Electronic Payments Network (EPN): What it is, How it Works

What Is the Electronic Payments Network (EPN)?

The term Electronic Payments Network (EPN) refers to a financial clearinghouse that handles a variety of electronic funds transfers for the private sector. It is one of the automated clearinghouses (ACHs) in the United States, along with the Reserve Banks. Funds are transferred using the EPN between accounts at the same or different financial institutions. Examples of transfers under the EPN include deposits for payroll, Social Security benefits, and tax refunds, as well as debit transfers like loan payments and insurance premiums.

Understanding the Electronic Payments Network (EPN)

The automated clearinghouse is a network that facilitates the electronic transfer of money from one account to another by allowing financial institutions to execute bulk transfers electronically—either credit or debit transactions. There are two systems used across the United States—the Federal Reserve Bank and the Electronic Payments Network. Both of these systems process all of the ACH transactions in the country. The network was originally used to process recurring payments but now facilitates one-time debit transfers, such as payments made over the telephone and the internet.

Many individuals and businesses prefer ACH payments because they are easy, convenient, and secure. For instance, the EPN is likely a key part of direct payroll deposits made by most employers, saving employees from a trip to the bank to deposit their paychecks. Automatic clearinghouse payments are also ideal for things like recurrent billing, allowing for much faster processing and lower fees compared to checks and credit cards.

Here's how the system works:

1. An originator—an individual, corporation, or another entity—initiates a direct deposit or direct payment using the ACH network.
2. ACH entries are entered and transmitted electronically rather than by check.
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—either the Federal Reserve or the EPN—receive batches of ACH entries from the ODFI. 
6. All ACH transactions are sorted and made available by the 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. Just like an originator, a receiver can be an individual, business, or another entity.
8. Each ACH credit transaction settles in one to two business days. Each debit transaction settles in one business day. 

History of the Electronic Payments Network (EPN)

The EPN is owned and operated by The Clearing House Payments Company, a private corporation owned by some of the largest commercial banks. This makes the EPN a bank consortium of sorts. The network was created in 1981 when the Clearing House Payments Company pioneered the use of an evening processing cycle to permit overnight delivery of time-critical corporate ACH debits. This system made funds available much sooner than ever before, replacing the use of the older depository transfer checks. 

The EPN has been responsible for some of the most important ACH innovations—including the creation of the first all-electronic transfer environment. This pivotal invention has increased the efficiency and timeliness of business operations in all corners of the financial marketplace including the facilitation of credit and debit transactions. As mentioned above, credit transactions include things such as payroll, social security, tax refund, and dividend deposits while debit transactions include withdrawals like loan payments, insurance premiums, mortgage payments, and utility bills.