What are P2P ACH Transactions?

The world of P2P ACH transactions is expanding to a whole different level. The year-on-year growth for the use of ACH technology in P2P transactions increased by 42.2% between 2019 and 2020. More and more people today rely on mobile-based P2P applications instead of cash to carry out small transactions. This is why Nacha (National Automated Clearing House – The government body responsible for managing the ACH network across the country) is enabling fintech companies to develop more robust tech for their customers.

Since March 2015, Nacha has released several mandates  that further define and secure the ACH network to increase efficiency and reduce fraud. Here, we discuss the most commonly asked questions about P2P transactions on ACH to help you understand the technology further.


What is a P2P ACH Transaction?

Person to Person (P2P) payment is the easiest way of transferring funds between two people. Usually, these payments are carried out online or through a mobile application. Most P2P networks allow funds transfer through their credit cards or individual banking accounts.

Let’s understand this with an example. 

You went out for dinner with three of your friends. At the end of the feast, the total bill was $400. So, each of you now must pay $100. Instead of all of you paying $100 each to the restaurant, you pay the entire bill with your credit card. Now, your friends can either pay you $100 each, with cash, or through a person-to-person payment transaction via a mobile application. Most of these popular applications (after initial setup) are super-easy to use. So, your friends need to simply plug your phone number (linked to your bank account) into the application to locate your account and transfer the funds. 

When this P2P transaction is carried out on the ACH technology, this is known as a P2P ACH transaction.


Why Use ACH Transactions?

ACH payments are quickly gaining more popularity because they offer several benefits over credit card transactions.

  • Lower processing fees: The processing fees incurred to send funds through the ACH network is significantly lower than all other payment methods. While these costs may seem insignificant for smaller transaction amounts, they rack up quickly as the transferred amount increases. 
  • Easier recurring payments: The auto-debit function of the ACH technology makes it popular amongst users who need to carry out bill payments on a fixed schedule. Users who need to pay weekly/monthly for subscription services can use ACH to pay their bills automatically. 
  • Fast Processing: ACH payment solutions are known for being notoriously slower than the credit card network. However, with technological advancements, Nacha is constantly refining the network. The banks that took 3-4 days previously for ACH transfers now offer same-day or next-day transfer services with the most robust network.
  • Cash Discount: Paying via ACH solutions is lucrative for consumers since they can get the benefits of a cash discount program without using cash.

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P2P Transactions for Business Owners

Financial institutions and business owners can also leverage P2P transactions to collect payments from their customers. Before adopting instant payments to receive and send funds, business owners, banks, and credit unions can launch a survey with their customers to see if they would be interested in such services. 

If you are a credit union, you must start reimagining P2P transfers now. Studies show that millennials and the younger generations prefer mobile technology for real-time transactions. If you do not act fast, these mobile applications and service providers may take over your business very soon. As a business owner, you can get an edge over your competitors by adopting P2P transaction services to attract more customers. You can attract people who prefer mobile applications over cash, checks, or credit card payments.

Don’t know where to start? Get in touch with the experts to understand the world of payment processing via ACH and credit cards. Schedule a call with one of our relationship managers to stay on top of the latest Nacha rules and enable high-tech payment methods for your business. 

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Date originally published: January 17, 2022

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