Datasheet

Chapter 1  Internet Era: E-Commerce 9
FINANCIAL
INSTRUMENT NETWORK EXAMPLES
Wire transfer Domestic wires GSIT, CHAPS, Federal Reserve
Financial Services
International wires SWIFT International
Private label
credit
Private networks Cetelem, GE, CitiBank
Prepaid cards Private networks Apple iTunes, AT&T, Starbucks, and
so on
In Table 1-1, the two main networks, namely bank and credit card networks,
deserve a little more attention as your e-commerce system will very likely deal
with them very frequently.
ACH
Within the United States of America, a specialized electronic financial network,
called Automated Clearing House (ACH) is used to facilitate interbank trans-
actions. Here’s how ACH works: To start an ACH transaction, the Receiver of
the transaction (account holder) authorizes the sender (Originator) to issue an
ACH debit or credit to an account. Banks identify their accounts by constructing
numeric values that are the combination of a routing number and an account
number. The combination of a routing number and an account number uniquely
identifies an account to all the members of the financial network. An Originator
could be a person or an entity such as a company. For legal reasons an ACH
transaction, be it a debit or credit, cannot be initiated without a prior autho-
rization by the Receiver. Once the authorization is given to the Originator by
the Receiver, the Originator creates an ACH entry with its banking institution.
This bank is called the Originating Depository Financial Institution, or ODFI.
At this point, the ODFI sends the ACH entry to an intermediary entity, called
the ACH operator (Clearing House), which then passes it to the Receiver’s bank
(Receiving Depository Financial Institution or RDFI). Depending on the type
of transaction, the Receiver’s account is issued a debit or a credit.
Regulations that govern the way the ACH network operates are established by
the Electronic Payments Association (formerly known as the National Automated
Clearing House Association, or NACHA) and the United States Federal Reserve.
Per these regulations NACHA maintains the records of all ACH transactions.
The way in which ACH makes money is simple: The Receiver pays nominal
fees to the RDFI (and the Originator to ODFI) for its services. RDFI and ODFI
also pay to both the Clearing House and NACHA for their services. The ACH
process is illustrated in Figure 1-2.
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