the raw flow between a business and the banks. So what is Processing of ACH Payments? First let's quickly re-examine the role the banks play; specifically as it relates to technology. NACHA governs the ACH network, including providing the specific NACHA file format that banks must use when submitting batch files to one of the ACH operators. If there were no improvements that could be made anywhere in the process, there would be little need for Third Party ACH Processors (TPP).
So what is a TPP and do you need one? Legitimate TPP's provide technologies in the way of API integrations and provide connectivity to other services that can mitigate risks when performing ACH originations. Top tier TPP's have robust infrastructure that includes multi-site geographically diverse hosting redundancy. The best provide a secure system that runs within a certified PCI compliant system. Some have developed and maintain scrubbing databases that keep up with bank acquisitions and mergers, reducing the number of returned items. Some TPP's can call databases for live bank account information, ascertaining whether an account is open or closed, has funds in it, and, in some cases are able to match account ownership names with data that has been provided. A good TPP has developed their own processing engine to meet specific needs of business clients. To use a simple example, a TPP might have a recurring engine that is called via an API, data is transmitted to the transaction engine once, including a recurring schedule, and there is no further need to submit data to the TPP unless a change or cancellation occurs. Contrast that with having to create a NACHA file every month for all customers on a recurring schedule and uploading it. Not only can the file creation become a burden, but there's no automated way for receiving and posting reporting data.
Some businesses such as SaaS have a vertical client base that would use the application to bill and originate ACH transactions for their customers. In such a case there will be many business users of an application that will require their own separate ACH merchant account in order to originate transactions. Via API integration, a client company of the SaaS application can be issues credentials from the TPP where they are entered into the SaaS system and allowed to process and utilize all the extended processing functionality the application developers integrated to. In some cases a SaaS business will prefer to have the entire ACH processing functionality that they integrated to be white labeled. In other words, they want to appear as the organization that is providing the processing. There can be varying degrees of white labeling - it depends on the risk acceptance levels and knowledge of the SaaS provider, support burden levels and whether there is a need for application API integration, allowing new clients to be underwritten and boarded through the SaaS company's website.
A few other areas a TPP differs from a bank is in customer service and underwriting. TPP's are not experts at banking, just as banks aren't experts at ACH Processing. TPP's don't usually rely on compensating balances. Therefore they must funnel companies through an underwriting process, learning the business itself, products or services and the people involved. A good TPP will have dedicated customer support representatives and integration IT staff in order to assist client companies with all their ACH processing needs.
In short, ACH processing is a process that can involve a number of technologies or third party services to assist with a merchant company's needs. Pick one with a long standing reputation that doesn't put their clients at risk by way of accepting high risk clients. A litmus test is the underwriting process itself and how thorough a prospective client is examined.
What processing functionality would you like to have available to your ACH processing needs?