2025 AFPP Handbook PDF

The US ACH Network, whose rules are set by Nacha, enables Direct Deposit and Direct Payments and reaches all accounts housed by US financial institutions. The ACH Network is composed of FedACH, operated by the Federal Reserve, and EPN, which is owned and operated by The Clearing House (TCH). The two...

The US ACH Network, whose rules are set by Nacha, enables Direct Deposit and Direct Payments and reaches all accounts housed by US financial institutions. The ACH Network is composed of FedACH, operated by the Federal Reserve, and EPN, which is owned and operated by The Clearing House (TCH). The two networks are fully interoperable. The ACH Network enables the distribution and settlement of electronic debits and credits among financial institutions as well as non-monetary entries with payment-related information, such as transmission of direct- debit enrollment information). Participants in the ACH system exchange information via a nationwide telecommunications network. The ACH Network is open for submission 23 ¼ hours a day and settles payments four times a day (Monday-Friday) via the Federal Reserve’s settlement system, the National Settlement Service (NSS). In addition to standard to ACH credits and ACH debits, Nacha Same Day ACH processes credits and debits of up to $1 million. Same Day ACH transactions typically post to recipient accounts on the same business day. ACH Network operation The ACH Network is a batch-processing store-and-forward system, with clearing happening in batch for- mat. FIs create files, sometimes referred to batches, of ACH payment messages and submit the batch file to one of the two ACH Operators for processing during a pre-determined time period. ACH payments typically take between one and two days to process, depending on the time and day of the week that a batch file is submitted. Same Day ACH transactions are also possible. ACH Network players Any given ACH transaction involves five different players, though there may be some overlap. ACH transfers involve a payer, recipient, originating and depository institutions, and an ACH Operator that processes the payment. Originator: The end user, either a company or individual, that has authorized an ODFI to initiate a debit, credit, or non-monetary entry to the receiver’s account 2  ODFI: The Originating Depository Financial Institution receives payment instructions from the Originator or a Third-party sender and transmits the ACH entries directly or indirectly to the ACH Operator RDFI: The Receiving Depository Financial Institution receives ACH entries from the operator and posts entries to the accounts of its receivers. Receiver: A company or individual with an account authorized to receive payments via the RDFI ACH Operator: The operator of a network used to clear payments between participating financial institutions. Operators can be a private organization or the Federal Reserve Bank. The Electronic Payments Network is the only private ACH Network in the US and The Clearing House is the only private operator. Transaction entries are coded by the originating institution as either credits or debits and are submitted to the ACH Network via two primary channels: directly by the ODFI or indirectly by a third-party sender that acts as an intermediary for the submission of payment entries. ACH Network applications The ACH Network was originally used to process recurring payments; today it processes a multitude of one-off standard and Same Day transfers. ACH batch entries can be either a credit or debit. ACH Credits: an originator transfers funds to the receiver’s account from the ODFI to the RDFI. ACH Debits: Funds are collected from the payer’s account and transferred to the payee’s account. The originator of the debit order must have a preauthorized agreement enabling them to initiate the debit entry from the payee’s account. Batch processing makes the ACH Network an attractive option for processing payroll, bills, mortgages, or other recurring payments. ACH payments are also frequently used to process payments between businesses, government disbursements, and P2P transfers. The Real Time Payments (RTP) network by TCH is a real-time payment system that provides instant clearing, settlement, and posting to participating financial institutions on a 24/7/365 basis. RTP supports a variety of different use cases and is open to every depository institution in the US. RTP is utilized by consumers and businesses. Financial institutions connect directly to the service or can utilize a third-party processor while non-bank payment service providers connect via a participating financial institution. Technology providers play several roles in the RTP ecosystem as third-party service providers, channel providers (typically for smaller FIs), gateway providers (for the licensing of applications that FIs use in their data centers to connect to RTP), and as a testing provider for FIs that want to ensure their messaging is in compliance with RTP specifications. All RTP messages are based on the ISO 20022 messaging standard. RTP network operation The RTP network facilitates credit transfers, requests-for-payment (RfPs), and requests-for-information (RfI). Settlement in the RTP network is in real time and facilitated by pre-funded balances in a joint account held at the Federal Reserve Bank of New York. Settlement takes place within the internal RTP ledger. End-user access to the RTP network is provided by banks, credit unions, and other payment firms, which build payment products upon RTP basic services. Account and routing numbers are used to route payments, although overlay services, such as Zelle, allow for alias-based payment initiation. THE 2025 AFPP HANDBOOK 3 Financial institutions connect to the RTP network directly or via third-party service providers that act on behalf of a participant to transmit and receive payment messages, responses, and non-payment messages. RTP network players The Clearing House: Operates the RTP and EPN networks and facilitates the movement of payments and payment-related messages between participants. The Clearing House also provides directory and token-related services and anti-fraud alerts. Financial institutions: Global banks, regional banks, community banks, and credit unions. FIs may add to the service by offering Value Added Services (VAS) with real-time capabilities for retailers, small businesses, and corporate customers, such as payment automation services, payment insights and analytics, and treasury/cash management services. Technology providers: These entities play several roles in the system as Third-Party Service providers, channel providers (to assist smaller FIs in signup and servicing), gateway providers (which use licensed applications for FIs to connect to the platform), and testing providers, which ensure FI messaging capabilities meet RTP specifications. The RTP rulebook also requires fraud and risk controls; participating FIs and service providers are required to implement strong authentication, fraud detection and prevention, fraud reporting, and consumer protection policies. All transactions are digitally signed and encrypted. RTP network applications The RTP network only supports credits, with the payer determining when a credit transfer is initiated even in the case where the payer is responding to an RfP. The network is used for account-to-account (A2A) payments such as payroll, insurance disbursements, merchant disbursements, P2P transactions, and a variety of other use cases. The system possesses rich data capabilities; all credit transfer and request-for-payment messages can include links to external documents such as remittance data, invoices, bills, deeds, etc. Request-for-payment and RfP bill pay are also possible via RTP, with the payer determining when the credit transfer is initiated in response to the RfP message. Payments made via the RTP network are settled and post instantly, are irrevocable, and are limited to $1,000,000 in value. FedNow network operation The FedNow service, created and operated by the Federal Reserve, allows financial institutions to send and receive credit transfers on a 24/7/365 basis with instant clearing, settlement, and posting. The FedNow service is available to all financial institutions eligible for a Master Account with the Federal Reserve, with certain third-party service providers able to perform functions on behalf of a financial institution. These TPSPs provide services for smaller FIs, enabling them to easily connect to the FedNow network to provide payment initiation services or other forms of technological support. FedNow uses the FedLine electronic communication system that connects FIs to the Federal Reserve’s payment and information infrastructure. FedNow moves and settles money in central bank-held funds between FI-controlled master accounts. This stands in contrast to the RTP network, where funds do not move between central bank-held accounts. Instead, ownership of funds within the TCH-controlled account (held at the Reserve Bank of New York) 4 shifts with each transaction. Ownership stakes within this account must be funded/defunded via The Federal Reserve’s wire transfer service. Payments made via FedNow are settled and posted instantly and are irrevocable. The current transaction value limit is $500,000, though the default limit for FIs is $100,000, though FIs can lower this limit for individual customers as they see fit. FedNow uses the ISO 20022 standard, enabling rich data exchange. Non-payment messaging capabilities include request-for-return (in the event of a misdirected payment), request-for-payment status, information requests (for more information on an instant payment), confirmation-of-posting, account balance requests, and account activity reports. FedNow allows FIs to use several risk management and participation capabilities such as accept-without-posting and information/return requests. Information security for the service is enabled via digital signatures between FI participants, data encryption and tokenization, strong authentication and authorization features, and mutual authentication between participants. Fraud mitigation strategies include transaction limits at the network and participant levels and participant-defined negative lists (suspicious entity blacklist). Payment messages between FedNow and the RTP network are not interoperable – in contrast to the ACH Networks EPN and FedACH – limiting transfers between participants on the same network. FedNow network players The Federal Reserve: Provides the FedNow interface via FedLine Advantage, the electronic platform that enables FIs to access Federal Reserve payment services, account information, and secure communication. FedNow participants: Financial institutions that possess a FedNow Participant profile and have established accounting information for payment settlement via a Master Account or another participant. Service providers: These entities can be FIs with participant profiles or technological service providers with authorized connection profiles. Service providers act as agents for a FedNow participant to: 1) execute or receive payment messages on their behalf, 2) operate or manage connections used to send or receive messages, 3) obtain information or select security/processing procedures for the participant. Correspondents: Maintain a Master Account with the Federal Reserve or maintain a FedNow settlement account on behalf of another participant. FedNow platform applications FedNow is still a very young network and so use cases are not fully mature yet. FedNow enables A2A payments such as consumer-to-business bill pay and P2P; RfP functionalities are also supported. The Federal Reserve is encouraging industry innovation to align with the development of FedNow use cases, including B2B, B2C, C2B, and government payments. These innovations should accommodate various participant and service provider needs such as e-invoicing, on-demand payments, non-recurring disbursements, immediate payroll, e-commerce payments, and transactions involving government entities. Debit cards facilitate ATM cash withdrawals, push-to-pay payments, merchant payments, bank deposits, and fund inquiries. The major infrastructure and systems facilitating debit card-based Faster Payments are composed of a set of global payment networks and systems, and include financial institutions and third- party service providers. The card networks act in a rule- and standard-setting capacity as well as connectors between various card schemes and payment networks to facilitate transactions between and among card THE 2025 AFPP HANDBOOK 5 holders, businesses, and in some circumstances, government entities. The parties involved in facilitating transactions include card issuers (typically FIs), customers, processors, merchants, gateway partners, and acquiring FIs. Within the US the most used methods of debit card-based Faster Payments are Mastercard Send and Visa Direct. These systems facilitate credit transfers of up to $10,000 for P2P transfers and $50,000 for business-to-consumer disbursements on a 24/7/365 basis to card networks across the U.S. Visa Direct also allows users to send payments to account-based schemes in over 88 countries. Debit payments are only used to top-off accounts/ cards. Faster Payments carried out via these networks are immediate (posting typically within seconds, at maximum within 30 minutes) and irrevocable, with all exceptions related to transaction errors, disputes, and reversals being subject to agreement with the card issuing institutions. Debit card network operation: Debit card-based push-to-card Faster Payments are facilitated by proprietary networks (between Visa, Mastercard, and other players), allowing credit transfers to be sent via a variety of card- and account- based payment rails (for Visa Direct). These rails offer customers the ability to reach billions of cards and accounts globally. Settlement methods vary among push-to-card networks. MastercardSend transactions are pre-funded, ensuring funds availability within seconds due to posting agreements between participating FIs. Mastercard manages transactions through internal ledgers and batch netting, alerting FIs to top off minimum balances for system maintenance. This pre-funding model eliminates settlement risk for participating FIs. In contrast, Visa settles Visa Direct transactions once daily, transferring funds from sender to receiver FIs at the end of the business day, which implies a trade-off between efficient use of liquidity and a build-up of settlement risk. Payment routing relies on card details or account/routing numbers, with all payment messages utilizing the ISO 8583 standard. Neither of the major card networks possesses a unified internal directory. Visa Direct has no single integrated directory in the United States and instead relies on partners to use their proprietary directories. Mastercard Send partners utilize their own directories to support P2P transfers and other use cases, allowing for the tokenization of account credentials for senders and receivers. The card companies mandate certain security features, with common standards in place for KYC, sanctions screening, consumer disclosures, transaction limits, and other fraud mitigation practices. Partner institutions are also vetted by the major card networks and must comply with anti-fraud and consumer protection standards. Debit card network participants: Card scheme: Includes Mastercard and Visa, among other major players. These networks provide connection to the card rails of multiple networks used to facilitate transactions, set rates and fees, and act as arbiters between different parties in cases of disputes. Acquiring banks: Establishes and maintains receiver accounts, allowing users to accept payments from the card networks. Issuing banks: FIs that issue the debit cards associated with the card networks via their relationship with the card associations. Payment processors: companies that process debit card transactions, connecting users, FIs, and card networks to facilitate transactions. These entities handle the processing and authorization of transactions. 6 Debit card network applications: Debit card-based faster payment networks allow users to send payments for various use cases including P2P, B2C, and G2C. These networks typically leverage existing relationships with financial institutions to facilitate transactions. Services provided by Visa and Mastercard enable insurance disbursements, refunds, brokerage account transfers, domestic P2P transfers, tax refunds, social security payouts, cash pick-ups, and a variety of other applications and use cases. Any Faster Payment Professional should be familiar with the basics of the payments rails that operate within the US market. Knowing the functions of these payment rails and the participants involved is essential to have a comprehensive understanding of the broader fast payments landscape. TABLE 1. BASIC CHARACTERISTICS OF FASTER PAYMENT RAILS Operator Nacha owns Rules The Clearing House The Federal Reserve Visa, Mastercard, other Federal Reserve or EPN card companies are ACH Operators Payment type Credit/debit Credit Credit Credits (debits for account top ups) Messaging standard Proprietary legacy ISO 20022 ISO 20022 ISO 8583 Transaction limit $1,000,000 $1,000,000 $500,000 By use case P2P: $10,000 Disbursements: $50,000 Settlement 3 times daily Immediate 24/7/365 Immediate 24/7/365 Once daily Payment routing Account and routing Account number and Account number Card credentials or number routing transit number account number Fraud and risk Transaction limits and Mandatory SCA, fraud Transaction limits, data AML measures, pre- controls monitoring, mandatory reporting, detection, and encryption, tokenization, transaction controls, account validation, consumer protection Strong Customer mandatory risk- information sharing policies Authentication (SCA), management controls, mutual authentication sanctions screening between participants, suspicious entity blacklist Faster Payments offer solutions across a variety of use cases. The expedited posting speed inherent to Faster Payments is particularly attractive for disbursements where increased speed is a major value-add, such as B2C payments like payroll and emergency loans. Instant P2P transactions provide a quicker and more convenient way to pay microbusinesses, friends, and family in a variety of circumstances. Faster Payments can also be used in C2B transactions where speed or confirmation of payment are key to reduce late fees or improve the customer experience, such as with bill payments, electronic invoicing, or e-commerce transactions. Businesses can utilize Faster Payments for B2B transactions, optimizing cash flow, while government entities, consumers, and business can all benefit from quick posting times of social benefits, tax refunds, and instant tax payments. THE 2025 AFPP HANDBOOK 7  TABLE 2. FASTER PAYMENTS USE CASES AND STAKEHOLDER BENEFITS Account-to-Account Me-to-me: Improved liquidity management due to speed of payments (A2A) Faster Payments allow individuals to quickly transfer transfers funds between accounts at different institutions Avoidance of late fees and declined payments due to Mobile wallet top-ups: fast transfers of funds between user accounts Instant cashout or funding of mobile wallets Pre-paid cards: Reloadable cards can be topped off without a wait Investment account management: Funds can be moved from an individual’s FI to their brokerage account at a different FI instantly Corporate cash pooling: Fund consolidation into a single account for purposes such as payroll Consumer-to-Business Bill pay: Reduced transaction costs due to displacement of payments (C2B) Bills such as loans and utilities can be paid by expensive legacy payment methods (checks, wires, individuals and businesses with immediate posting to cards etc.) the biller’s account, avoiding late fees and improving Enhanced transparency and information around cash flow. payments due to richer data messaging standards E-invoicing: Better data and easier analysis of user habits and Using Faster Payments, billers can send requests-for- trends stemming from richer data standards payment to customers directly for quicker clearing and settlement. E-commerce: Consumers can select Faster Payments options when purchasing goods online Peer-to-Peer payments Micro-business payments: Improved cash flow and efficiency for micro- (P2P) Individuals are able to quickly pay micro-businesses for businesses goods and services Improved user experience for sending and receiving Payments to family and friends: parties due to fast posting Individuals can pay family and friends quickly and electronically Business-to-Business On-demand payments: Improved liquidity management and cashflow for payments (B2B) Businesses can pay suppliers later due to the increased businesses posting speed, freeing up working capital Improved invoice reconciliation and information E-invoicing: transparency from richer data messaging standards Businesses can use Faster Payments to send e-invoices Greater predictability around payment processing via R2P with remittance information attached allows for more efficient resource allocation Business-to-Consumer One-time payments: Improved user experience due to faster and more payments (B2C) Non-recurring disbursements such as insurance payouts, transparent returns and disbursements refunds, etc. can be paid instantly, providing improved customer service Immediate payroll: Payroll instructions can be carried out instantly without having to be scheduled in advance, allowing for easier and more immediate access to funds for employees Government payments Payments to businesses/ individuals Quicker fund access for government disbursements, (G2X) Welfare benefits, tax refunds, and emergency relief faster processing of government payments payments can be paid out more quickly to individuals, while also building consumer trust and familiarity with Faster Payments Payments to the government: Tax payments can be paid more easily to national, state- level, and municipal government entities more quickly and efficiently: 8 The improved speed of settlement of some faster payment systems (specifically RTP and FedNow) comes with a number of different benefits and effects. Fast settlement of funds eases or even eliminates settlement risk, increasing the safety of a payment system, potentially alleviating regulator fears around the buildup of settlement risk. However, not all Faster Payments rails feature faster settlement. While the instant systems (FedNow and RTP) and Same Day ACH have faster settlement than traditional ACH, push-to-card systems do not. Furthermore, faster settlement – especially in instant systems – are associated with increases in costs and liquidity that participant FI’s must keep available to process each transaction. Systems featuring instant settlement not only have higher liquidity needs because they settle on a transaction- by-transaction basis rather than on a net basis, they also operate 24/7/365. This means that participating FIs need to adequately forecast their liquidity needs for times when the NSS is not operating. Some participants may not settle on their own behalf and use a “banker’s bank” or settlement agent to settle their payments for them. This, however, also comes with its own set of costs. Regulators often like instant settlement because it eliminates settlement risk altogether (a payment cannot be processed if the ODFI or ODFI’s settlement agent lacks the liquidity to settle the payment). Same Day ACH payments settle during business hours and provide a compromise between instant payments and standard batch payments, which reduce liquidity requirements for financial institutions. The Clearing House’s RTP network settles payments in real time via a pre-funded account, completely eliminating settlement risk. The FedNow service offers 24/7 real-time settlement, ensuring no settlement or credit risk build-up. Card networks like Mastercard and Visa differ; Mastercard Send utilizes-pre-funding, reducing settlement risk, while Visa’s push-to-card network settles on a net basis once a day, incurring slightly more settlement risk. Posting funds can take several days in traditional payment systems, depending on when a payment is initiated; in comparison, faster payment methods allow for instant or Same Day access to funds. Faster availability of funds primarily benefits consumers and merchants because they have access to their financial resources more quickly or can pay their bills at the last minute, greatly improving their liquidity management Different payment systems offer varying posting speeds. Same Day ACH payments typically post on the day the transaction is initiated or the following day, ensuring faster fund availability compared to traditional ACH payments. The RTP and FedNow networks posts within seconds, providing instant access to funds for consumers and corporations. Push-to-card transactions by Visa and Mastercard require funds to be available within 30 minutes of authorization. Traditional payment systems such as ACH, checks, or wires often involve multiple steps in processing (submission windows, compliance checks, settlement times, posting windows, etc.), making it difficult to predict when a payment will be posted to the beneficiary. In comparison, faster payment systems speed this process up significantly and offer stakeholders a greater degree of predictability due to functionality such as instant confirmation and expedited posting speed. Notification can come in the form of a push- notification to a smart phone or an automated message via the FI’s online banking platform. These notifications are sent following the posting of a payment to a beneficiary’s account for payments made via the RTP and FedNow networks. THE 2025 AFPP HANDBOOK 9 This enables consumers and businesses to better manage their cash flows and decision-making process. Faster payment systems can be more efficient than traditional payment methods, especially checks and wires. Not only do Faster Payments settle and post more quickly than checks and wires, they are much more automated, cutting down on the cost to FIs, as well. Value-added services (VAS), such as confirmation- of- payee and the use of alias-based routing, can also cut down on error rates associated with Faster Payments compared to check and wires. While Faster Payments can cut down on manual intervention needed to process payments and deal with exceptions handling, they can be less liquidity-efficient, especially systems that settle instantly. Same Day ACH and Visa Direct, however, settle on a net basis, and therefore do not have these concerns. Mastercard Send is similar to FedNow and RTP in that it is pre-funded, which ties up FI liquidity. The introduction of faster payment systems in the US has not only revolutionized the speed of transactions but has also significantly influenced security dynamics within the payments industry. The speed and irrevocability of faster payment systems presents an appealing opportunity for fraudsters in ways that traditional ACH payments do not. This underscores the essential need for robust security features such as tokenization, strong customer authentication (also known as multi-factor authentication) (SCA/MFA), data encryption, and fraud monitoring mechanisms. Together these features can form a protective barrier protecting end users, including consumers and businesses. Real-time transaction alerts, transaction and value limits, and enhanced authentication methods allow end users to respond quickly to fraud incidents and provide “smart” friction against fraud. Fraud detection tools at the infrastructure and FI levels further reduce end user vulnerabilities. FedNow has a series of security features to benefit its users, such as transaction value limits, data encryption and tokenization services, and strong authentication and authorization services for end users. The Clearing House’s RTP network also enforces stringent security measures, such as strong authentication, transaction value limits, encrypted transactions, and robust fraud monitoring. Same Day ACH transfers are rendered more secure by Nacha Operating Rules requiring encryption and tokenization of sensitive account data. Lastly, push-to-card payments offer significant security benefits and maintain transaction integrity through comprehensive controls including recipient eligibility standards, use case validation, predefined value limits, and anti-money laundering measures(such as transaction monitoring, sanctions screening, and KYC measures), with configurable options for enhanced security. The usage of data-rich messaging standards such as ISO 20022 by FedNow and RTP networks allows for the provision of improved payment data that can benefit a variety of stakeholders. ISO 20022 data provides significantly more data about each payment sent, in a more structured format. Richer data improves the reconciliation and integration process for business end users, making the matching of payments to specific invoices easier, and increasing the efficiency of e-invoicing and billing. Enriched data also allows financial institutions and PSPs to build more sophisticated fraud prevention models, reducing risks for themselves and their customers. In turn, better structured and more robust data standards reduce friction in security screenings by providing these mechanisms with more information through which they can evaluate transactions. This makes screening for fraud, sanctions, and Anti-Money Laundering (AML) purposes far more efficient. Richer payments data also opens potential opportunities for new product developments and revenue streams for financial institutions and PSPs, through a more thorough understanding of their client’s needs and behaviors. 10 Unlike traditional payment rails, one of the hallmarks of Faster Payments is their increased availability. Most faster payment systems, including FedNow, Mastercard Send, RTP, and Visa Direct, process payments 24/7/365. This also means that FIs need to account for 24/7/365 processing. System maintenance, upgrades, and other issues that required downtime to address issues is made more complicated when a system has to be available 24/7/365. Request-for-payment is a type of non-payment message enabling businesses or individuals to initiate a request that the recipient initiate an instant credit transfer. Unlike with a direct debit, an RfP still gives the recipient of the RfP (the sender of the payment) control as to a) whether the transaction is accepted or not and b) the timing of said payment. The FedNow and RTP networks provide RfP functionality, although the two are not interoperable between the networks. This functionality provides several benefits, including greater convenience and flexibility for consumers in paying their bills – including the ability to avoid late payments – or requesting funds from friends or family. For billers, RfPs enable a sort of account validation when setting up a new business relationship (if the account does not exist, the RfP will not work and if the account does not belong to the intended payee, the RfP is unlikely to be accepted). They also do not require mandates to be set up or held onto because the recipient of the RfP has complete control as to if and when the payment is made. Billers also benefit from straight-through-processing (STP) and enhanced reconciliation due to the RfP message itself. The usage of modern payment messaging standards for Faster Payments facilitates the exchange of much more than simple value-related messages for transactions. Systems that utilize ISO 20022 (FedNow and the RTP network) can send messages that enable financial institutions to seek additional details pertaining to credit transfers or RFP instructions, inquire about the status of information request processing, and promptly respond to information requests. As a result, all parties have access to information needed to resolve inquiries, disputes, and security concerns effectively. The debit card networks also possess enhanced data messaging capabilities, with users able to receive notifications on purchases that may exceed transaction limits, though this information is not as robust as that supported by ISO 20022. While both instant and Same Day payments are considered faster payment types, there are numerous differences in terms of speed, use cases, risk, and liquidity management. As its name suggests, instant payments post within seconds of initiation and can be initiated 24/7/365. In comparison, Same Day ACH payments post and settle on the same day they are initiated and are subject to the payment systems’ and financial institutions’ daily cut-off times. For instance, as of October 2024, Nacha’s Same Day ACH’s cut-off times are at 10:30 AM, 2:45 PM and 4:45 PM ET, with settlement occurring at 1:00 PM, 5:00 PM, and 6:00 PM, Monday-Friday. Second, Same Day payments are file-based whereas instant payments are message-based. Third, both payment types provide faster funds availability compared to traditional credit and debit transfers and support similar use cases, such as faster payroll payments, emergency payments for payouts and bill pay, and B2B invoicing. The difference is naturally the speed of the availability of funds which, in some cases, needs to be shorter than a business day, for instance to avoid late fees due to payment deadlines. Lastly, from a risk management perspective, THE 2025 AFPP HANDBOOK 11 instant payments are irrevocable in case of fraudulent activities or if incorrect payment details have been submitted, while Same Day payments can be returned between the cut-off and settlement times if a return request is submitted in time. TABLE 3. SOME DIFFERENCES BETWEEN FASTER PAYMENT RAILS FedNow Seconds Continuous Central bank funds TCH RTP Seconds Continuous Shadow account using central bank funds Same Day ACH 135-150 minutes Three times/day Central bank funds Mastercard Send Up to 30 minutes N/A Commercial funds Visa Direct Up to 30 minutes Once daily Commercial funds Section covered within this 1001.6 1001.6 1001.5 handbook Settlement differs across Faster Payments schemes in terms of frequency, funding method, and timing of settlement. Same Day ACH has three processing windows with three corresponding settlement windows, settling participant positions on a net basis. Visa Direct also settles net positions, but only once a day, and it ensures that funds are available to the recipient in seconds (but up to 30 minutes with certain exceptions). FedNow settles transactions in real time between participating FIs Federal Reserve accounts, whereas RTP settles in real time but via a shadow account owned by TCH and held at the Federal Reserve in New York, i.e. not on participant’s master accounts. Mastercard Send does not have a fixed settlement window and lets participants organize the settlement of transactions among each other. Figure 1. End-to-end payment processing cycle 12  TABLE 4. SETTLEMENT METHODS BY FASTER PAYMENT NETWORK FedNow Real-time gross settlement RTP Real-time gross settlement Same Day ACH Multilateral deferred net settlement Mastercard Send Multilateral deferred net settlement (pre-funded) Visa Direct Multilateral deferred net settlement Irrevocability refers to the point at which a payment becomes final, meaning that neither the originator of the originating entity can recover the funds – even in cases of human error or fraud. Traditional ACH payments can be recalled by the originator or originating entity up until the payment is submitted for processing (which can sometimes be hours or even more than a day if a payment is originated at night or during a weekend or holiday). ACH payments, for example, have extensive protections regarding fraud, so payments can be reversed or returned even after they are processed. Faster Payments, on the other hand, often have rules in place that make payments irrevocable once they are submitted. This requires certain protections to be in place to prevent misdirected payments (such as confirmation-of-payee or alias-based payment initiation) as well as sophisticated anti-fraud systems being in place. TABLE 5. SPEED OF POSTING, TIMING OF SETTLEMENT, & TIME BEFORE PAYMENTS ARE FINAL FedNow Seconds Continuous 24/7/365 Immediate after settlement RTP Seconds Continuous 24/7/365 Immediate after settlement Same Day 1st same day 150 minutes after the submission Return entries can be submitted within 2 or 60 ACH deadline days after settlement, depending on the reason for return 2nd 135 minutes after the submission deadline 3rd 135 minutes after the submission deadline Mastercard Send Up to 30 minutes Acquirer or sponsor bank is Immediate after posting responsible for timing of settlement Visa Direct Up to 30 minutes Net settlement occurs Mon-Fri 8:00 Immediate after posting AM MT Many Faster Payment solutions are not currently used every day by consumers and their wide adoption requires much more than just the technical ability to initiate a Faster Payment. The value of new payment solutions to any given end-user depends on the ability to reach a substantial number of other end users as well as many other factors, such as convenience, safety, price, additional services, etc. THE 2025 AFPP HANDBOOK 13 Interoperability as a concept refers to two separate technical systems being able to communicate or exchange payment messages with one another, much like FedACH and EPN in the ACH space. The Federal Reserve defines it to mean that payment messages are routed or exchanged and settled such that they seamlessly reach the receiver, without the individual or business even being aware of the path taken by the payment. In terms of Faster Payments, FedNow, RTP, and Same Day ACH are not interoperable with one another. Mastercard Send and Visa Direct are interoperable with one another, but not with the Faster Payment solutions. Ubiquity and interoperability are distinct, but similar: while interoperability is concerned with distinct systems able to work with one another, ubiquity describes the degree to which a specific service can reach all end users. ACH, for example, is ubiquitous: ACH payments can reach any end user with a bank account in the US. In this sense, reach and ubiquity measure the same thing: ubiquity is the end point of reach. Standard ACH and cards have become everyday parts of people’s lives. Familiarity and trust mean that it could be difficult for some end users to move away from these trusted payment methods and try something new, especially if the newer options – namely Faster Payments – do not seem to offer much of an advantage compared to the other payment options. Value-added services (VAS), such as aliases to ease payment initiation or confirmation-of-payee, which helps prevent misdirected payments and fraud, can go a long way to make Faster Payments either more convenient, more trustworthy, or add some other type of value that provides end users with a reason to use these systems instead of other options. Others, such as consumer-facing services like Zelle or biller-facing technologies like Request-for-Payment (RfP), can help FIs improve their relationship with consumers or offer businesses new ways to get paid. QR codes and NFC technology are other ways to make initiating a payment easier and more secure. Established corporate processes and goals influence the adoption of Faster Payment systems, as certain businesses or organizations may be less willing to try a new payment option and prefer to stick to systems that they know and trust, such as checks. Changing these habits can be both a challenge and a hindrance to the wide adoption of a more digital payment system. Unfortunately, Faster Payments has sometimes led to faster fraud. Fraudsters often benefit from the irrevocability that some types of Faster Payments offer, making fraud prevention key to protecting end users rather than relying on rules that allow payments to be reversed once fraud is established. This has forced financial institutions to monitor transactions in real time and for Faster Payments network to integrate certain types of information sharing between participants. Payment authorization refers to how the users authorize funds to be debited from their account in order to execute a payment. One example is when a user’s account is debited when making a payment, such as a P2P transfer to a family member, or when a business’ account is credited when funds from a consumer are credited to the business account (i.e. bill payment). Both payments required authorization: in the P2P example the user authorizes their bank to make a payment to their family member’s bank whereas in the bill payment, the consumer provided the business with authorization (i.e. a mandate) to periodically debit the consumer’s account. 14 Payer authentication (both for individuals and business customers) refers to how participants ensure that the person initiating a payment instruction is allowed to do so. Faster Payments networks either require or recommend specific methods to authenticate users. In addition to those rules enforced by the respective networks, the Federal Financial Institution Examination Council (FFIEC) released guidance to provide financial institutions with examples of effective risk management principles and practices for access and authentication. These principles and practices address business and individual customers, employees, and third parties that access digital banking services and financial institution information systems. The table below describes payer authentication and authorization requirements per Faster Payments network. TABLE 6. PAYER AUTHENTICATION AND AUTHORIZATION RULES BY FASTER PAYMENTS NETWORK FedNow Participants are advised to use “strong Implied during the user authentication practices” authentication process RTP Sending participants must, at a mini- Implied during the mum, utilize multi-factor authentication authentication process to authenticate the identity of customers who transmit payment Instructions to the Sending Participant. Same Day ACH Participants are advised to follow the Depends on the SEC. FFIEC’s guidance on authentication Authorization can be oral, methods. For WEB debits, Originators written, or even not are advised to verify account ownership, necessary (see appendix though Nacha Operating Rules are for a detailed view of neutral with regard to specific methods authorization types by SEC) or technologies that could be used. Mastercard Send There are no mandatory authentication Authorization is implied methods. Participants are advised to use during the authentication secure authentication methods such as process multi-factor authentication, address verification, and/or other methods. Participants may also use value-added services to increase security such as Mastercard’s Account Verification Service (AVS). Visa Direct There are no mandatory authentication Originators must provide methods. Participants are advised to use the Terms and Conditions secure authentication methods such as to the customer who must multi-factor authentication, address accept them before using verification, and/or other methods. any Visa Direct service. Participants may also use value-added Authorization is implied services to increase security such as Visa’s during the authentication Payment Account Validation: Address process Verification. Sources: FedNow service risk management capabilities; RTP Risk Management and Fraud Control Requirements and RTP System Operating Rules; Nacha Supplementing Fraud Detection Standards for WEB Debits; Visa Developer Center, Mastercard Developer Center THE 2025 AFPP HANDBOOK 15 Confirmation-of-payee (CoP) is an initiative in the payments industry designed to help prevent fraudulent authorized push payments and misdirected payments by confirming the receiver’s information before approving a payment transaction. CoP enables payment initiators to check the name associated with the recipient’s account and compares it to the name provided by the sender. If the names match, the payment proceeds as usual. If there is a mismatch, the bank alerts the person making the payment, who can then check the details and either correct the mistake, cancel payment initiation, or continue with the payment. This service serves two main purposes and benefits. First, it reduces errors in payments stemming from inputting the wrong account information or account holders with similar names. Second, it helps prevent fraud, especially Authorized Push Payment (APP) fraud, which is where customers are tricked into making payments to a fraudster. Services like CoP increase user confidence and contribute to improving the user experience by preventing consumers from making misdirected transactions or sending money to fraudsters. Nacha requires any ACH originators to have a fraudulent transaction detection system that validates first- use consumer account numbers when originating debit payments that are either authorized or initiated over an online channel. This has been in place since March 2021. Other than the commercially available validation services like confirmation-of-payee, ACH prenotification and ACH micro-transaction verifications can serve the same purpose by validating an account numbers and attributes, such as ownership and address. A prenotification is a non-monetary entry (i.e., no funds move as a result of the transaction) that precedes the first live entry. The prenotification entry looks identical to the subsequent live-dollar entries apart from the dollar amount and transaction code. The Receiving Depository Financial Institution (RDFI) verifies the accuracy of the account data. Micro-Entries are defined by Nacha as ACH credits of less than $1, and any offsetting debits, used by an originator for the purpose of verifying a receiver’s account or an individual’s access to an account. Nacha further requires originators of micro-entries to use commercially reasonable fraud detection, including the monitoring of micro-entry forward and return volumes. Value messages instruct funds be moved between participants and are cleared and settled through each rail. Non-value messages, on the other hand, are messages that do not generate an accounting entry and typically contain details or the status of a value message, report, or message retrieval request. ACH Network payments rely on Standard Entry Class Codes (SECs), indicating the payment message type, encompassing both value and non-value messages. Certain codes are versatile for both ACH credits and debits, while others are exclusive to one or the other. Codes can also be used for consumer or non-consumer transactions. A few common value-related codes in this section. Please consult the appendix for the code/ message list in its entirety. For Mastercard Send, originating entities can use Mastercard’s Funding API to request the creation of a Funding Transaction to secure the funds being sent to the payment recipient. Once approved by the issuer and Mastercard, the Payment Transaction can take place. Originating entities using Visa Direct have the option to initiate their Visa Direct payments either by ISO- formatted messages or as an API call submitted directly to the Visa network using the Funds Transfer APIs. Other APIs that provide value-added services apart from initiating payments are also available. 16 Value messages: Customer credit transfer: A credit transfer is sent by a sending FI to a receiving FI to initiate a funds transfer from a sender’s Account to a receiver’s Account. Liquidity management transfer (LMT): Also referred to as Financial Institution Credit Transfer, it is used to transfer funds between the Master Accounts or Correspondent account(s) of two FedNow Participants, or between a FedNow Participant’s Master Account and a joint account. Payment Return: Used to return previously received funds. Non-value messages Service Rejections: A message can be rejected if it fails validation. All rejection messages from the FedNow Service, for instance, include an error code to inform the reason for rejection. Accept Without Post (ACWP): By responding with ACWP, the participant has the option to not make funds immediately available to its customer and have an opportunity to investigate (until midnight the next day) the payment when concerned with its credibility. Value messages Credit Transfer: A credit transfer is sent by a sending FI to a receiving FI to initiate a funds transfer from a sender’s Account to a receiver’s Account. FI-to-FI Credit Transfer: A FI-to-FI Credit Transfer is a payment from one FI to FI to increase the Receiving FI’s Current Prefunded Position during hours when the Fedwire Funds service is closed. Non-value messages Request for Information: A request for information is used to communicate for more information on an instant payment. Request for Payment: A request for payment allows a sender FI to initiate a payment request on behalf of itself or its customer. Value messages Accounts Receivable Entry (ARC): Applies to a single direct debit transaction, initiated by a consumer or other entity. Used to convert an eligible source document received by mail, in person, or at a manned location to collect funds from the other parties’ accounts. THE 2025 AFPP HANDBOOK 17  Customer Initiated Entry (CIE): Applies to customer-initiated credit transfers through a bill payment service provider, authorizing the transfer of funds from the consumer account to the account of the biller. Corporate Credit or Debit Entry (CCD): refers to a recurring or non-recurring credit or debit entry made between two corporate accounts. Frequently used to concentrate funds from outlying accounts, fund payroll, or other disbursement accounts. Can contain a single addendum to record payment- related information. Point of Sale Entry (POS): Refers to a single consumer-initiated credit or debit entry at a POS terminal using a card or other access device. Non-value messages ACH payment acknowledgment (ACK): Non-monetary entry sent to acknowledge a CCD credit entry. Notification of change (COR) or refused notification of change: A non-monetary entry used to inform participating FIs about changes in a customer’s banking information or to indicate the rejection of such changes, used to ensure accurate and updated information for fund transfers. Value messages Disbursement Payment: Refers to a single payment initiated by a business, non-profit, or governmental organization to disburse funds either to businesses or individuals. Person-to-Person Payment: Refers to a single payment initiated by an individual to another using a “Payment Transfer API.” Funding Transaction: Refers to a single payment initiated by an entity to pull funds from an individual’s account. Non-value messages Account Information: Retrieves eligibility, card type, card brand, and funds availability information of a card account. Account Verification: Refers to an account check with a card’s issuer, on account status, validity, address, and/or Card Verification Code Value messages Original Credit Transaction (OCT): Refers to a single payment initiated by a business, non-profit, or governmental organization to disburse funds either to businesses or individuals. Account Funding Transaction (AFT): Refers to a single payment initiated by an individual to fund another person’s non-merchant account. Non-value messages Watch List Screening API: Provides a score based on a check on an individual’s information that matches with the OFAC SDN watch list. 18  Mobile Push Payment API: Push payments for mobile-to-mobile cardless merchant payments and cash-in and cash-out payments to a Visa account. Reports API: Provides transaction capabilities including transaction reconciliation data. Query API: Provides an option to query the processing status of Visa Direct transactions in real-time. Refund API: Refers to processing merchandise returns, in other words, refund, transactions. Receive Side API: Facilitates the implementation of mobile push payments, for clients to receive merchant payment, cash-in, and cash-out transactions. One of the key values of Faster Payments lies in the quick availability of funds for receivers. This impacts end-user cash flow management by posting funds within a few seconds for instant payments, within minutes for push-to-card payments, or in a few hours for Same Day ACH transactions. Faster Payments benefit consumers, merchants, and corporates by offering enhanced visibility into cash flow and enabling easier and better cash and liquidity management. It is easier for individuals and businesses to track and monitor their incoming and outgoing funds when payments are processed more quickly, eliminating problems associated with the gap between payment submission and posting. This immediacy allows for more accurate and up-to-date financial data, improving the ability to make informed cash flow decisions. On the payer side, Faster Payments grant consumers and businesses the flexibility to complete last-minute or emergency payments, lowering the likelihood of late fees, account overdrafts, and issues with suppliers. Having immediate access to funds means payers are less likely to rely on short-term and often costly financing like payday loans or short-term liquidity infusions. Consumers can benefit from earning of interest for longer. Resource-strained small merchants and businesses benefit from more timely receipt of payment, improving cash flow. Merchants and businesses benefit from more working capital, reducing the need for loans. Benefits of straight-through processing, which is aided by VAS such as request-for-payment, decreases the need for physical documentation or manual involvement, lowering operational costs. One challenge all FIs face is liquidity management. The implementation of one or more Faster Payment systems necessitates more and improved liquidity management processes, which could lead to strategic enhancements and operational adjustments. Batch payment files, such as with Same Day ACH, are processed at specific times throughout the business day. This regularity allows FIs to plan their resources, striking a balance between maintaining enough liquidity to settle net obligations while avoiding the excessive holding of cash that could otherwise be used elsewhere. Real-time payments, on the other hand, are by their nature 24/7/365, which leads to more unpredictable payment behavior and in turn higher liquidity costs and more uncertainty. Push-to-card are a bit in-between: while settlement is not real-time, they are pre-funded, which costs liquidity. Push-to-card obligations settle in commercial funds, however, so this requires a separate pool of liquidity. Financial institutions already forecast their liquidity needs. The transition to instant payments is still ongoing for many FIs and they will lack data to forecast liquidity requirements in the beginning; this can be a challenge for higher-value payments, such as business-to-business payments. Greater utilization of Faster Payments presents heightened uncertainty, potentially complicating FIs’ efforts to forecast liquidity flows and manage them efficiently. THE 2025 AFPP HANDBOOK 19 Some faster payment systems, such as FedNow and RTP, settle immediately, necessitating increased automation of processes (sanctions screening, fraud checks, authentication, authorization, etc.). Other processes, such as liquidity forecasting, gain significance because they are essential to the sound operation of these systems. The 24/7/365 nature of instant payments also means that backup plans for emergencies become crucial to ensure uninterrupted service. Correspondent-respondent relationships in Faster Payments refer to bilateral agreements where one FI (the correspondent) offers settlement services to another FI (the respondent), enabling access to payment infrastructures. The respondent FIs benefit because they can free up liquidity for other purposes and can save on personnel and operations costs because they do not need to monitor their liquidity position as tightly as they would if they settled on their own behalf. Lastly, these relationships can also save on connectivity costs. From the correspondent side, while their liquidity costs go up, they can charge a fee to the respondent for these services, creating a new revenue stream. Correspondents are also then able to spread their own connectivity costs around, creating economies of scale. These arrangements assume several roles when it comes to liquidity management: Provider and receiver of liquidity: Correspondent FIs typically have more capital and more extensive resources than respondent FIs. Respondent FIs rely on correspondent FIs for settlement services, freeing up their liquidity for other uses. Payment clearing and settlement: While respondent FIs initiate payments and transactions for their customers, correspondent FIs facilitate the clearing and settlement of payments on behalf of respondent FIs. They provide infrastructure access or even process transactions efficiently and securely for their respondents. Intraday liquidity management: Intraday liquidity refers to funds that can be accessed during the business day or the opening hours of the payment and settlement system for financial institutions to make payments. Respondent FIs manage their intraday liquidity needs with the help of correspondent FIs, which ensures that they have the necessary funds to fulfill payment obligations throughout the business day. The introduction of Faster Payments has impacted these roles by requiring FIs to have the liquidity to settle these transactions promptly, in some cases instantly. In the case of pre-funding (FedNow, RTP, and Mastercard), liquidity needs are increased compared to Same Day ACH or traditional ACH. These higher costs bring their own potential issues, including: Risk management implications: Managing risk is a critical aspect of these relationships. For smaller FIs, Faster Payments can have an outsized impact because 24/7 operations force smaller FIs to forecast liquidity needs for non-traditional banking hours (nights, weekends, holidays). This adds risk because payments will fail if sufficient liquidity is not there. For correspondents, they often impose limits on how much liquidity the respondent can use, enabling the correspondent to forecast their own liquidity costs, which can be difficult as the number of respondents they are responsible for increases. 20 Financial institutions: The various types of participants in the FedNow network are able to perform different functions. FIs can have multiple roles within the FedNow service, such as offering instant credit transfers to their own customers as well as offering settlement services to other FIs for obligations that other FIs incur on the FedNow network. The table below outlines the various types of participation possible: TABLE 7. FEDNOW PARTICIPATION TYPES & SERVICE OFFERINGS Financial Institution Financial Institution Direct Customer credit transfers and Request-for-Payment: Via service provider Receive customer credit transfers Direct and service provider Send and receive customer transfers Receive requests for payment Correspondent Direct Financial institution transfers: Service provider Liquidity management transfers Settlement services for financial Direct and service provider institutions Service Provider Direct Service Provider Service Provider Direct The FedNow Service Operating Procedures outlines the responsibilities participating financial institutions when they join the system. This includes 24/7/365 reachability on the network, the ability to respond to various message types (see section 13 of the operating procedures for more information on messaging types by participant type), and remaining in compliance with FedNow operating procedures service procedures as well as security and risk management procedures. This includes upholding standards for mutual payment message signing, key pairing, encryption, and authentication laid out as a part of the FedNow operating guidelines. Regardless of participation type, it is a best practice for FedNow participants to maintain and update their own negative lists of suspicious entities and are obliged to reject transactions where one of the parties’ routing/account numbers is included on an suspicious entities list. Participants are also expected to manage their master account balances to avoid overnight overdrafts and to stay within intraday overdraft capacity limits. FedNow differentiates between two types of FI participants, respondent FIs and correspondent FIs: Respondent FIs: Access the FedNow network via a third party that maintains a Master Account with the Fed Reserve and settles transactions on the respondent’s behalf. Respondent FIs may also rely on correspondents for liquidity management services. Correspondent FIs: A financial institution that maintains a Federal Reserve Master account on behalf of another financial institution that provides payments and other services for FIs that are participants in the FedNow system. These entities are responsible for conducting transactions or settlement for respondent FIs in compliance with FedNow operating procedures concerning timeliness, posting, and security, as well as for acting in their own capacity as full system participants. THE 2025 AFPP HANDBOOK 21 Infrastructure operators Network operator, regulator, and settlement services: The Federal Reserve is the developer and operator of the FedNow faster payment service. The Federal Reserve’s responsibilities include system development, operation, oversight, stakeholder engagement, regulatory compliance enforcement, and systemic risk management within the payment service. The Federal Reserve is also the settlement system for the service, with access to payment services, account information, and secure communication provided via FedLine Advantage, the Federal Reserve’s electronic interface platform. Third-party service providers Service providers in the FedNow network are entities that perform various functions on the participant’s behalf and possess an Authorized Connection Profile with the Federal Reserve. This allows them to process and manage messages and payments on behalf of their respondent parties. Third party service providers within the FedNow ecosystem can take the following forms: Payment processors: These entities connect FIs to the FedNow network and are responsible for processing transactions and providing compliance tools and fraud management services. Processors initiate, transmit, and receive payment messages on behalf of their FI clients while also managing their connection to the system. Additional responsibilities can include selecting security procedures and processing options. Correspondents: examples include bankers banks and corporate credit unions. These entities are responsible for providing FedNow services that their respondents have not elected to provide (please see table 1 for a list of potential correspondent services). Banking operations: These entities can provide accounting, reconciliation, operational, and fraud and risk management services as part of FedNow. Responsibilities primarily include the support of core banking and accounting operations as well as customer support and the provision of customer interface platforms. Financial institutions: Participant FIs: Participant financial institutions are responsible for submitting, processing, and receiving transactions on behalf of their customers, including businesses and consumer). Only depository institutions with a Master Account with the Federal Reserve (or a funding arrangement with a FI that has one) are eligible to become participants in the RTP system. Participant FIs can be divided into two categories: Funding participants: FIs that have become a party to the RTP pre-funded balance account agreement and can directly interact with the RTP network. Non-funding participant: FIs that have designated a Funding participant to act on their behalf to pre-fund in accordance with RTP participation and operation rules. Participants must ensure that they are compliant with RTP operating rules concerning technical specifications, risk management, and fraud reporting and controls on a 24/7/365 basis. Participants are also required to immediately make available information regarding the status of an RTP payment to both the sending and receiving parties. Security requirements include the mandatory usage of multi-factor authentication and fraud/risk-screening measures before the submission of a customer’s payment message to the RTP system. 22 Funding agents facilitate transactions on behalf of FIs that are not direct funding participants within the RTP system. Funding Agents have two profiles, funding managers, which provide separate funding for each non-funding RTP participant; or funding providers, which provide shared funding for participants in a “non-funding” group. These FIs are responsible for adhering to the same operating procedures and security protocols as all other participant FIs in the RTP system. TABLE 8. TCH RTP PARTICIPATION TYPES AND SERVICE OFFERINGS Depository institution Receive-only participant Direct Receive credit transfers Initiate credit transfers Third-party access Non-payment messaging services Sending and receiving Direct Correspondent settlement services participant Liquidity management services Third-party access Third-party service Direct provider Non-depository third-party Third-party service N/A May offer additional VAS such as alias directory service providers provider services and security services such as tokenization Infrastructure operators: Network operator: The Clearing House The Clearing House manages the RTP network and scheme rulebook as well as security services such as network-level anti-fraud alerts and screenings. The Clearing House is responsible for payment clearing services, compliance monitoring, activity reporting to federal banking regulators, and emergency response in the event of service disruption. The Clearing House also facilitates the settlement of payments within its internal RTP ledger. To this effect, The Clearing House ensures that a sending participant has the minimum pre-funded balance necessary to facilitate a transaction before initiating a payment and proceeding with settlement within the ledger. Settlement systems: Settlement for the RTP system is maintained via a pre-funded account with the Federal Reserve managed by The Clearing House. Settlement takes place within the internal RTP ledger. The Clearing House is responsible for ensuring that participant FIs in a transaction have adequate funds to facilitate transactions. The Clearing House is also responsible for evaluating whether funding arrangements between correspondents and respondents within the system are reliable and ensuring that they pose no greater risk to the RTP system. TCH also provides position reports to participants to indicate their pre-funding position at the beginning and end of every reconciliation window. Financial institutions: Originating Depository Financial Institution: The ODFI is the FI of the sending party in a transaction and is the institution responsible for submitting entries to the ACH Network in accordance with scheme rules. Not all FIs are required to initiate ACH entries and participate as ODFIs, and by consequence, not all RDFIs are ODFIs. When submitting an ACH entry an ODFI is responsible for having an established originating agreement with the sender and complying with Nacha risk management standards. ODFIs must receive authorization from the receiving entity to initiate entries to their account for transactions that are not credit entries between natural THE 2025 AFPP HANDBOOK 23 persons. Regarding security, ODFIs are prohibited from passing on sensitive information to third parties, such as account/routing numbers, without expressed permission. ODFIs must also implement commercially viable fraud detection systems in-house and conduct identity verification of other FIs/entities in transactions. ODFIs are responsible for accepting and processing rule-compliant return entries for transactions. Receiving Depository Financial Institution: The RDFI is responsible for receiving payment instructions from the ACH submitted by originators or third-party senders and providing funds availability for receivers. RDFIs must accept entries that comply with Nacha operating rules. All Depository FIs that are a part of Nacha are required to comply with the requirements of an RDFI, although not all RDFIs are also ODFIs. RDFIs are obligated to accept rule-compliant ACH entries and provide information (date and amount) about entries to receivers while adhering to Operating Rules on timely processing and posting rules. For Same Day ACH transactions made within the days first processing window, RDFIs are responsible for ensuring that funds are posted to the receiver’s account no later than 1:30 pm (ET), and no later than 5:00 pm (ET)for the second processing window. TABLE 9. SAME DAY ACH PARTICIPATION TYPES AND SERVICE OFFERINGS DFIs ODFI Direct Credit and debit transfer submission and processing services Third-party access Receiving of credit and debits Correspondent settlement services RDFI Direct Third-party access Third-party service Direct provider Third-party access Non-FI third-party service Third-party service N/A Data processing services providers provider Infrastructure operators: ACH Operators: The role of ACH Operators in the Same Day ACH scheme is to facilitate the electronic transfer of funds between financial institutions by processing Same Day ACH debit and credit entries. The ACH Operator is the central facility for the clearing and settlement of entries among participating FIs. The operator’s responsibilities include compliance with Nacha’s operating rules, especially provisions concerning national performance standards, Federal Reserve policies on settlement, processing obligations, interoperability with other operators, and risk management obligations. ACH Operators must have also entered into processing agreements with a minimum of 20 independent participating DFIs. The operator must also calculate the settlement amounts for each banking day for all entries processed by the operator and forward these balances to the Federal Reserve for settlement. The ACH Operator is also responsible for returning or reversing ACH entries that cannot be completed due to technical mistakes or erroneous filing of an entry. Settlement systems: Settlement via Same Day ACH in the US is provided via the Federal Reserve as well as The Clearing House’s Electronic Payments Network (EPN), the two national ACH operators. All participating FIs must maintain, or have access via a correspondent, to a Federal Reserve Master Account. The Federal Reserve and EPN play a crucial role in the finalization of Same Day ACH transactions. Their primary responsibility is to ensure that the funds transferred through the ACH Network are settled accurately and securely between the participating financial institutions. This involves reconciling the credits and debits associated with Same Day ACH transactions, managing the movement of funds between Master bank accounts, and guaranteeing 24 that the net settlement positions are balanced. In doing so, the ACH operators maintain the integrity and reliability of the ACH Network. Regulators: Nacha: provides the operating rules all parties must abide by in conjunction with input from the Federal Reserve and Nacha member institutions. Nacha operates as the authoritative governing body responsible for crafting and upholding the regulatory framework, standards, and operational guidelines for Same Day ACH transactions. These frameworks and operational guidelines come primarily in the form of the Nacha operating rules, which lay out the rules and regulations for the ACH Network. Nacha’s responsibilities include the monitoring of data for ACH quality and rule compliance as well as standards enforcement. Nacha is also responsible for enacting data security policies and complying with national privacy laws. Card networks: Card networks are central parties within a push-to-card scheme, acting as facilitators, rule-makers, infrastructure providers, and arbiters in disputes. Card networks like Visa and Mastercard are responsible for routing transactions, authorization, and sending payment instructions. These networks also manage settlement between sending and receiving FIs, by determining net settlement position between parties at the end of the settlement window (in the case of Visa) or by maintaining a pre-funded account for the scheme’s maintenance, as in the case of Mastercard. Settlement is provided by the Net Settlement Service of the card networks, which all participating financial institutions are required to join. Other security practices include the setting of transaction limits, which differ by network and use case. The card networks are also responsible for scheme rule formulation and compliance enforcement. TABLE 10. CARD NETWORK PARTICIPATION TYPES AND SERVICE OFFERINGS Financial institutions Originating Institution Direct Correspondent settlement services Push-to-card credit transfers Sponsor Direct Transaction monitoring No connection (Monitoring a Transaction Initiator) Receiving institution Issuer No official connection Receiving of push-to-card payments Settlement involvement Third parties Transaction Initiator Direct (with sponsor) Transaction initiation services Financial institutions: Receiving FIs: Within the push-to-card schemes the receiving FI is the receiver’s bank. In a push-to-card scheme, receiving FIs are responsible for enrolling and onboarding consumers into the broader card system and verifying the end user’s eligibility. These FIs are responsible for ensuring that funds sent from the sender are deposited into the receiver account/added to their card balance. Receiving FIs also are involved in aspects of settlement. In the Mastercard scheme this requires receiving FIs ensure their position within Mastercard’s pre-funded account is maintained at the minimal required levels for participation whereas in the Visa scheme Visa collects the funds from the sending FI for delivery to the receiving FI. THE 2025 AFPP HANDBOOK 25 Sending FIs: As the FI of the sending end-user, sending FIs have a critical role in push-to-card schemes. Sending FIs are responsible for producing and distributing cards, authorizing transactions, making payments to the receiving bank, debiting the cardholder’s account, and collecting usage fees from cardholders. Sending FIs are also responsible for ensuring compliance with regulatory standards and scheme-specific operational rules and procedures. This includes meeting authorization timelines, security protocols, and settling within the timelines outlined by card networks as a part of their broader operating protocols. Profile requirements are based on the organization’s type, role, and connection set up. The following table shows some common combinations of participant type and connection set ups along with the applicable profile requirements. TABLE 11. ELIGIBILITY REQUIREMENTS FOR FEDNOW Financial institution Financial institution Direct Participation and Authorized Connection Profiles Service provider Participation Profile Direct and service provider Participation and Authorized Connection Profiles Correspondent Direct Participation and Authorized Connection Profiles Service provider Participation Profile Direct and service provider Participation and Authorized Connection Profiles No connection No profile necessary Service provider Direct Authorized Connection Profile Service provider Service provider Direct Authorized Connection Profile All financial institutions, regardless of their sizes, that are eligible for Federal Reserve Financial Services are able to use the FedNow service, which depends on whether or not a financial institution has access to a Federal Reserve Master Account. Following an application process from depository institutions the Federal Reserve grants access to Master Account, and those that do not wish to have their own or fall short of the central bank’s expectations can use service providers’ accounts. Financial institutions that are connected in any type of setup must follow the Participation Profile requirements while those that act as Service Providers to other depository institutions must follow the Authorized Connection profile requirements. To be eligible, RTP participants are obligated to satisfy the requirements set forth in the RTP Participation Rules. These include compliance with applicable schedules, RTP Information Security Standards and Requirements, RTP Technical Specifications and the RTP Risk Management and Fraud Control Requirements. 26  TABLE 12. ELIGIBILITY REQUIREMENTS FOR RTP Depository institution Receive-only participant Direct Business located in the USA Supervised and regulated by US regulatory authorities Third-party access Has a Federal Reserve Master Account or Sending and receiving Direct arrangement with a funding agent participant Can directly (or through third-party service provider) Third-party access operate and manage RTP activity on a continuous Third-party service Direct basis, 24/7/365 provider Approved by TCH as a Participant Non-depository Third-party service N/A These players lack a formal role in the RTP third-party service provider environment and therefore lack eligibility providers requirements TABLE 13. ELIGIBILITY REQUIREMENTS FOR SAME DAY ACH (ACH) DFIs ODFI Direct Agreement to Terms and General Participant Information Third-party access Reserve bank Operating Circular 4 FedACH Participation Agreement RDFI Direct Compliance with General Rules (exceptions apply upon suspected illegality) Third-party access Conduct an annual audit of compliance with General Rules Third-party service direct Retain proof of completion of the annual audit provider Conduct risk assessment of ACH activities and Third-party access implement risk management program accordingly Non-FI third-party Third-party service N/A These players lack a formal role in the FedACH service providers provider environment and therefore lack eligibility requirements TABLE 14. ELIGIBILITY REQUIREMENTS FOR MASTERCARD SEND Financial institutions Originating Institution Direct Adhere to Mastercard Send Program Standards and Rules Sponsor Direct Ensure all connected Third Parties adhere, while No connection (Monitoring a using the platform and services. Transaction Initiator) Receiving institution Issuer No official connection No need to register to participate in MoneySend Payment Transactions Program Notify Mastercard when they are ready to accept payment transactions Adhere to Program Standards. Third parties Transaction Initiator Direct (with sponsor) Adhere to Mastercard Send Program Standards and Rules Through Originating Institution THE 2025 AFPP HANDBOOK 27  TABLE 15. ELIGIBILITY REQUIREMENTS FOR VISA DIRECT Financial Institution Enabler (Acquirer/ Direct Card Capture and Verification Functionalities Processor) Customer Support requirements Service Provider Financial and Back Office Management Service Provider Through Acquiring Sponsor functionalities Make connection to Visa via ISO or API Acquiring Sponsor Direct connection, either through Service provider Gateway provider Through Acquiring Sponsor Receiving entity Issuer No official connection Unknown Regulators are responsible for putting in place and maintaining regulatory frameworks needed to ensure the security and robustness of payment schemes while safeguarding end user interests and ensuring competition among participants. Regulators create frameworks to ensure that infrastructure operators conduct their business in a sound manner and that financial institutions manage their operations in a way the limits the risk of financial runs and collapse. Regulators might make specific requirements to different payment types, use cases or systems, or they can implement industry-wide regulatory packages that cover numerous payment types and stakeholders, such as the Electronic Funds transfer Act. Regulators often issue public consultations that end users and financial institutions can respond to, expressing their opinions on relevant matters. The main responsibility of infrastructure operators is to facilitate transactions between participating entities by ensuring the safety and security of clearing and settlement activities. Operators are responsible for running payment systems, enforce regulatory compliance and managing systemic risk within their payments environment. Infrastructure operators must receive license(s) to operate payment systems and often rely on (inter)national best practices to ensure they are in compliance with both national regulations and market practices. Infrastructure operators are also subject to regulators’ rulemaking. System participants are financial institutions that originate or receive transactions. Their responsibility is to transmit/receive payments initiated by or to their customers. Participants must comply with regulatory frameworks, rules, and standards set up by regulators and infrastructure operators to participate in payment systems. This includes practices to limit the buildup of risk within the payment system. Their relationship with end users depends on their offerings and ability to handle payments. Payment schemes serve end users, ensuring that they can originate and receive transactions. End users utilize payment systems to meet their obligations and receive payment for goods or services they provide. End users may also provide feedback to other stakeholders such as their financial institution, infrastructure operators, and even regulators. End users can be individuals, businesses, non-profits, and other organizations such as government. 28 Third parties provide services to different stakeholders to either ensure, secure or assist with their participation in the payment ecosystem. Their responsibilities range from providing gateways for financial institutions to connecting to payment systems, facilitating payments processing on behalf of financial institutions, facilitating testing environments for participants, or creating software products. Third parties, depending on the exact services they offer, must keep up with market demands and the needs of financial institutions. Moreover, they must comply with rules set by the regulator or infrastructure operators to connect to payment systems and offer services. Figure 2. Relationships between Faster Payments stakeholders A credit or “push” payment describes payment methods where the transaction is initiated by the payer; examples include peer-to-peer and funds disbursements. Debit or “pull” payments are where the beneficiary initiates the transaction (typically a business or biller) from the sender’s account. The receiver is authorized to initiate this transaction based on a contractual agreement between the two parties, often referred to as a mandate. This authorizes the receiver to pull funds from the originator’s account without asking for consent prior to every transaction, though the transaction must conform to the original agreement. Typical examples of debit payments include consumer bill payments. Among the Faster Payments schemes covered in this handbook only Same Day ACH offers debits. Both instant payment systems and push-to-card schemes are limited to credit payments. Considering messaging capabilities, the two key characteristics payment schemes have are the data standard and messaging formats they use, and the type of messages they support. Data standards are important to keep messages consistent and structured, and to provide interoperability within and between payment systems. Regarding the type of messages, one can differentiate between value and non-value messages. Value messages represent funds transactions, while non-value messages ensure information exchange between scheme participants, that can include account information, transaction status, and information or payment requests. THE 2025 AFPP HANDBOOK