What is the difference between EFT, ACH and EDI?
We here at Nacha often get asked this question from business financial teams - even from seasoned financial pros.
The quick answer is that all ACH (Automated Clearing House) payments are EFTs (Electronic Funds Transfers), but not all EFT payments are ACH. And EDI (Electronic Data Interchange) is not a payment.
The longer explanation is that people are confused because different professions have different names for the same thing. Believe me, it took us awhile to figure out why we were getting this question because we didn’t understand that companies commonly refer to ACH payments simply as “EFT” or “EDI.”
Financial pros (accounts payable, accounts receivable, treasury, accounting, finance personnel) call ACH payments “EFT” because it’s on their trading partner contracts, forms, websites, and even invoices (e.g., “Pay by EFT at account number…..”).
Meanwhile, some refer to “EDI” as the ACH payment, which includes remittance information, because the remittance information is in EDI format.
Folks in the corporate finance world all know what they mean they say “EFT” or “EDI.” But here in the banking world, we think of “EFT” as a general term that covers any method of transferring funds electronically from one bank account to another (e.g., ACH, wire, credit card, debit card, other digital/virtual currency). “ACH” in our world specifically means the “ACH Network” – the U.S. electronic payment network that features Direct Deposit and facilitates 20+ billion consumer, business and government transactions worth $40+ trillion dollars annually, and is backed by the Nacha Operating Rules.
Now, I’m not advocating that financial professionals change up their vocabulary. However, it is important to understand some key concepts to properly distinguish “EFT,” EDI,” and “ACH.” Each carries operational and legal meaning, and, well, there are times when it’s good to be precise, like in contract language.
Strictly speaking, EFT is the Electronic Funds Transfer Act – also known as “Regulation E.” This law defines consumer rights and bank/provider responsibilities for the electronic transfer of consumer funds. The Consumer Financial Protection Bureau is the regulator. (The Uniform Commercial Code 4a (UCC 4a) generally defines commercial and bank-to-business customer rights and responsibilities for the electronic transfer of commercial funds.)
Other “EFTs” (e.g., credit/debit cards, digital/virtual currencies) have specific governing associations and rules for consumer and commercial transactions. For example, each credit card payment brand has a separate governance structure under the auspices of a card association.
“EDI” means Electronic Data Interchange. EDI is a data format that is used for machine-to-machine exchanges of data and messages for a range of payment and related processes. In the payments world, EDI can be used to format invoice and remittance information.
“ACH” refers to the U.S. ACH Network. The Nacha Operating Rules dictate bank-to-bank rights and responsibilities for ACH payments (like Direct Deposit), and, through contacts with your financial institutions, the Nacha Operating Rules extend to consumers and commercial companies as well. The ACH Network is governed by Nacha (that’s us!).
Conclusively, financial professionals will no doubt continue to share common acronyms and language when it comes to payments and related matters. However, it’s important to know that the same terms carry specific definitions and meaning in other professions.