ACH and Electronic Payments Overview

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Questions and Answers

What role does a correspondent bank serve in a transaction?

It serves as a middleman between the initiating bank and the receiving bank. (correct)

It exclusively provides funds to the payee within seconds of initiation.

It operates as an ACH Operator handling interbank clearing.

It directly manages electronic funds transfer systems.

What defines a direct access situation in electronic funds transfers?

A financial institution that does not utilize routing numbers for transactions.

A bank that executes transactions through a correspondent relationship.

A recipient who receives government benefits electronically.

An Originator transmitting ACH files directly to an ACH Operator. (correct)

Which of the following options is an example of Faster Payments within the context provided?

ACH transfers taking up to a week.

Monthly direct deposits from employers.

Visa Direct transactions. (correct)

Federal Reserve checks.

What does the term 'Participant' refer to in the context of RTP?

A depository institution involved in funding and disbursement transactions. (B) Signup and view all the answers

Which institution may serve as an ACH Operator according to the rules outlined?

The Federal Reserve Bank or any entity with an annual agreement with Nacha. (D) Signup and view all the answers

What is the primary purpose of an ACH Operator in the electronic funds transfer system?

To act as a central facility for clearing and settlement of electronic entries. (B) Signup and view all the answers

What is the key role of a Funding Manager in the RTP system?

To provide supplemental funding and manage prefunded requirements. (C) Signup and view all the answers

What is the purpose of the Prefunded Balance Account in the RTP system?

To allow the banking institutions to reserve funds for potential disbursements. (D) Signup and view all the answers

What is a key role of a Funding Agent in the RTP system?

To initiate the transaction on behalf of a non-funding participant (D) Signup and view all the answers

Which of the following best describes the Prefunded Balance Account?

A special deposit account for Funding Participants and Funding Agents (D) Signup and view all the answers

What does an RDFI need to do in order to be compliant?

Agree to abide by the Nacha Operating Rules (B) Signup and view all the answers

What characterizes a Non-Funding Participant in the context of RTP?

It designates a Funding Agent to prefund transactions (B) Signup and view all the answers

Which of the following accurately defines an Originator in this context?

An entity that has authorized an ODFI to initiate transactions to a Receiver’s account (C) Signup and view all the answers

What is the primary function of a processing site in the RTP network?

To transmit entries to the network (D) Signup and view all the answers

In a Visa network transaction, what is the primary benefit of push payment credits?

They allow instant transfer of funds to the recipient's account (B) Signup and view all the answers

What is the last stage of a payment transaction known as?

Settlement (B) Signup and view all the answers

Study Notes

Account Funding Transaction (AFT)

Enables funds transfer from a Visa account.

ACH Network / ACH

US electronic funds transfer system.
Governed by Nacha Operating Rules.
Handles interbank electronic entries.

ACH Operator

Central facility for ACH entry clearing, delivery, and settlement.
May be a Federal Reserve Bank.
Executes annual agreements with Nacha.

Beneficiary

Recipient of funds.
Can be a person eligible for government benefits.

Correspondent Bank

Acts as a middleman between banks.
Provides services on behalf of another bank.

Direct Access

Originator or third-party transmits ACH files directly to ACH Operator.
Uses financial institution's routing and transit number.

Faster Payments

Electronic payments.
Funds transfer from seconds to a few hours.
Includes ACH, RTP, FedNow, Same Day ACH, Mastercard Send, Visa Direct.

Original Credit Transfer (OCT)

Visa network transaction for push payment credits to Visa cards.

Originating Depositary Financial Institution / Sending Participant / Sender FI

The institution holding the sender's account.
Initiates the payment.

Originator

Organization or individual authorizing a transaction.
May use a third-party sender.

Receiver

Individual or entity receiving funds.
Has authorized the transaction.

Receiving Depository Financial Institution (RDFI)

Receives ACH entries from the ACH Operator for the account of Receivers
Must follow the Nacha Operating Rules.

Request for Payment/Request To Pay (RFP)

Process for payer and payee to interact.
Facilitates funds transfer requests with details.
Allows automated account payable/receivable processing.

Respondent

Financial institution sending ACH entries to a correspondent bank.

RTP Prefunded Balance Account

Joint benefit account for Funding Participants and Funding Agents.
Supported by the Prefunded Balance Account Bank.

RTP Prefunded Balance Account Bank

Bank holding the RTP Prefunded Balance Account.

Sending Point

Location where entries are transmitted to the network.
May be the ODFI or a third-party service provider.

Settlement

Final stage of a payment transaction.
Completes funds transfer after clearing.

The Clearing House (TCH)

Clearing House Payments Company.
Operates the Clearing House's Real-time Payments Platform (RTP).

The Federal Reserve's FedNow Service (FedNow)

Faster Payments system operated by the Federal Reserve.

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Description

Explore the fundamentals of ACH transactions and electronic payment systems. This quiz covers key concepts such as account funding transactions, the ACH network, and faster payment methods. Test your knowledge of the roles and definitions relevant to these financial processes.