E-Complish Resources

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Payment Processing Glossary

-A-

ABA NUMBER

Also known as a routing or transit number, the ABA number contains nine digits and is used by banking systems and other financial institutions for identification purposes.  This number is used by banks to route items like checks and credit or debit transactions to the correct financial institution.

ACH

An acronym that stands for the Automated Clearing House electronic network.

ACH AUTHORIZATION

An acknowledgement by an account holder that allows an ACH transaction, either credit or debit, to be applied to a particular account.  An account holder who authorizes such a transaction is also known as a receiver.  Although debit transactions must be confirmed or otherwise authenticated in writing, by PIN entry or by digital signature, a credit transaction may be authorized orally.

ACH CREDIT

An act that is conducted by means of the ACH network that pays an account holder (receiver) by making a deposit in an account.

ACH DEBIT

An act that is conducted by means of the ACH network that subtracts funds from an individual account and its account holder (receiver).

ACH NETWORK

A monetary transfer system that is overseen by the Federal Reserve and the National Automated Clearing House Association (NACHA).  The network allows participating financial institutions and consumers to route money and perform interbank and other transactions electronically.

ACH OPERATOR

The entity that processes ACH transactions between companies or individuals.  As of right now, the Federal Reserve Bank and the Electronic Payments Network (EPN) are the two operators that help facilitate transactions between ACH originators and ACH receivers.

ACQUIRER

A financial institution or Merchant Service Provider (MSP) that processes and operates the credit card transactions for a business or other merchant customer.

ACQUIRER BANK

The bank or financial institution a merchant uses in order to receive credit card or other ACH transactions.

ACQUIRING PROCESSOR

The credit card processor that an acquirer uses so that the acquirer can offer merchants various credit services, including billing, reporting, clearing and settling.

ADDENDA RECORD

A type of record used in the ACH system that contains additional data that is needed to verify the identity of an account holder or to provide additional information regarding an ACH transaction.

ANSI

The American National Standards Institute.

AUTHENTICATION

A process that is used in an ACH transaction to ensure that the data being exchanged between two parties of an ACH transaction is kept secure and unaltered.

AUTOMATED DEPOSIT

A one-time or recurring deposit that is made to a bank account or another depository financial institution (DFI) by means of the ACH network.

-B-

BANK IDENTIFICATION NUMBER (BIN)

The first six digits of any credit card, debit card or other similar financial instrument.  A BIN can not only identify the bank from which the card was issued, but it can also identify the ACH network the card belongs to.

BANKING DAY

A day that a bank or other depository financial institution is open and is performing financial transactions and all of its normal financial operations.  In regards to the ACH network, a banking day is any day that an ACH operator is open and performing ACH operations and transactions.

BATCH

A group of data, such as records or documents, that is treated as a single unit by a computer processor.

BUSINESS DAY

A day that a bank or other financial institution is open and is performing all of its normal transactions and operations.

-C-

CLEARING HOUSE

A group of depository financial institutions (DFIs) that clear checks or other electronic transactions and items by exchanging funds between group members.

COMMERCIALLY REASONABLE

A common procedure, practice or system that is used regularly by originators.

-D-

DATA ENCRYPTION STANDARD

The method that is used to scramble a message or other data into a coded series of bits before transmission.

DATA TRANSMISSION

The transfer of information and other data between two computers or other data processors.

DESCRIPTIVE STATEMENT

An account summary that includes information for ACH entries that do not contain an enclosure document from the originating financial institution.  All ACH entries need a descriptive statement as defined by Regulation E.

DFI

Depository Financial Institution.

DIRECT DEBIT

An ACH network transaction where debtors enable creditors to debit their accounts once their financial institutions have received corresponding entries from the individual creditors.

-E-

EFFECTIVE ENTRY DATE

The date given to an ACH transaction by its originator or an ODFI.  Usually, this is the date on which an originator or an ODFI wants an ACH transaction to take place.

ELECTRONIC FUNDS TRANSFER

The term used when money is exchanged between individuals, businesses or other institutions without using a check or a draft.

ELECTRONIC FUNDS TRANSFER ACT

The law created by the United States federal government that regulates the usage and the management of electronic funds transfers and services.

ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT (E-SIGN)

The law created by the United States federal government that manages and details the usage of digital signatures and records in electronic commerce.

-F-

FILE HEADER

The initial data of an ACH file that contains the information needed to route, validate and track the ACH transactions found in the file.

FUNDS AVAILABILITY

The day and time when money that has been involved in an ACH transaction is made available to an account holder.

-I-

INTERCHANGE

The method by which all of the parties that are included in a credit card transaction regulate the processing, clearing and settlement of credit card transactions.  This is also frequently defined as “Credit Card Interchange.”

ISSUING BANK

A bank or other financial institution that distributes credit cards to customers in place of a credit card association.  The terms “Card Issuing Bank” and “Issuer” are often used in place of Issuing Bank.

-M-

MEMO POSTING

A notice posted to an account that specifies that a credit has been issued to the account but has not cleared or posted.

MERCHANT ACCOUNT

An account from a bank or a financial institution that a merchant uses specifically for collecting bank account, credit card or other ACH transactions.  Merchant accounts can be either Card Present (CP) accounts, in which payment is physically given to the merchant when a transaction occurs, or a Card Not Present (CNP) account, in which payment is not physically obtained by the merchant when a transaction occurs.

MERCHANT ACCOUNT PROVIDER

A bank or other financial institution that issues a financial account to a merchant so that the merchant can collect funds from customer bank accounts and credit card transactions.

MERCHANT IDENTIFICATION NUMBER (MID)

A number that is given to each member merchant of a financial institution, such as a Merchant Service Provider (MSP), a processor or an Independent Sales Organization (ISO), that is used for identification purposes.

-N-

NACHA – (NATIONAL AUTOMATED CLEARING HOUSE ASSOCIATION)

The entity that establishes and oversees the NACHA Operating Rules.  NACHA also manages all ACH operations and policies, including system education and the publication of payment-related materials.

NON-SUFFICIENT FUNDS

A rejection and return of an ACH transaction that is caused by a receiver’s financial account not having sufficient funds to complete a particular transaction.

NOTIFICATION OF CHANGE

A notice given to a merchant from a bank or another financial institution that signifies there was an error with some of the account information that was provided with a particular transaction.  Notification of changes will include the correct account information.

-O-

ODFI (ORIGINATING DEPOSITORY FINANCIAL INSTITUTION)

A DFI that participates with the ACH network to originate ACH transactions.  These financial institutions can work immediately with ACH operators, or they can work with a Sending Point or other third-party processor.

ORIGINATOR

An institution or business that creates an ACH file and distributes it to an ODFI to be admitted to the ACH network.

-P-

PARTICIPATING DEPOSITORY FINANCIAL INSTITUTION

A DFI that has received permission from an ACH operator to originate or receive ACH transactions.

PAYMENTS GATEWAY

An electronic system that lets merchants submit payment transactions to payment processing networks.  This system also gives merchants transaction reports, as well as management and billing services.

PRENOTIFICATION (PRENOTE)

An entry for zero dollars that allows a receiving depository financial institution (RDFI) to validate account and entry information.  A prenotification must be transmitted through the ACH network at least six days before actual entries are scheduled to impact accounts at RDFIs.

-R-

RECEIVER

The individual, company or institution that has given an originator permission to issue a refund or charge a transaction to their bank account.

RDFI (RECEIVING DEPOSITORY FINANCIAL INSTITUTION)

A depository financial institution (DFI) that receives ACH transactions.  A RDFI can work immediately with an ACH operator to facilitate and complete these transactions, or it can work through a Receiving Point or other third-party processor.

RECEIVING POINT

A processing site that collects entries from an ACH operator for an RDFI.

REGIONAL PAYMENTS ASSOCIATION

An organization that was created by DFIs to help manage and endorse the processes of electronic transactions.

REGULATION CC

A regulation that was administered by the Federal Reserve Bank Board of Governors that enacted the Expedited Funds Availability Act and the Check Clearing for the 21st Century Act.

REGULATION E

A regulation that was administered by the Federal Reserve Bank Board of Governors that defined consumers’ rights regarding their responsibilities and liabilities when dealing with electronic fund transfers and financial institutions that offer electronic fund transfers.

RETURNED ITEM

An ACH transaction that was denied by a RDFI because it could not be posted or cleared.

REVERSING ENTRY

An entry made by a Sending Point that is used to negate a previous entry made in error.

ROUTING/TRANSIT NUMBER

The nine-digit number that is used by banks and financial institutions for identification and routing purposes.  This number is also known as the ABA number.

-S-

SENDING POINT

A processing site that routs transactions to an ACH operator for an ODFI.

SETTLEMENT

The confirmation and accounting of transactions that have been processed by an ACH operator.

SETTLEMENT DATE

The actual date on which a transaction is completed and funds change ownership.

SIMILARLY AUTHENTICATED

A way to allow both signed and written authorizations to be acquired electronically.  To be considered “in writing,” an electronic authorization must be legible on a display screen so that the consumer can read it and give their authorization.

SOURCE DOCUMENT

A document, such as a check or draft, that is used to initiate an ACH entry.

STANDARD ENTRY CLASS CODE (SEC)

A three-character code that is used in ACH documents to identify the different types of ACH transactions and rout them accordingly.

-T-

THIRD-PARTY SENDER

A service provider that works with an ODFI or another third-party sender to facilitate and originate transactions through the ACH network.  In a situation like this, an agreement is not made between the originator and the ODFI.  A third-party sender is a subset of a third-party service provider.

THIRD-PARTY SERVICE PROVIDER

A financial institution or bank that provides ACH services to other businesses, individuals and financial institutions.

-U-

UNIFORM COMMERCIAL CODE ARTICLE 4A (UCC 4A)

A body of state law that manages and commands commercial transactions.  Article 4A specifically covers money transfers that are not subject to the Electronic Funds Transfer Act.  ACH credit transactions are covered by this article.

UPIC (UNIVERSAL PAYMENT IDENTIFICATION CODE)

A unique code that is issued to bank accounts so that businesses and institutions can collect electronic payments without revealing their private banking information.  UPICs can only be used for credit payments, and they can travel between one institution and another.

-W-

WAREHOUSING

The capability of an ODFI to obtain and hold an ACH entry from an originator before the Effective Entry Date and before needing to release it, or the capability of a RDFI to obtain and hold an ACH entry without posting it until the Settlement Date.

WHOLESALE CREDIT

A credit transaction that is either originated or received by a non-consumer account.