Wire Transfers and Electronic Payments

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Nowadays everybody makes electronic payments and, every now and then, some of us may send or receive wires. The Credit Union offers us the chance to do both, and I am going to explain the intrinsic differences between them.

Wire Transfers, or Bank Transfers

Wire (bank) transfers are the oldest kind of transfer of the modern era. In English their name comes from the fact that once telegraph lines were running all over the planet, banks could communicate the transfer of funds over the telegraph wires, and they date back to the 19th century.

How wires used to be sent

Nowadays the wire transfer system works the same way, but the communication of funds, of course, goes over internet protocols. Institution A communicates to B “hey, my client such and such with account 123 wants to send your client –such and such- with account 456 this amount of money. We’re giving it to you to give to them”. This information gets relayed through the central bank of each country and, in the case of international wires, from central bank to central bank. That is why wires take a few days to process. The reason that they must go via central banks is one of safety. For one, there must remain a legal record of the transaction in case of problems, fraud, whatever. But also, governments want to have access to the records of money moving hands if they need it. That is how they control several things: how much money is in the economy, how much national currency is abroad, and ultimately also, possible criminal activity.

Because these payments across institutions and sometimes countries take a lot of confirmation via the government, they have a cost to send, and sometimes even to receive. The fee pays all the institutions that are processing the transfer.

Electronic Payments or ACH payments

Americans love to write checks. This is the only country that depends on the usage of a paper trail to make a staggering amount of payments. In the late 1960s the United States government realized that the number of checks being processed each day was outpacing the technologies and manpower available to handle their very processing. So, they created a network of central processing facilities to which all the checks in a region would be forwarded for processing; they were called Clearing Houses. Every day, they would type up all the information of the checks (the numbers at the bottom) received and their amounts into a vast electronic file and forwards, likely over telex or computer, divided into batches for each of the other clearing houses. From there on they were trickled down onto their respective financial institutions and paid, while the physical checks were mailed for confirmation later on.

These Automated Clearinghouses (ACH) are the origin of electronic payments today. Soon, corporations, banks, credit unions and the government realized the handiness of performing routine payments via this system without needing to write checks. All they needed to do was make their own batch to go out the same day each month, and thousands of payments would be made across the country.

Nowadays the ACH networks processes all those payments, and more. Those checks that get swiped at stores and returned to you on the spot have just been converted to an ACH file. When you set up a monthly payment of your Visa credit card? that’s ACH, as well. So are your Click→Pay automated payments, and your salary’s direct deposit.

ACH is fast and it costs little; both financial institutions and consumers save by processing their payments this way.

Nowadays every country has its own payment processing system. Sadly, most of them don’t communicate among them, yet. 

Does the United States communicate with other countries on ACH?

Yep, they do, and this is good news for Credit Union members, at least. OAS FCU has since 2012, the services of FedGlobal, the Federal Reserve’s global ACH system. It means that we members can now send ACH payments to people or companies in any country that is linked to the Fed. The list is well sized, including now Europe, Canada, Mexico, Panama, and it continues to grow. I, for example, send money to my account here in Finland regularly. And what I love about this system is the price. It costs me $5, compared to the $40 I’d pay for a wire.

What’s even cooler is that I can send these international ACH payments via my online banking and, when I am done, I can save the template for future use; and for the record, I know for a fact that our Credit Union is as of right now the only one that offers this online service, we pioneered it. To me these features, combined with the price, make it unbeatable. If you want to look into it, go to your online banking, under Transfers and select International Transfers. There you will see a comparison between International ACH and outgoing wires, and give a chance to select either.

How can I tell if I need to send a wire transfer or an ACH to make a payment? What do I ask the receiver?

I would say: ask the person or company receiving it. Because not everybody knows the term ACH, I’d recommend that you ask if they want an electronic payment, or a bank to bank wire transfer. That should sort it out for them. Alternately, if they only give you a routing number and account, they expect an ACH, and if they give you their bank name and other information, they expect a wire.

Personally, I want to take this chance to ask you to please try to be kind to the environment and try to write fewer checks. You’d be doing yourself and the planet a favor.

When someone wants to send me money, what information do I give them?

Well, before you give them any information, you need to ascertain whether they’re sending you a wire or creating an ACH. Even though foreign companies, for the most part, do not send ACH deposits, the truth is that many foreign companies have accounts in the United States and can send ACH. So it’s always better to ask. And to make sure they understand you, you should use specific terms to be as close to certain as you can that they do understand. So, you can ask if they intend to send a wire transfer, or an electronic funds transfer (EFT). If they say electronic funds transfer, it’s an ACH, and they will need your name as it appears on the account, plus the Credit Union’s routing number (254075069, I know it by heart!) plus your account number as it appears at the bottom of one of your checks. If it’s to you your regular share-savings that you want the deposit, just give the account number as XXXX01 (the Xes mean your member number).

Please keep in mind that as of yet, the Credit Union is unable to receive ACH from banks or credit unions abroad (unless, as I said, they have a corresponding financial institution in the United States that will send it; but in that case it isn’t foreign but domestic). Incoming International ACH Transfers, known as IATs are something that may be implemented in the future, but there are many requirements both logistical and legal to work through beforehand.

If they want to send a wire transfer instead, then you should refer to the incoming wire instructions that the Credit Union provides to members, and which can be found here.

I hope that I have clarified these terms for you. If I have not, please do not hesitate to ask any questions or provide any comments by using the comments section below, or feel free to email me any time.

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