What is an ODFI in ACH?

What is an ODFI?

ODFI stands for Originating Depository Financial Institution. It's the bank on the sending side of an ACH payment. The customer who asks it to send the payment is the Originator.

Nacha gives two examples. In direct deposit, an employer sends each employee's pay details to its bank before payday. The employer is the Originator and its bank is the ODFI. In a bill payment, a utility sends its customers' payment instructions to its bank as an ACH file. The utility is the Originator and its bank is the ODFI. The direction of the money doesn't change who the ODFI is. It is always the bank of the party that starts the payment.

What does an ODFI do?

• Collects files. It receives ACH files from its Originators. Nacha says it most likely combines them with similar payments from other companies.
• Sends them on. It sends the combined file to an ACH Operator, the Federal Reserve or The Clearing House. The Operator sorts the payments and sends each to the right RDFI.
• Sets cutoffs. Banks have to meet the Operator's deadlines. For Same Day ACH, the latest an ODFI can send files is 4:45 p.m. ET. The bank sets its own, earlier cutoff for its customers.
• Receives returns. Payments the RDFI can't complete come back to the ODFI with a return reason code. See ACH return codes.

What is an ODFI responsible for?

Nacha says an ODFI "is ultimately responsible for its Originators' compliance with the Nacha Operating Rules." Its rules also tell ODFIs to monitor origination and return activity for their Originators and for Third-Party Senders. Some examples of what that means in practice:

• Proof of authorization. An RDFI can ask the ODFI for proof that a customer authorized a debit. Since September 17, 2021, an ODFI can agree to accept a return instead of providing proof. If the RDFI still needs the proof after that, the ODFI must provide it within 10 banking days of the request.
• Same Day ACH fee. The ODFI pays the RDFI a Same Day Entry Fee of 5.2 cents for each Same Day ACH payment it sends, billed monthly through the ACH Operators.
• Same Day ACH limits. When the per-payment limit rises from $1 million to $10 million on September 17, 2027, each ODFI decides whether to offer the higher limit to its Originators.

Where does a payment processor fit?

Between the business and the bank, in many cases. Nacha's rules define an Originator as a person that has authorized an ODFI, "directly or through a Third-Party Sender," to send a payment. Nacha runs a registry for Third-Party Senders. For a business on a processor, the practical point is that the processor passes on the rules. Stripe, for example, tells businesses that Nacha rules require them to give each customer a copy of the mandate and to upload evidence of authorization when asked.

What's the difference between an ODFI and an RDFI?