The Automated Clearing House (ACH) Network is a robust network that both consumers and businesses rely on for electronic payments. And when handling global ACH payments as a business, it’s important to understand global ACH banking terms and acronyms that may appear in statements.
Below are some of the most commonly used terms and acronyms within the ACH network. By mastering these definitions, you can begin to master the ACH Network as a whole system.
An ACH credit is a type of ACH transfer initiated by the payer, where funds are “pushed” from the payer’s bank account into the receiver’s bank account.
An ACH debit is a type of ACH transfer initiated by the receiver, where funds are “pulled” from the payer’s bank account and into the receiver’s bank account.
ACH fees are the fees associated with payment processing. Typically fees range between zero to ten dollars per payment, but the cost depends on the payment processing company and its fee rates.
Bank Secrecy Act (BSA)
In 1970, the US legislation implemented the Bank Secrecy Act (BSA) to prevent criminals from using banks and financial institutions as money-laundering tools. Today, financial institutions are legally responsible for helping US government agencies detect fraud.
Some of the measures taken include reporting cash transactions that exceed $10,000, recording cash payments of negotiable instruments, and reporting suspicious activity.
Bank Identification Code (BIC)
A Bank Identification Code is an eight or eleven digit number that is unique to each bank across the world. A BIC is used by the SWIFT network to identify banks within seconds, whether they are local or international.
Bank for International Settlement (BIS)
The Bank for International Settlement was created in 1930 to serve as an international bank for central banks across the globe. Headquartered in Switzerland, it serves to foster cooperation and stability within the financial sector across all banks.
Batching is grouping together payments to a list of recipients and sending the payments simultaneously, from one bank account. Merchants and businesses use batching to more efficiently run their payment processes.
Clearing House Interbank Payment System (CHIPS)
The Clearing House Interbank Payment System was founded in 1970 and is now the largest USD clearing system in the world, processing up to $1.8 trillion per day in domestic and international transactions.
Cross Border Payment
A cross border payment is a financial transaction that involves individuals, businesses or financial institutions operating in at least two different countries that do not share a border.
Financial Action Task Force (FATF)
Founded in 1989 as an intergovernmental organization, FATF works to create policies to combat financial crimes. The Financial Action Task Force serves as an international watchdog to help identify and catch criminals in money laundering or terrorist financing.
Financial Crimes Enforcement Network (FinCEN)
Similar to FATF, the Financial Crimes Enforcement Network aims to prevent and punish criminals and criminal activity related to money laundering and terrorist financing. Created in 1990, FinCEN is a bureau of the US Department of Treasury and they combat these crimes by collecting and analyzing financial data.
Foreign Gateway Operator (FGO)
A foriegn gateway operator acts as the entry and exit point for the United States for ACH payment transactions. A gateway operator must classify payments that come into a new country and are now subject to local laws and regulations.
Businesses across the US use payment gateway software to more efficiently process payments. This software allows payments to securely be processed from consumer to merchant within seconds.
Foreign Exchange (FX)
Foriegn exchange is the process of converting money in different currencies at specified exchange rates. The exchange rates vary across currencies and have a specific set of exchange rules set by their respective countries.
International ACH Transaction (IAT)
An international ACH transaction is a payment that involves a bank or financial institution located outside of the United States. NACHA manages all IATs, and all transactions must follow the rules set by NACHA.
International Bank Account Number (IBAN)
An international bank account number is an alphanumeric code composed of 22-34 characters that identify a bank’s country of business, the bank itself, and an individual’s account number within that bank.
International Standards Organization (ISO)
The International Standards Organization is a nongovernmental, worldwide federation that sets and creates universally-accepted standards related to commercial, industrial and technical industries. ISO is composed of national standard-setting bodies, where each body represents a different nation.
Know Your Customer (KYC)
Know Your Customer is a set of guidelines introduced by the World Bank of India in 2002 that require financial institutions to evaluate customers before entering into a business relationship with them. These guidelines include verifying the identity and risks involved in working with a certain individual.
Mass payment is a method for paying multiple recipients online simultaneously, from one bank account. The transaction can be one-time or set up as a recurring transaction.
NACHA File Format
An operator (or ACH operator) is the company handling a transaction. The operator is responsible for ensuring the funds reach the receiver. There are only two of these operators that exist: the Electronics Payment Network and FedACH.
There is also a Gateway Operator who works specifically for the United States. Whether you are sending or receiving funds, the GO handles the transactions in this country. It may be the same person as the ACH Operator, another institution, or a bank.
There are two originators. The first is simply the person or company starting the ACH transaction. The second is the Originating Depository Financial Institution or ODFI. Your ODFI is the bank or place the process begins.
Organization for Economic Cooperation and Development (OECD)
The Organization for Economic Cooperation and Development is an intergovernmental entity dedicated to helping promote the global economy and stimulate world trade by coordinating policies across the globe.
Office of Foreign Assets Control (OFAC)
The Office of Foreign Assets Control is an agency within the US Department of Treasury that administers and regulates economic and trade sanctions. These sanctions exist to support US national security and protect foreign policies.
Pan European ACH (PE-ACH)
A Pan European Clearing House is a bank (or clearing house) that processes SEPA credit and debit transactions across the Eurozone. There is currently only one active PE-ACH in the world; STEP2, which was established in Europe in 2002.
Real Time Gross Settlement (RTGS)
Real Time Gross Settlement is a type of funds transfer that happens on a real-time basis, allowing a transfer to happen instantaneously and securely. Central banks across the globe are typically the institutions that use this process the most frequently.
There are two receivers involved in a financial transaction. The first being the person receiving the payment. The Receiving Depository Financial Institution is the bank where the funds ultimately end up.
Specially Designated Nationals and Blocked Persons List (SDN List)
The SDN List is a US sanctions/embargo measure that involves a list created and administered by OFAC that specifies individuals or companies that work for, or on behalf of, targeted countries.
Single Euro Payments Area (SEPA)
Single Euro Payments Area is an initiative by the European Union to simplify cross-border payments and consolidate national euro markets into one domestic market. The initiative began in 2008 and does not cover payments that aren’t in the euro.
Straight Through Processing (STP)
Straight Through Processing is an automated method of processing end-to-end payments that removes the need for manual intervention. The goal of STP is to speed up payment transactions and reduce manual error.
Society for WorldWide Interbank Financial Telecommunication (SWIFT)
The Society for WorldWide Interbank Financial Telecommunication is a network used by banks and financial institutions across the world to share financial information and transact payments in a secure and standardized environment. SWIFT was founded in 1973 and is currently headquartered in La Hulpe, Belgium.
USA Patriot Act
Passed in 2001, the USA Patriot Act is legislation that aims to support US law enforcement in identifying, preventing and punishing terrorist acts in the US and around the world.
United Nations Center for Trade Facilitation and Electronic Business (UN/CEFACT)
The United Nations Center for Trade Facilitation and Electronic Business is an intergovernmental body of UNECE that was established in 1996. The overall goal of UN/CEFACT is to promote global commerce by helping established, underdeveloped or transitioning economies to do business with each other.
eXtensible Mark-up Language (XML)
eXtensible Mark-up Language is a programming language that both humans and machines are capable of reading. It’s convenient for financial institutions to use because it makes information sharing possible between otherwise incompatible technologies.
Importance of ACH Banking Terms
The ACH Network reached an average of 118 million payments processed per day in February 2021–that’s a new record high. With that kind of volume, it’s clear the ACH system is only becoming more integral to the way we process payments.
Getting familiar with the terms above can paint a clearer picture of how the ACH network operates and the core principles it was founded on. For a deep-dive on ACH payments, check out our Total Guide to ACH Payments.