ODFI vs. RDFI

Every ACH payment needs an ODFI and RDFI to ensure that each payment request transmitted is completed and accurate. These financial institutions communicate through an ACH operator—The Clearing House or Federal Reserve—to complete entries on behalf of their customers, the originators and receivers, respectively. Originators and receivers can be consumers, businesses, or government agencies.

Both ODFIs and RDFIs need to be certified through Nacha to send and receive any payment request via the ACH network. Some financial institutions are only RDFIs, which means they cannot send ACH payments, only receive them.

Because they are certified, both ODFIs and RDFIs must adhere to financial compliance and controls, such as:

• Nacha’s Operating Rules
• Know Your Customer/Know Your Business (KYC/KYB) or Customer Due Diligence (CDD)
• Anti-Money Laundering (AML) controls
• Regulation E

How do ODFIs and RDFIs work?

The ODFI, acting on behalf of the originator, will send a payment request, or entry, to an ACH operator, such as the Clearing House. The entry will contain the following information:

• The name of the bank receiving the entry and it’s ABA routing number
• The type of account (i.e., checking or savings)
• The receiver’s name
• The receiver’s account number

The ACH operator will transmit the entry to the RDFI, who, acting on behalf of the receiver, will complete the request for an ACH debit or an ACH credit. They have 48 hours to complete the request; this is additional time given in the event that an ACH return code can be processed should  an issue arise with the entry request.If the receiver and originator’s accounts are both at the same bank, the RDFI and ODFI are the same. In this case, the transaction does not need to go through an ACH originator to complete; it can go directly from one account to the other. This is called an intrabank, or “on-us,” transaction.

It’s important to note that “originator” does not always mean that money flows out of that account into a receiver’s account. Originators can submit a debit or “pull” payment, meaning they are requesting money be pulled from the receiver’s account to the originators account. Let’s look at an example of this.

Suppose St. Patrick’s Plumbing uses 4LeafClover’s CRM software to log their customer information for a monthly fee. St. Patrick’s Plumbing sets up an automatic bill payment, telling 4LeafClover to debit their account when payment is due. On the first of each month, 4LeafClover (the originator) tells their bank (the ODFI) to initiate a debit entry on St. Patrick’s Plumbing (the receiver) for the amount due. St. Patrick’s Plumbing’s bank (the RDFI) accepts the request for a debit and completes the payment to 4LeafClover. In this case, the originating bank had money flowing into their account.

As the chart above illustrates, the direction of money movement does not always flow from originator to receiver.