Electronic Payments Network (EPN)

The Electronic Payments Network (EPN) a financial clearing house for the private sector that handles various types of electronic funds transfers, either among accounts at the same bank or to different accounts at separate financial institutions. The EPN may process credit transfers, such as payroll payments, social security benefits, tax refunds, and dividends; as well as debit transfers, such as loan payments, utility bills, and insurance premiums.

The Electronic Payments Network (EPN) and the Federal Reserve Bank (with its FedACH) process all of the automated clearing house (ACH) transactions in the United States. The automated clearing house is a nationwide network through which depository institutions send each other batches of electronic credit and debit transfers. Originally, the ACH network was used mainly to process recurring payments; now it is used extensively to process one-time debit transfers, such as converted check payments and payments made over the telephone and internet.

The Electronic Payments Network has been responsible for the most important ACH innovations of the past 35 years, including creating the first all-electronic funds transfer environment. This pivotal invention has increased the efficiency and timeliness of business operations in all corners of the financial marketplace — from brokers managing investments, to individuals paying bills, and everything else. If your employer pays you via direct deposit, for example, chances are good that the EPN has a hand in that transaction. Many individuals and businesses prefer ACH payments because they are easy, convenient, secure, and ideal for recurrent billing. In addition, ACH payments allow for much faster processing and lower fees compared to checks and credit cards. 

EPN is owned by The Clearing House Payments Company, which in turn is owned by about 20 major banks. So, EPN is not just any private-sector company, it is essentially a bank consortium. The Electronic Payments Network was born in 1981 when the Clearing House Payments Company pioneered use of a evening processing cycle to permit overnight delivery of time-critical corporate ACH debits. This system made funds available sooner than ever before possible, and replaced much usage of the older depository transfer checks. In 2004, EPN launched its “EPN WATCH,” comprised of a number of risk-management services including ACH Fraud Detection Service, and Employee Fingerprint Service, among others. EPN continues to stay on the cutting edge of the electronic funds transfer industry.

The Electronic Payments Network and the Federal Reserve's FedACH each provide the low-level infrastructure that is necessary for ACH processing to transpire in the United States. They work on the very bottom of the value chain, and charge very, very low prices per transaction. There is little incentive for new ACH operators to enter this industry, as the prospective newcomer first would need to convince the major banks — which essentially own EPN — to switch their volume from EPN to the new company. Further, because FedACH and EPN do a good job and offer cost-effective service, there is little (perceived) need for new entrants. Instead, new companies such as PayPal and Square enter higher up in the value chain, and they both use the low-level “plumbing” that the Electronic Payments Network and the Federal Reserve provide.

1. An Originator — whether an individual, a corporation or another entity — initiates a direct deposit or direct payment using the ACH network.
2. Instead of using paper checks, ACH entries are entered and transmitted electronically.
3. The Originating Depository Financial Institution (ODFI) enters the ACH entry at the request of the Originator.
4. The ODFI aggregates payments from customers and transmits them in batches at regular, predetermined intervals to an ACH Operator.
5. ACH Operators — that is, either the Federal Reserve or the Electronic Payments Network — receive batches of ACH entries from the ODFI. 
6. The ACH transactions are sorted and made available by the ACH Operator to the Receiving Depository Financial Institution (RDFI).
7. The Receiver’s account is debited or credited by the RDFI, according to the type of ACH entry — individuals, businesses, and other entities all can be Receivers.
8. Each ACH credit transaction settles in one-to-two business days, and each debit transaction settles in one business day.