Differences between ODFI and RDFI

You may have seen these terms if you process checks or debit transactions through the ACH network. Both ODFI and RDFI are entities that process payments, and without them, the ACH network wouldn’t be functional. This article tells you all you need to know about RDFI, ODFI, their differences, and their role in ACH payment processing.

ACH payment processing

Before diving into RDFI and ODFI, it is beneficial to have a broad idea of how ACH payments work. ACH payments are bank-to-bank transfers processed through The Clearing House or the FedACH. The ACH network is exclusive to national payments within the US, as each country has its own clearinghouse. In sum, the ACH connects all US banks and financial institutions to each other and routes transactions such as direct deposits. The ACH network is overseen by NACHA, a non-profit organisation.

What is RDFI?

RDFI stands for Receiving Depository Financial Institution, and it represents any banking institution or credit union that receives ACH funds. They need to have an agreement with the ACH Operator, which can be The Clearing House or the Federal Reserve. They receive the debit or credit payments from the ACH Operator on behalf of their customers. Essentially, any bank or financial institution that can accept ACH payments is an RDFI too. This is a mandatory requirement. To become an RDFI, banks need to be recognised by NACHA.

RDFI responsibilities

Some of the RDFI’s tasks and responsibilities include:

  • Receiving ACH payment requests
  • Validating ACH payment requests
  • Posting these requests to the receivers’ accounts
  • Notifying the Originator (ODFI) of incorrect information

They are required to perform these promptly, according to ACH regulations. Failure to meet deadlines may disqualify them from being an RDFI and, therefore, enabling their customers to receive ACH payments.

regulations

What is ODFI?

ODFI stands for Originating Depository Financial Institution and presents any bank or credit union that can transmit payment requests. As opposed to RDFIs, ODFIs start the payments and create original entries. Similar to RDFIs, ODFIs need to have an agreement with the ACH Operator to be able to originate payment requests. Banks that don’t have this agreement can’t enable their customers to initiate ACH payments/transfer funds through the ACH network.

ODFI responsibilities

Some of the ODFI’s tasks and responsibilities include:

  • Protecting ACH payment data
  • Obtaining authorisation for any credit or debit payment request
  • Having contractual relationships with their customers
  • Keep ACH returns below the agreed threshold

Differences between the RDFI and ODFI

The main difference between the two terms is that while RDFI represents receiving payments, ODFI represents originating payments. So, if banks want to enable their customers to initiate ACH payments and receive ACH payments, they need to be both an RDFI and ODFI. Banks and financial institutions don’t have to be both; they can also choose one or the other. The credit risks involved in originating ACH payments and the processing fees make some banks reluctant to be ODFI.

About Imburse

Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using a variety of payment technologies and providers around the globe.

In a world where consumers’ payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.

Reach out to our team below should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.

What is Nacha? Guide to the ACH network

Being one of two leading national payment networks in the US, the ACH network processed over 426.3 million payments in 2021, which are valued at $2 trillion. If you accept or make ACH payments, you should know NACHA, its requirements, and how it influences the ACH payment network. This article tells you all you need to know about NACHA, including its operating rules and how they may affect you.

What is Nacha?

Nacha, short for National Automated Clearing House Association, is a not-for-profit organisation that manages the administration, development, and governance of the ACH network. The ACH network, divided into the two US national operators, The Clearing House and FedACH, is the American system for transferring funds between banks. While The Clearing House deals with private banks and accounts, the FedACH deals with government entities and accounts.

It was founded in 1974 and represents close to 11,000 financial institutions in the US that also fund the organisation. Some of NACHA’s tasks include:

  • Providing clear guidance for member banks and ACH network participants, taking into account federal regulations
  • Enforcing those rules to its member banks and network participants
  • Developing the ACH system and its adoption across the US
  • Providing education to its members, participants, and the general public, in the shape of events, documentation, and reports
payment gateway

What are NACHA’s operating rules?

NACHA provides unequivocal guidance for its members and participants. You can find a whole website section on the rules NACHA enforces on their website. These rules are based on pressing topics within the industry, including fraud detection and higher security, audit requirements, speeding up payments for a better customer experience, and improving the network quality. Participants that must follow this rule include payment processing partners, merchants, and even individuals that use the ACH network to process payments.

In 2021, NACHA developed a new rule to prevent payment fraud. This rule dictates that any business that sends ACH debits must include account validation. That means companies must ensure the account numbers they provide are valid and that the bank account is open and connected to the ACH network. More rules may be enforced regularly, and you can check all of these here.  

What are NACHA’s requirements?

NACHA’s requirements have the primary purpose of protecting customers’ information and preventing fraudulent payments and cyber-attacks. Ultimately, this results in more seamless operations and higher payment success rates. The list of requirements that NACHA imposes on its participants and members is long and detailed so we will go over some of its most relevant sections:

Ensure security when transmitting and storing sensitive data

All payment data must be encrypted and sent through secure web forms or emails such as Microsoft Office 365 Message Encryption. Merchants need to ensure that their Payment Service Providers have the proper encryption tools and standards to comply with this NACHA rule, as any unencrypted sensitive information is prohibited.

Validation of Routing Numbers

NACHA requires participants and members to validate their customers’ routing numbers before accepting transactions. This rule applies to the first-time use of routing numbers or routing number changes. Already verified accounts don’t need to be validated again. As we mentioned before, this rule was imposed in 2021 and aimed to strengthen the security around validating accounts and preventing fraud. There is no specific method that businesses must follow to ensure this, as long as they have a detailed process plan that covers routing numbers.

Customer verification

KYC or Know Your Customer is an already well-known term representing a set of rules any company that deals with money must follow. One of KYC’s requirements is the performance of CDD or Customer Due Diligence, which essentially means ensuring that the customers’ details are legitimate. This can be done by matching bank account details with official documents such as a passport or driving license or requesting customers to take a selfie (facial recognition) to ensure they are the same person as they say they are. Customer verification is also one of NACHA’s rules, and companies can use third-party solutions to ensure they meet the standards.

chargebacks are initiated by customers who request a transaction cancellation.

Security policies

NACHA requirements also include having a clear set of policies that cover all payment methods you take. If you are already PCI-compliant (check the full PCI compliance checklist here), your company certainly has this documentation already. However, if you take or accept ACH payments, include all the relevant regulations and procedures for ACH payments.

About Imburse

Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using a variety of payment technologies and providers around the globe.

In a world where consumers’ payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.

Reach out to our team below should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.

What is EMVCo?

The payments industry is regulated by a set of regulatory bodies that produce international industry standards for all payment players and merchants to follow. These regulatory bodies are formed in order to ensure maximum security across the industry, at times when cyber-attacks are becoming more frequent and smarter. One of these organisations is EMVCo. Though you may have not heard about it before, EMVCo plays a significant role in the security of card payments worldwide. Let’s dive into EMVCo and the impacts it has on the industry.   

What is EMVCo?

EMVCo is a technical body composed of six of the largest payment networks worldwide: Amex, Discover, JCB, Mastercard, UnionPay, and Visa. These payment networks have incredible power in shaping the payments world and defining some of its rules.

The purpose of this organisation is to facilitate the security and interoperability of payment technology worldwide, by providing and promoting standard specifications that are applicable industry-wide. However, the EMVCo is not responsible for enforcing rules or ensuring that issuers, acquirers, and merchants are compliant with them. Instead, these obligations belong to each payment network.

The EMVCo was established in 1999 and EMV initially stood for Europay, Mastercard and Visa. While it focused on debit and credit chip cards and chip terminals at that time, it has evolved to include QR Codes, eCommerce payments, and mobile contactless payments too, as these are some of the most popular payment methods. Its specifications continue to evolve to meet the ever-changing and increasingly innovative trends in the industry.

EMVCo’s collaboration with other organisations

EMVCo collaborates with other standardisation and regulatory bodies in the payments industry, in order to share perspectives and ensure their worldwide goals are aligned. Some of these organisations include the NFC (Near Field Communication) Forum, GlobalPlatform, GSMA, PCI SSC, AFSCM, APSCA, ETSI, the European Payments Council, US Payments Forum, and the Secure Technology Alliance.

Some of these bodies are already quite well-known, particularly the PCI SSC and ISO. GlobalPlatform, for instance, is responsible for the standardisation of the management of applications on secure chip technologies, whereas the NFC Forum is responsible for managing NFC interactions. All of these organisations benefit from collaboration with one another in order to ensure alignment in terms of security and innovation.

Vendor management speeds up the onboarding process.

Furthermore, in order to establish a more centralised and collaborative environment, EMVCo runs an Associates Programme that is open to all interested parties. These parties may include banks, merchants, processors, vendors, and other stakeholders.

What are the EMV specifications?

As we discussed, the EMV specifications are set to provide an industry standard, rather than rules enforced on payment players. The enforcement of these standards and other rules is the responsibility of payment networks independently. The EMV specifications are the following:

  • Merchants and payment players must support payment security risk management parameters and cardholder verification methods in order to reduce card fraud.
  • They must provide the framework to promote innovative payment capabilities and deliver robust payment technology.
  • They must deliver enhanced security, interoperability, and acceptance of EMV-based payments worldwide.
  • They must offer flexibility to accommodate national and regional payment needs so that these payment methods can interoperate easily with the global payment infrastructure.

What is EMV Compliance?

Compliance with EMV means that merchants and all the other payment players are taking all the precautions needed to prevent card fraud, including investing in the right security technology. Every credit or debit card contains an EMV chip nowadays. However, before this was introduced, cards would contain a magnetic stripe that contained data that never changed. This means that fraudsters who were able to get hold of your card could instantly access all of your cardholder information. Magnetic stripe cards were also very prone to counterfeiting.

EMV chips, however, create a unique transaction code every time they are used. This means that fraudsters wouldn’t be able to duplicate your card based on a transaction, making it much safer for cardholders. EMV compliance is crucial because it means that businesses have the right point-of-sale equipment to support EMV payment technology. The card reader is EMV compliant and customers can insert their card and initiate the payment safely. If the only option offered is to swipe the card, then merchants may not be EMV compliant, and the risks of card fraud are higher.

About Imburse

Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using a variety of payment technologies and providers around the globe.

In a world where consumers payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.

Reach out to our team below should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.

Leading payments middleware launches new feature aimed at improving customer experience

Payment middleware Imburse has, today, announced the launch of Pay-by-Link, a new feature that will improve customer payment experience. Pay-by-link will make customer payments quicker and will not involve major financial investment or resources on the part of insurers. Imburse is a payments middleware that provides connectivity to the entire payments ecosystem for large enterprises.

What is Pay-By-Link?

Increasingly more businesses are looking to invest in payment solutions that are easier and more convenient for their customers. The payments industry has gone a long way and suffered a tremendous digital transformation to accommodate customers’ needs. Amongst other fast and convenient payment methods is Pay-by-Link. This article discusses what Pay-by-Link is, its benefits for merchants, and how you can start offering this payment method to your customers.

What is Pay-by-Link?

Pay-by-Link is a method that enables customers to pay for their purchases via a link online. Enterprises can generate this link and send it to customers via various channels such as email and SMS. When customers click on that link, they will be directed to a web payment page where they can add their payment details and complete the transaction.  The payment amount is predefined and will show up on the payment page. There are different types of Pay-By-Link, which we will explain in the next section.

Pay-By-Link types

There are two main types of Pay-By-Link: one-time links and buttons on eCommerce websites. With the one-time link, merchants generate this link and send it across to their customers via email, SMS, social media, or other online platforms. SMS and email are most common, as they are readily available to most customers. The ”Buy Button” is most commonly seen on eCommerce websites, where customers can click on the button and be directed to a payment page to complete the transaction. Though it is not exactly a link you can send your customers via email or SMS, it still directs customers to their checkout page, similar to one-time links.

online payments grew significantly during the pandemic.

Benefits of Pay-by-Link

The most significant benefit of Pay-By-Link is the accessibility and ease for customers, who can quickly click the link and pay for their purchase anywhere, at any time. Customers expect a seamless and straightforward payment journey, and they don’t want to go through a lengthy checkout process to pay for services. Payment links can reduce dropouts by as much as 80%, making them effective for onboard insurance customers.

Pay-By-Link is equally advantageous to enterprises, as it makes it easier and faster to collect payments, which ultimately improves their cash flow. It also doesn’t require a lot of investment in resources and operations, as enterprises don’t need to build their website and payment page.  

Get Pay-by-Link with Imburse

Imburse supports Pay-By-Link, so our customers can easily set up this functionality as soon as they connect to our platform. This payment method is available for all enterprises, free of charge. Insurers can send the link to their customers via email or SMS and receive a notification once the payment is complete. Our Pay-By-Link functionality supports various languages, including English, German, Portuguese, Spanish, French, Italian, and more on request. Customers can change the predefined language via a dropdown menu.

Payment gateways

Our clients can also customise their payments page, including logo, fonts, colour, text, and footer, on their Imburse tenant portal. Pay-By-Link is entirely secure, as the link carries a token instead of data, meaning no sensitive information can be compromised.  

About Imburse

Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using a variety of payment technologies and providers around the globe.

In a world where consumers’ payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.

Reach out to our team below should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.