The Automated Clearing House (ACH) is a nationwide mechanism that processes electronically originated batches of credit and debit transfers. ACH credit transfers include direct deposit payroll payments and payments to contractors and vendors. ACH debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills.

Debit transfers also include new applications such as the point-of-sale (POS) check conversion pilot program sponsored by the National Automated Clearing House Association (NACHA). FedACH is the Federal Reserve's centralized application software used to process ACH transactions. Both the government and the commercial sectors use ACH payments.

The Federal Reserve Banks are collectively the nation's largest automated clearinghouse operator and in 2000 processed more than 80 percent of commercial inter-bank ACH transactions. Private-sector ACH operators (PSOs) process the remaining transactions and typically provide services, including processing and settling ACH transactions, similar to those offered by the Reserve Banks. PSOs and the Reserve Banks rely on each other for the processing of some transactions in which either the originating depository financial institution--ODFI--or receiving depository financial institution--RDFI--is not their customer. These inter-operator transactions are settled by the Reserve Banks.