It is no longer like the old days, waiting weeks for a check to clear before a merchant would ship your purchase. Or waiting for the occasional laggard to ship your check to your bank and the funds removed from your account, which at times took a month. California banks and merchants figured they had enough and the banks and the regional Federal Reserve established a paperless check transaction process. This was both becoming a necessity because of the number of checks being processed and possible because of computers (remember Silicon Valley is in California) and their capacity to do things more efficiently and at the speed of light, and the software that made the communications secure from the bad guys who would want to pay for their lifestyles without working for the money to cover their expenses. Oh yes, and there was an Internet that had been devised and the bugs worked out of it to allow this all to happen electronically. So in 1972 they established a network that processed checks electronically and called it Automated Clearing House—a name created from regular banking terms. The banks Clearing House already existed, when they stepped up a level of complexity and efficiency the term automated was added. The success of this spread and in 1974 the National Automated Clearing House Association was created to establish rules and procedures and set about to coordinate the creating of a national ACH network, which they did in 1978. Since then all of the local ACH networks nationwide were electronically connected. Though there is a network of regional ACH organizations, thousands of financial institutions, and industry councils, and is overseen by the National Automated Clearing House Association, known by those in the know as NACHA, the Federal Reserve ACH Operator handles the majority of ACH transactions.

So what does ACH do? After checks the next big deal was to allow direct deposit of most of the Social Security payments, nearly half the U.S. work force receive their paychecks through ACH, and nearly all federal employees receive their paychecks through ACH. Overtime businesses began to make arrangements for their customers to pay their monthly bills through ACH. Then there was the invention of the credit card, whose existence was made possible and given birth in all its wondrous glory by ACH and has their own network, but that is another story.

How does ACH do it? The overall functions and steps can be easily diagrammed, but the details of how parts of it are done are arcane, and difficult to understand even if the most critical steps were to be made public; the geek operators and maintainers and creators of the software etc have their own language—and parts of it never will be made public because of security—which gives me a nice feeling.