Check 21 and ACH Terms

Definitions of Terms

Dictionary of Related Terms

  • ACH: Automated Clearing House (ACH) is the name of an electronic network for financial transactions in the United States. ACH processes large volumes of both credit and debit transactions which are originated in batches. Rules and regulations governing the ACH network are established by NACHA-The Electronic Payments Association, formerly the National Automated Clearing House Association, and the Federal Reserve.
  • Bank of Deposit: The bank of deposit is the banking institution used by the merchant to deposit all check or credit card transactions. In most cases, the bank of deposit is the "bank of first deposit" (banking institution which first received the check transaction).
  • Bank of Withdrawal: The bank of withdrawal is the banking institution used by the consumer for banking debits or credits. These accounts are used to debit the amount authorized by the consumer for payment to the merchant.
  • Chargeback: A chargeback is a reversal of a credit card or check transaction, as viewed from the perspective of the merchant. It usually occurs when a consumer files a complaint with their bank or credit/debit card provider. This usually happens when a consumer discovers fraudulent transactions on their statement. The bank will investigate complaints, and will take back the value of the original transaction, together with an additional fee directly from the merchants account, unless the merchant can prove the transaction was legitimate. Sometimes the consumer complaint is untrue, and the refund claim is denied. In these situations, the merchant will at times still be charged the processing fees. If it is found to be a valid chargeback the merchant then loses the goods or services sold, the payment, the fees for processing the payment, any currency conversion commissions, and the chargeback penalty. For obvious reasons, many merchants take steps to avoid chargeback's - such as not accepting suspicious transactions. This may spawn collateral damage, where the merchant additionally loses legitimate sales by incorrectly blocking legitimate transactions.
  • Check 21: The Check Clearing for the 21st Century Act (or Check 21 Act) is a United States federal law enacted on October 28, 2003 by the 108th Congress. It took effect one year later, on October 28, 2004. The law allows the recipient of a paper check to create a digital version, thereby eliminating the need for further handling of the physical document. Consumers are most likely to see the effects of this act when they notice that certain checks are no longer being returned to them with their monthly statement even though other checks are still being returned. Another side effect of the law is that it is now legal for anyone to use a computer scanner to capture images of checks and deposit them electronically, a process known as remote deposit.
  • IRD: SA substitute check (also called an Image Replacement Document or "IRD"), according to the US Federal Reserve, is "a special paper copy of the front and back of an original check".
  • MICR: Magnetic Ink Character Recognition, or MICR, is a character recognition technology adopted mainly by the banking industry to facilitate the processing of checks. The MICR line on a check includes the routing number, account number, and check number pertaining to the bank of withdrawal. At times, the MICR line may also include the amount which the consumer has authorized for debit.
  • NACHA: The National Automated Clearing House Association is an organization that develops electronic solutions to improve the ACH payment system in the United States. NACHA represents more than 11,000 financial institutions through direct memberships and a network of regional payments associations, and 585 organizations through its industry councils. NACHA develops operating rules and business practices for the Automated Clearing House (ACH) Network and for electronic payments in the areas of Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e-checks, financial electronic data interchange (EDI), international payments, and electronic benefit transfer (EBT).
  • NSF: In the US banking industry, the term "non-sufficient funds" (NSF) is used to indicate that a demand for payment (a check) cannot be honored because insufficient funds are available in the account on which the instrument was drawn. In simplified terms, a check has been presented for clearance, but the amount written on the check exceeds the available balance in the account. It is often colloquially referred to as a bad check, a "bounced" check, or a rubber check. Businesses frequently use the term dishonored check.
  • Order Verification: To protect both the bank of deposit and eData Holding from fraudulent transactions entered, representatives may verify a specific number of orders submitted by merchants on a daily basis.
  • Payment Gateway: A payment gateway is an e-commerce application system that authorizes payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. It is the equivalent of a physical point of sale terminal located in most retail outlets. Payment gateways encrypt sensitive information, such as credit card numbers and check account numbers, to ensure that information passes securely between the customer, merchant, and processor. The payment gateway facilitates the transfer of information between a payment portal (such as a website) and the Front End Processor or acquiring bank.
  • PCI/DSS: PCI DSS stands for Payment Card Industry Data Security Standard. It was developed by the major credit card companies as a guideline to help organizations that process card payments prevent credit card fraud, cracking and various other security vulnerabilities and threats. A company processing, storing, or transmitting payment card data must be PCI DSS compliant or risk losing their ability to process credit card payments and being audited and/or fined. Merchants and payment card service providers must validate their compliance periodically. This validation gets conducted by auditors - i.e. persons who are the PCI DSS Qualified Security Assessors (QSAs).
  • POS: Point of sale or point of service can mean a retail shop, a checkout counter in a shop, or the location where a transaction occurs. More specifically, the point of sale often refers to the hardware and software used for checkouts -- the equivalent of an electronic cash register. Point of sale systems are used in supermarkets, restaurants, hotels, stadiums, and casinos, as well as almost any type of retail establishment.
  • SAS 70: Statement on Auditing Standards No. 70, commonly abbreviated as SAS 70, is an auditing statement issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA), officially titled "Reports on the Processing of Transactions by Service Organizations". SAS 70 defines the professional standards used by a service auditor to assess the internal controls of a service organization and issue a service auditor's report. Service organizations are typically entities that provide outsourcing services that impact the control environment of their customers.
  • SSL: Secure Sockets Layer (SSL), is a cryptographic protocol that provides secure communications on the Internet for such things as web browsing, e-mail, Internet faxing, instant messaging and other data transfers.
  • X9.100-180: Standard file structure used to send check 21 file data to the bank of deposit. This standard is not common or widely used by any specific banking institution.
  • X9.37: Standard file structure used to send check 21 file data to bank of deposit.

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