What is ACH?
ACH stands for Automated Clearing House. It's a nationwide network that facilitates electronic money transfers between bank accounts in the United States. Before ACH, financial transactions were primarily conducted via paper checks. ACH allows for secure and efficient movement of funds electronically, making payments faster and more convenient. It's used for various transactions, including direct deposit, bill payments, and business-to-business transfers. The network is managed by the National Automated Clearing House (Nacha), and the actual processing is handled by two operators: the Federal Reserve and The Clearing House.
Who Are the Participants in the ACH Network?
The key participants in the ACH network include:
- Originating Depository Financial Institution (ODFI): Financial institutions that originate transactions on your behalf. Plaid works with ODFIs to initiate these transactions.
- ACH Operators: The Federal Reserve and The Clearing House, which process, route, and settle transactions with member banks.
- Third-Party Sender (TPS): Entities like Plaid, which initiate transfers for you since your organization might not have a direct agreement with the ODFI.
- ACH Originators: Entities directly responsible for pulling or sending funds to an end-customer.
- ACH Platforms: Entities that onboard originators of their own and facilitate money movement between them and the receivers.
- Receiver: Individuals or businesses receiving ACH transactions in their bank accounts
Is my organization considered an Originator or a Platform?
What is an originator?
An Originator initiates ACH payments and is the main beneficiary of these funds when withdrawing funds from their end-customers’ account. Alternatively, when they are pushing funds to an end-customer’s account, they are the party directly obligated to pay the end-customer based on an agreement between the end-customer and the Originator. Originators are a party to every transfer and have a direct contractual relationship with the end-customer. If you are not contractually obligated to pay or be paid by the end-customer, you are likely a Platform.
Examples of Originators:
- Neobank funding a new user account
- E-commerce website offering ACH as a payment method
- Lender disbursing loan funds to a user
What is a Platform?
A Platform onboards Originators of their own and facilitates money movement between them and their end-customers. Platforms do not have a direct contractual relationship with their Originator's end-customers and are not obligated to be paid or pay the end-customer; they are simply an intermediary acting on behalf of the Originator.
Examples of Platforms:
- Marketplace website that brings buyers and sellers together
- Any reseller partner, such as a payment processor that provides an SDK to their customers using Plaid transfer functionality
- SaaS provider that sells account funding tools or payment services
- Crowdfunding website for nonprofit organizations
When you are filling out the transfer application, Plaid will confirm what type of Transfer customer you are - either an Originator or a Platform.