Electronic Payments Network (EPN)

What is the Electronic Payments Network (EPN)?

The Electronic Payments Network (EPN) is an automated clearinghouse (ACH) system – that is, a computerized electronic funds transfer system that processes both individual consumer and commercial financial transactions. It is the only entity in the private sector in the United States that is authorized to handle ACH transactions.

The overall automated clearinghouse (ACH) system is a nationwide network that facilitates the transmission of electronic credit and debit monetary transfers between depository institutions. Only two entities handle all the ACH transactions within the United States – the Electronic Payments Network and the Federal Reserve Bank’s FedACH.

FedACH handles the many U.S. government-originated electronic funds transfers (EFT), such as monthly Social Security payments that are directly deposited into the bank accounts of recipients.

Electronic Payments Network – The Company

The Electronic Payments Network is a private company owned by The Clearing House Payments Company LLC (PayCo), which is owned by a consortium of major multinational banks. The banking group includes banks such as JPMorgan Chase and Wells Fargo. The modern-day Clearing House Payments Company traces its origins with the New York Clearing House Association, an association of member banks formed in New York City in the 1850s to handle daily, in-person clearing of checks between the banks.

Therefore, since the Electronic Payments Network is ultimately owned by a group of private banks, and the other ACH transaction handler, FedACH, is part of the Federal Reserve Bank, the entire ACH system in the United States is effectively owned and operated by the banking industry.

While the Electronic Payments Network handles transactions in the private sector and the Federal Reserve handles government transactions, the two act as interoperators for each other when transactions move between government and private entities, with final settlements of transactions conducted by the regional Federal Reserve banks.

The Electronic Payments Network is responsible for handling approximately $2 trillion per day of electronic funds transfers, about half of all the EFTs in the United States. Together with the FedACH, the EPN handles more than 20 billion electronic payments annually.

How ACH Transactions are Made – Example

The Electronic Payments Network handles both credit and debit electronic transfers. A common example of a credit transaction is that of corporate payroll direct deposit transfers to employees. Debit transfers include recurring bill payments.

Both individual consumers and businesses find ACH transfers an easy and convenient way of handling many transactions. All ACH transactions involve both an originating depository financial institution (ODFI) and a receiving depository financial institution (RDFI).

Let’s look at an example to see exactly how one of the most common types of ACH transactions – payroll direct deposit of an employee salary – is conducted.

1. An employee authorizes their employer to provide the employee with their weekly salary through direct deposit. In this case, the ODFI is the employer’s bank; the RDFI is the employee’s bank.
2. The company involved will submit all of its direct deposit payroll files – including that of the individual employee – to its bank, which is the ODFI.
3. The ODFI then submits the entire batch of employee direct deposit files to the EPN, which is the appropriate ACH handler.
4. The EPN routes the electronic fund transfer to the employee’s bank, the RDFI.
5. The RDFI then credits the funds to the employee’s designated checking or savings account.
6. Final settlement is made between the ODFI and the RDFI.

Related Readings

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ program, designed to teach you all the knowledge and skills required to become a skilled credit analyst – including accounting, business analysis, financial analysis, loan security, and credit evaluation and review procedures.

The following CFI resources will be helpful in furthering your financial education and advancing your career:

• Depository Trust and Clearing Corporation (DTCC)
• Federal Deposit Insurance Corporation (FDIC)
• National Automated Clearing House Association (NACHA)
• Federal Reserve (The Fed)
• See all economics resources