Electronic Payments and ACH Network Glossary Quiz

ACH Network and Electronic Payments Glossary

• Access Device refers to a card, code, or other means of access used by a consumer to initiate electronic fund transfers.

• ACH Card is a card issued by an entity other than the Depository Financial Institution for interbank clearing of electronic entries at the point of sale.

• ACH Operator acts as a central facility for the clearing, delivery, and settlement of entries between participating DFIs.

• Administrative Return Rate is the rate at which an Originator’s or Third-Party Sender’s debit entries are returned for administrative reasons.

• ANSI is the coordinating organization for America’s national standards system, including standards for bank cards and financial communication networks.

• ASC X9 is the Accredited Standards Committee that deals with standards involving dealings between financial institutions, including the security of financial messages.

• ASC X12 is the Accredited Standards Committee responsible for the development of uniform standards for inter-industry electronic interchange of business transaction data.

• Authentication is the process of generating a message/data-specific code to identify the sender and protect the message/data from insertion, modification, deletion, or replay.

• Authorization is a written agreement between the originating company and the receiver, defining the terms, conditions, and legal relationship between trading partners.

• Cash Concentration is the transfer of funds from diverse accounts into a central account for more efficient cash management.

• Clearing House is a voluntary association of depository institutions that facilitates the clearing of checks or electronic items through the direct exchange of funds between members.

• Credit Entry is an entry to the record of an account to represent the transfer or placement of funds into the account.Overview of E-Payments and the Federal Reserve System

• The E-Payments Routing Directory provides routing information for Fedwire Funds Service, Fedwire Securities Service, and FedACH transactions.

• The Federal Reserve System was founded in 1913 to provide the United States with a safer, more flexible, and more stable monetary and financial system.

• The Federal Reserve System consists of a seven-member Board of Governors, twelve regional Reserve bank districts, and member depository institutions.

• All national banks are members of the Federal Reserve System, and state-chartered banks may elect to become members.

• The Reserve Banks supervise state member depository institutions, and reserve requirements apply to both member and nonmember depository institutions.

• The Fedwire Funds Service is a wire service operated by the Federal Reserve Bank that moves funds electronically via the wire network for real-time gross settlement.

• The FFIEC IT Examination Handbook includes the Retail Payment Systems Booklet, which is one of several booklets in the IT Handbook.

• A field is one or more consecutive character positions within an ACH entry mapped to contain specific information.

• A file is a group of ACH batches initiated into the ACH Network or sorted for delivery to ACH receiving points.

• A file header record is the first record of an ACH file containing information necessary to route, validate, and track the ACH entries contained within the file.

• Financial EDI is electronic data interchange for financial transactions/applications between companies and financial institutions.

• Fraud risk is the risk that a payment transaction will be initiated or altered in an attempt to misdirect or misappropriate funds, while funds availability refers to the time at which the funds resulting from a funds transfer are made available to the receiver.

Overview of Automated Clearing House (ACH) Network and General Payments

• The General Payments section carries a weight of 13% in the AAP exam and provides an overview of ACH Network, paper check processing system, wire transfer system, and card payments.

• The ACH Network is a safe, secure, and reliable network for direct account-to-account consumer, business, and government payments, facilitating billions of transactions annually.

• The ACH Network is governed by the fair and equitable Nacha Operating Rules and provides an efficient, electronic alternative to paper checks.

• The ACH Network is a batch processing, store-and-forward system that transmits entries electronically through data transmission.

• There are five participants involved in an ACH transaction: Originator, ODFI, ACH Operator, RDFI, and Receiver.

• The Originator is the person or organization that has authorized an ODFI to transmit a credit, debit, or non-monetary entry to the Receiver's account.

• The ODFI receives payment instructions from Originators or Third-Party Senders and transmits the ACH entries to the ACH Operator.

• The ACH Operator is the central facility for the clearing, delivery, and settlement of entries between or among participating DFIs and transmits or receives ACH entries on behalf of DFIs.

• The RDFI receives ACH entries from the ACH Operator and posts the entries to the accounts of its depositors (Receivers).

• The Receiver is the person or organization that has authorized an Originator to initiate an ACH entry to the Receiver's account with the RDFI.

• Third-Party Service Providers and Third-Party Senders perform ACH processing functions on behalf of the Originator, ODFI, or RDFI.

• ACH credit entries occur when an Originator initiates a transfer to move funds into a Receiver's account, while ACH debit entries occur when the Receiver's account is debited.Overview of ACH Transactions and Processes

• ACH credit transactions involve transferring funds from an Originator to a Receiver's account.

• Consumers use ACH credit for Direct Deposit of payroll, while corporates use it for payments like employee salaries.

• ACH debit transactions collect funds from a Receiver's account and transfer them to an Originator's account.

• Consumers authorize ACH debit for regular, recurring payments like mortgage payments and insurance premiums.

• Same Day ACH debits can be initiated for amounts up to $100,000 and must meet the deposit window deadline.

• Reversing debits cannot have an earlier effective date than the related credit entry.

• On-Us transactions occur when the sending and receiving accounts are at the same financial institution.

• On-Us transactions need not be sent through the ACH Network.

• Dynamic Bank and General Manufacturing have an ACH Agreement that dictates their rights and responsibilities.

• The agreement includes information about file delivery to Dynamic Bank.

• Dynamic Bank removes "on-us" entries destined for accounts within its institution and transmits the remaining entries to the originating ACH Operator.

• The ACH Operator sorts the entries by RDFI routing number and transmits payment information to the appropriate RDFI(s) for posting.