Financial, Payments Space - Glossary of Terms and Acronyms

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ABA

American Bankers Association, a trade association representing the interests of federally insured commercial banks. The ABA plays a key role in setting standards for inter-bank financial transactions (e.g.: checks).

ACH

Automated ClearingHouse, a batch processing, store and forward system for the electronic clearing of payments and related information. The ACH infrastructure, a combination of federal and private sector initiatives, supports the electronic conversion, clearing and settlement of various categories of payments traditionally made by check, including payroll, remittance and point-of-sale checks.

Acquiring Bank

The financial institution that enters an electronic transaction into the collection stream. This can be the merchant’s bank, in the case of credit cards or POS debit cards, or the ATM-owning bank in the case of ATM debit card transactions.

Affadavit

In the financial arena, this typically refers to a sworn statement required of a consumer in support of claims that a particular transaction was not authorized.

AFP

Association for Financial Professionals, a national association representing corporate treasury professionals. AFP is active in the promotion of standards and conventions related to payments and other financial information exchanges.

ARC

Accounts Receivable entry, an ACH transaction format that supports the electronic clearing and settlement of remittance checks converted to electronic transactions at lockboxes or other collection sites.

Authentication

A data security technique designed to ensure that the professed sender of a transaction is indeed the person they claim to be.

Authorization

In the retail payments arena (such as credit and debit cards) authorization refers to the communication between a consumer’s bank and the merchant’s bank verifying that the consumer has sufficient credit or funds available in their demand deposit account (DDA) to cover the transaction, in which case the consumer’s bank (also known as the card-issuing bank) sets aside funds for the transaction and provides the merchant’s bank with an authorization code.

In the ACH world, authorization reflects the Receiver’s consent for the posting of credit or debit items to its account. Authorizations for ACH credit transactions may be given orally, but debit authorizations are generally required to be in writing.

Auxiliary On-Us Field

Part of the MICR Line of a check that is used to identify the account on which a check was drawn; these are most commonly used for commercial (corporate) checking accounts.

Available Funds

Funds on deposit with a financial institution and available for withdrawal by the accountholder. Funds availability rules became widespread in the late 1980s/early 1990s when Congress enacted legislation (known as the Expedited Funds Availability Act) limiting the number of days financial institutions could “hold” funds from check deposits.

Banking Day

Any day on which a financial institution is open and available for transacting business.

Batch

A group of records (such as ACH files) considered a single unit for purposes of processing.

Business Day

Any weekday, excluding federal holidays.

CAR

Courtesy Amount Recognition, refers to machine reading of the handwritten numerical amount on a check.

CCD

Cash Concentration and Disbursement, an ACH transaction format used by organizations wanting to consolidate funds from disparate accounts into one central account.

Charge Back

A reversal of a credit card transaction, typically initiated by the transaction card issuer at the cardholder’s request. Charge backs can occur for any number of reasons, including: customer disputes, potential or actual fraud (on the part of merchants, sales associates and/or customers), processing errors and authorization issues. Charge backs are governed by a complex set of rules and time limits that can be costly to merchants and their banks if disregarded.

Check

A demand draft drawn against or payable through or at an office of a commercial bank. The accounts on which checks can be drawn include demand deposit accounts (DDAs), negotiable order of withdrawal accounts (NOW accounts) or credit union share draft accounts. There are also other categories of checks, including Traveler’s Checks, Money Orders sold through the U.S. Postal Service, Courtesy Checks for accessing credit lines, and certain drafts against government accounts (which can be checks drawn on Federal Reserve Bank accounts).

Check Guarantee

A service (commonly offered to merchants) guaranteeing that a checkwriter has sufficient funds on deposit to cover the payment. For a fee, a check guarantee service assumes collections risk should checks be returned.

Check Safekeeping

When a checkwriter’s financial institution retains copies of posted checks rather than returning items to the checkwriter. Many financial institutions (30-40% by most accounts) safekeep checks for customers, including digitized images of cleared checks in monthly account statements in lieu of returning the actual paper. Customers can receive copies of the original copy if needed for dispute resolution, or other purposes; these copies are excepted in lieu of originals for most dispute resolution purposes.

Check Truncation

A generic term used to describe the conversion of a paper check to an electronic payment or digitized image for clearing, posting and settlement. These transactions can be governed by paper check or EFT laws.

Check Verification

A service used to verify that a checkwriter and/or their checking account information is valid, and/or the account is in good standing.

Checkwriter

Person or organization with the legal authority to draw checks against a particular account, as shown on the check. This is the person who must authorize the conversion of their checks to electronic transactions by a merchant, biller or bank.

Clearinghouse

A central collection point where banks can exchange checks and/or ACH files in accordance with certain rules and procedures.

Clearinghouse Funds -- Funds used to settle transactions on which there is one day's float (ie: next-day funds, meaning good funds will be available tomorrow).

Collected Funds

Funds for which payment has been received by the collecting financial institution.

Consumer Account

A deposit account maintained at a financial institution by a natural person and used primarily for household and personal transactions, not commercial transactions.

COR

Automated Notification of Change, this is a notification transaction, used in the ACH business that is automatically derived from the original, erroneous item.

CRF

Composite Receivers File, a directory of all receiving depository financial institutions (RDFIs) that are served by an ACH operator.

Day Cycle

The first daily scheduled time for delivery of ACH files by an Originator to its ACH processor.

Drop-Out Ink

Background ink which appears transparent to an optical scanner or digital image.

ECC

Electronic Check Council, is a membership organization, operated under auspices of NACHA, and dedicated to improving check clearing and collection through the implementation of E-Check standards and applications.

ECCHO

Electronic Check Clearing House Organization, and association of banks that promotes electronic check presentment (ECP) through the establishment of rules and standards that support the exchange and settlement of electronic checks.

ECL

Electronic Cash Letter, electronic files containing pertinent information from check MICR lines that are used to present the corresponding checks electronically for payment.

ECP

Electronic Check Presentment, is the transmission of the contents of a cash letter (based on MICR line capture) to a paying bank in advance of physical delivery of the (paper) cash letter, or as a result of the truncation of the cash letter items.

Effective Entry Date

Is the date on which the Originator requests an ACH transaction be posted to the accounts of originator and receiver.

EFT Act

The EFT Act (or EFTA) is the federal law that sets out the rights and obligations of consumers and their financial institutions with respect to the use of electronic systems for fund transfers. The law is implemented through Federal Reserve Regulation E.

Electronic Check

Generic term for any payment that begins as a paper check and is subsequently converted to an ACH transaction for electronic clearing and settlement. Also known as an E-Check.

Endorsement

Is the stamp or written information concerning deposit account information, placed on the back of a check.

Error Resolution Process

Procedures established under Regulation E for resolving consumer allegations that transactions were improperly posted to their accounts.

Expedited Funds Availability Act

Federal legislation that dictates the “holds” financial institutions may place on funds represented by check deposits. The law also directs the Federal Reserve to take actions to improve check clearing and settlement procedures. Also known as EFAA, this law is implemented through Federal Reserve Regulation CC.

Exposure Limit

The absolute limit of transactions an ODFI is willing to process on behalf of each individual originator.

FI

Financial institution, a federally insured bank, thrift or credit union.

File Header Record

The first record in an ACH file containing information necessary to route, validate and track the ACH entries contained therein.

File Trailer Record

The last record in an ACH file.

Float

The dollar value of cash balances created by the time lags in processing unpaid checks. Collection float refers to the interest lost by the depositor of a check. Payment float accrues to the checkwriter; this is the float most consumers are referencing when extolling the benefits of check writing.

FRB

Federal Reserve Bank, any one of 12 regional banks that make up the Federal Reserve System. The Fed System helps clear and settle inter-bank payments, among other responsibilities.

ICR

Intelligent Character Recognition is the machine reading of handwritten or printed information, interpreted from an image scan of the original item.

Interchange

A fee, set by a network operator (such as Visa, MasterCard and debit card networks, such as STAR) and paid by the transaction-acquiring bank to the card-issuing bank.

IRD

Image Replacement Document, also known as a Substitute Check. IRDs are paper printouts of check images. Under proposed federal legislation

the Check21 Act

IRDs would carry the same legal status as the paper checks from which they are derived. They are processed in much the same way as paper checks, and are intended to facilitate the adoption of check truncation and electronic check clearing.

LAR

Legal Amount Recognition, refers to the ability to read the spelled out amount on a check.

Lockbox

A remittance processing service, often run by banks, that directs customers to send remittances to a special post office box, where they are collected multiple times throughout the banking day and prepared for deposit.

MICR Line

The Magnetic Ink Character Recognition Line is the string of digits at the bottom on the face of a paper check that identifies the bank, account and check number, printed using a special magnetic ink and character font.

NACHA

National Automated Clearinghouse Association, an association that promotes electronic payments through the establishment of industry rules, standards and procedures for the exchange of ACH items.

NACHA Format

An ACH record format that meets specifications set out in the NACHA Operating Rules and Guidelines. ACH participants warrant that they have agreed to and will abide by formats established for ACH payments.

Negotiated Order of Withdrawal, or NOW Account

An interest-bearing transaction account that blends the payable upon demand feature of checks with the features of a savings account. NOW accounts originated with thrift institutions that wanted to compete with commercial banks for demand deposits, but today are offered by various types of financial institutions. Think of a NOW account as an interest-bearing checking account.

Night Cycle

The latest scheduled time that an ODFI can transmit an ACH file to its ACH operator for end-of-day processing.

NOC

Notification of Change, a non-monetary ACH communication, from the RDFI to the ODFI, notifying the ODFI that previously valid information for a transaction Receiver has become outdated or is otherwise erroneous, and providing the corrected information.

ODFI

Originating Depository Financial Institution, the financial institution that deposits an ACH origination file with an ACH operator (either directly, or by way of a third party).

Originator

The person, company or organization that authorizes its financial institution to initiate a credit or debit transaction on its behalf to the account of a Receiver.

POP

The ACH transaction format used to clear electronically a check converted to an ACH item at the point of purchase (point of sale).

PPD

Prearranged Payment or Deposit, an ACH transaction format, usually initiated in the context of a standing obligation (e.g.: club dues) that debits/credits a consumer’s account on a regular basis to satisfy the obligation.

Processing

Is a term used to describe the management of payment transaction flows.

R/T Number

Routing Transit Number, also known as the ABA Number, is a nine-digit number contained in a check’s MICR line identifying the financial institution on which a check has been drawn. Also known by the acronym RTN.

RCK

Represented Check Entry, an ACH transaction format for collecting funds represented by a paper check returned for insufficient or uncollected funds.

RDFI

Receiving Depository Financial Institution, the financial institution receiving an ACH file from an ACH operator.

Receiver

An individual, company or organization that authorizes an Originator to initiate a credit or a debit to an account it maintains at a financial institution.

Reg CC

A Federal Reserve Board regulation implementing the Congressionally mandated Expedited Funds Availability Act (EFAA), which establishes time limits for when funds must be made available to depositors of checks.

Reg E

See EFT Act.

Retail Lockbox

A lockbox used to collect consumer-to-business (C2B) remittances.

RNAB

Routing Number Administrative Board, is a cross-industry forum, administered by the ABA that defines and administers policies related to check routing/transit numbers.

Settlement

Refers to the final accounting in which debits and credits are posted to the appropriate financial institution accounts.

TEL

Telephone-Initiated Entry, a one-time ACH debit entry initiated in accordance with a consumer’s verbal authorization, usually for the purchase of goods and services via the telephone.

Third Party Processor

A company that processes ACH files and transactions on behalf of banks or other participants to those transactions.

Tran Code

Transaction Code, this is the two-digit code in an ACH record that identifies the transaction as a debit or credit and the type of account against which it will post (e.g.: checking, savings, loan).

Transit Field

A field in the MICR line of a check; together with the Routing Code or RTN, it identifies the bank on which a check is drawn.

TRC/TRX

Truncated Check Entry, an early attempt by NACHA to promote an ACH format for truncated checks. In the case of TRC/TRX, the original check is safekept by a financial institution somewhere along the collection stream, which creates the ACH item to clear and settle the transaction electronically.

UCC

Uniform Commercial Code, this is a uniform body of state law with applications for all types of commercial endeavors. (Although not all Articles contained in the UCC are necessarily enacted in all states.) UCC Articles 3, 4 and 4A establish the basis for state laws governing check and ACH transactions.

Unauthorized

A transaction that was never authorized by the accountholder, clears for an amount different from the amount authorized, or was settled earlier than at the authorized time.

WEB

Internet-initiated Entry, an ACH format for one-time or recurring debits that are initiated pursuant to an authorization secured by way of an Internet exchange.

Window

The time period during which a financial institution may send items to an ACH operator for processing and delivery to the RDFI by a specific deadline.

Wholesale Lockbox

A lockbox used to collect high-dollar, business-to-business (B2B) remittances.

XCK

Destroyed Check Entry, an ACH format used to clear and settle items that originate as checks, but the original paper item was lost or destroyed due to catastrophic event (e.g.: an airplane crash) and now the item is being cleared as an ACH transaction.