As a leader in efficient, reliable ACH payments, we developed a resource for understanding key terms related to the Automated Clearing House (ACH) Network, the electronic funds-transfer system used by U.S. financial institutions that processes more than 23 billion transactions each year.
This resource contains key terms explaining the ACH Network, with definitions coming from NACHA and other industry leaders. Some of these definitions may seem confusing, and that’s because they really are.
We’ve linked to references to provide more information about specific terms:
A transaction pushing funds into an account (example: direct deposit of payroll).Learn More
A transaction pulling funds from an account (example: monthly mortgage payment).Learn More
The Federal Reserve Banks and The Clearing House that enable the clearing and settlement of payments between financial institutions.
An ACH record that contains supplemental data related to an ACH entry. This information may be needed to completely identify an account holder (s) or provide information concerning a payment to the RDFI and the Receiver.Learn More
API (Application Programming Interface)
APIs allows two electronic entities to communicate with each other. Building upon the capabilities of open communications networks and cloud-based access to services, companies can create APIs which rely on existing services for part of their solution.Learn More
Banks are closed on these days each year.Learn More
The sending of ACH transactions by the Originating Depository Financial Institution in regular, predetermined intervals.
Closed Loop Payment System
Closed loop payment systems operate without intermediaries, where the end parties have a direct relationship with the payments system.
The concept of replacing high-value data with a reference or low-value representation of that data in a transaction.Learn More
Deferred Net Settlement
A system where final settlements occur between participating banks at the end of a predefined settlement cycle.
An easy way to verify a customer bank account, by sending two small deposits to the account for verification.Learn More
NACHA (National Automated Clearing House Association)
The group that brings together diverse stakeholders to develop rules and standards for the ACH Network that foster compatibility and integration across a range of payment systems.
ODFI (Originating Depository Financial Institution)
From a risk management perspective, the gatekeeper to the ACH Network that is responsible for each ACH transaction it originates. Each ODFI warrants that the transaction is properly authorized and complies with the NACHA Operating Rules.
Open Loop Payment System
Open loop payment systems operate on a hub-and-spoke model requiring intermediaries (almost always banks or depository financial institutions) to join the payments system, then form business relationships with end parties.
Open Source Software
Freely available open source packages allow young companies to compress their development cycles to rapidly implement their ideas.
Direct communications sent to a user when there is activity on their account.Learn More
The entity that starts the payment transaction. The Originator is the consumer, business or government organization that initiates the payment process and is authorized to do so.Learn More
The transfer of value from one end party to another.
RDFI (Receiving Depository Financial Institution)
The RDFI accepts the ACH Payment and posts it to the Receiver’s account.
Real Time Gross Settlement (RTGS)
The continuous process of settling payments on an individual basis, in real time, rather than submit files at the end of the day of at predetermined intervals throughout the day.
The intended recipient of the ACH transaction. The Receiver authorizes the Originator to initiate a transaction to either “push” funds to or “pull” funds from the Receiver’s bank account, depending on whether an ACH credit or debit transaction was generated by the Originator.
A notification of a payment return or correction for a business or user.Learn More
Same Day ACH
Delivery of available funds within the same business day, not two to four.Learn More
The actual movement of funds from one financial institution to another that completes a transaction.
Standard Entry Class (SEC) Code
A three character code to identify the format and application being used for the payment type.
Third-Party Payment Providers
An intermediary between a company and bank to process, verify and accept ACH transactions on behalf of a company through a secure internet connection.
When a new event is created, a new webhook is created to deliver that event.Learn More
Our understanding of the best ways to navigate these complexities is why innovative companies choose Dwolla as its payment integration to the ACH Network. Would you build your own refrigerator or would you buy a new one from the store?
Contact us to talk through how we can save your business time and money with digital payments.