What Is RDFI (Receiving Depository Financial Institution)?
If you’ve ever used bank account information and a routing number to make a payment, you’ve used an automated clearinghouse, or ACH. Automated clearinghouses are an important part of payment processing. In every ACH transaction, there are two institutions involved, the ODFI and the RDFI. In today’s article, we’re going to cover everything you need to know about the receiving depository financial institution, also known as the RDFI.
Here’s What We’ll Cover:
Receiving Depository Financial Institutions: The Basics
An RDFI is a bank or credit union that has an agreement with an ACH Operator to receive entries. They act on behalf of their customers when receiving these entries from the ACH Operator. The ACH Operator is either the Federal Reserve or The Clearing House. Entries are either in the form of debit entries or credit entries. RDFIs post payments to their customers’ accounts.
For a financial institution to allow members or customers to receive funds, they have to be an RDFI. To become an RDFI, a financial institution must be recognized by the NACHA. This recognition means that they are qualified to receive ACH transactions.
The responsibilities of any RDFI are as follows:
- Timely receipt of all ACH entries
- Timely validation of all ACH entries
- Timely posting to recipients’ (Receivers’) accounts
- Timely notification to Originators regarding incorrect information
The term timely refers to how quickly payments are posted, as well as how quickly notifications are sent. Many of these institutions can post payments within the same banking day that they’re received. Regardless, they have to do so in an adequate number of business days to remain qualified.
An institution can choose to be an RDFI without being an ODFI. However, this means that they can only receive electronic payments, and their customers cannot send them.
What Are Entries?
Entries are a complicated way of saying payments or payment requests. These can be derived from credit card payments, a wire transfer, or processing a paper check. For them to take place, sufficient funds must be in the account that money is being sent or requested from.
What Is an Originating Depository Financial Institution?
An originating depository financial institution is a financial institution that can transmit entries. For short, they are called ODFI. They function similarly to an RDFI, except they are able to create an original entry. This makes them an Originator. To become a qualified ODFI, institutions must assume responsibility for authorization of entries.
The responsibilities of any ODFI are as follows:
- Obtaining authorization for any credit entry or debit entry
- Protecting ACH data
- Having contractual relationships with their customers or members
- Keeping ACH return entries below a defined threshold
Not all institutions will opt to become ODFIs because of the associated fees, as well as the risks involved.
How Are They Similar?
Look at the following ways that ODFIs and RDFIs are similar to one another.
- Both handle money for their customers or members
- They must have a relationship with an Automated Clearing House Operator
- Fees must be paid to access faster payment methods
- Both need to be recognized by the National Automated Clearing House Association
Other Terms Associated With RDFI and ODFI
Check out this list of helpful terms and definitions related to the RDFI and ODFI processes, as well as ACH Operators.
This stands for Automated Clearing House. There are a number of ACH Operators, but the most popular are the Federal Reserve and The Clearing House. They are able to transmit ACH transactions. These transactions are credit entries and debit entries.
A credit entry is a transaction that deposits money into a Receiver’s account. Also known as a payment.
A debit entry is a transaction that withdraws money from a Receiver’s account. Also known as a payment request.
An Originator is a merchant or institution that can initiate ACH entries. These are payments or payment requests.
Receivers are individuals or organizations that entries are sent to. Entries have to be authorized before they can take place.
A transaction that is returned or rejected by the ODFI or RDFI. Return entries are normally the result of insufficient funds in a Receiver’s or Originator’s account.
An RDFI is one of three entities involved with ACH transactions. The other two are the ODFI and the ACH Operator. In order to receive fast electronic transactions, the RDFI must have a relationship with an ACH Operator. It must also be recognized as qualified by the NACHA.
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