How Does an ACH API Support Blockchain Technology

How Does an ACH API Support Blockchain Technology

Transferring money into the U.S. has notoriously been cumbersome to do. For example, U.S. ex-pats abroad have a hard time sending and receiving electronic payments in USD, and they have to wire transfer or connect a series of banks in order to facilitate a simple money transfer. 

With the evolution of blockchain technology, also known as distributed ledger technology, fintech solutions are coming up with more ways for users to access and send money in and out of the U.S.

To better understand this, we want to break down how blockchain technology supports banking and how it is changing the way we think about money transfers for good. 

 

How ACH APIs Are Progressing Fintech

ACH APIs provide users with the ability to quickly send bank-to-bank money transfers through the U.S.’s Automated Clearing House (ACH) Network. This Network, which is comprised of all the financial institutions in the U.S. and other Operators, exists so we can pay our employees, deposit funds into our IRA accounts, and receive paychecks. 

With more financial technologies popping up, developers have found more ways to facilitate this process. APIs, which stand for Application Programming Interface, has been the crux of progressing ACH transfers

An API is a set of robust code that sends and receives one request from a receiving agent. So when you connect an ACH transfer entry to an API, you are able to directly request the endpoints of each financial institution involved. 

APIs have their own set of security, as does each ACH payment. So combining these two agents has opened up the doors for processing ACH payments to people and organizations who had previously been excluded. 

For example, younger companies are able to affordably implement a third-party ACH API into their eCommerce website, finance software, or in an app to process different kinds of payments, process them faster, and process them at a lesser cost. This also lets them bypass the typical transaction fee associated with credit card payments and allow for more instant payments.

 

How ACH and Blockchain Technology Have Evolved

Blockchain is both distributable and immutable so sensitive information can be stored, secured, and not altered on a public transaction record. 

Because of these benefits, blockchain technology is beginning to impact a number of sectors and it is predicted to impact more as pioneering sectors start to realize large financial gains. 

This technology, combined with other technologies, such as the Internet of Things (IoT) and APIs, can open up unique opportunities geared towards trust between participants. The value of trust is integral to blockchain’s use and this is why the technology is being realized so affectively in financial services. 

Commonly associated with the Bitcoin, blockchain technologies like Ethereum have evolved as a reliable and secure public record for transactions. This technology protocol is encrypted and then published publicly, so it eliminates the need for an intermediary.

 

Benefits of ACH APIs and Blockchain Technology Together

The blockchain ledger is published and distributed to a number of places. Whenever a new transaction occurs, it is then sent out to the broad network of participants. 

Changing any of the recorded information requires sending out updated information to the entire network. Therefore, changing information without keeping a public record would require hacking into millions of servers all over the world, a hack that is believed to be impossible. 

In addition to keeping a public record, blockchain also operates on encryption. Information is encrypted to be accessed by a public key. The original information is available by private key only. This allows sensitive information like banking account numbers to be securely stored (privately) and while remaining publicly accessible on the blockchain.

While ACH transactions still must process as clear text through the ACH Network, there are numerous ways in which the two technologies can interact. 

For example, the ACH transaction can be posted to the blockchain as a form of public recordkeeping. Additionally, blockchain has the ability to create a smart contract, a self-executing, and publicly viewable computer code that can be posted on the blockchain to guarantee that the contract stipulated is executed in a predictable manner. 

 

How ACH APIs Support Blockchain Technology

ACH APIs is a modern technology that has revolutionized how we do banking. Nearly everyone involved in the online transfer of funds, whether that is for purchasing an item or sending money to friends, actually interacts with an ACH API on a regular basis. If this is the case, then why do we need to transfer over to blockchain technology at all? And how do ACH APIs support further blockchain technology?

There are two main reasons for why ACH APIs support blockchain technology. The first is that it provides an avenue for individuals, like you and me, to be able to go onto an app or website to send money over the blockchain. 

Blockchain is a powerful technology that can operate as a digital currency. Think of a blockchain transaction like an online bank account profile. When you open up online banking information, you will see your account information and all the transactions that occurred within that bank account. The blockchain acts like this, except that all that information is not hidden behind your username and password. Instead, it is encrypted and then posted to a network that anyone can access.

If everyone can access the blockchain transaction, it nearly eliminates fraudulent money transfers, it provides multiple (and virtually free) storage of online data, and it opens up who has access to money. 

The second reason is that is greatly decreases the cost associated with sending an ACH transfer. Modern ACH transfers occur through U.S. financial institutions like banks and credit unions. While this system is constantly improving, there is a need to minimize the cost associated with ACH transfers, minimize the risk associated with them, and to open up U.S. money transfers with other currencies. Blockchain can support these needs.

 

Future of Integrating ACH APIs with Blockchain Technology

By integrating ACH APIs with blockchain technologies, we are able to provide a wide range of services and opportunities for the end-user. Smart contracts can encourage more realistic and mutually beneficial contracts, and the security of the blockchain can grow a payment system that is based on open banking.

Financial transfers in and out of the U.S. became more accessible and more affordable. With blockchain technology, fraudulent transactions go on the decline, allowing for open banking and more financial security and freedom in this modern digital banking era.