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If you haven’t had the chance to look at the history of the finance, such as how the whole thing even started, what was the basis of its foundation, and how it has reached its present stage, then surely you could be a financial enthusiast, but that doesn’t have to do anything with the learning experience.
Before the introduction of the paper currency and the banking notes, did you know that all the global trade took place with the help of exchanging gold? It was the standard of wealth back then, along with silver and other precious metals, but a lot has changed since the past as modern finance has taken over and paper notes, ATM cards, and digital banking has come forth, holding the mantle for financial freedom and greatness on a global scale.
Although with the dawn of decentralization and blockchain technology becoming prevalent, it seems as if the role of the financial world has been changed and revolutionized completely. How does the idea of conducting transactions for a minimal or no fee in an efficient and scalable manner while at the same time enjoying the highest tier definition of security sound to you? It is definitely tempting, is it not?
Well, even still, many people are still tending to the centralized financial elements for their day-to-day financial needs, such as banks and other financial mediums, as if voluntarily choosing not to be served by the best financial standards in town.
However, we have gathered here to talk about the electronic payments network, which is the backbone of the centralized banking world as it serves as the clearinghouse for all the transactions that have been submitted to it.
Therefore you can only imagine the overall level of significance and importance that it has over the centralized financial bodies. It does handle a variety of funds transfers for the private sector; it should be mentioned here that the EPN doesn’t have to do with the decentralized world of the cryptocurrencies because they have their own unique method for the sake of processing funds and validating the transactions that are completely decentralized and relies on the working of the financial nodes.
These are independent users working with the network for the sake of validating the transaction data and processing them in real-time. An electronic payment network, on the other hand, is a private entity with a centralized location and a governing body; it serves as one of the automated clearinghouses working in the United States; it is right there with the reserve banks.
Multiple funds actually interact with the EPN system on a daily basis; therefore, many funds leave and enter the system consistently. Sometimes the EPN service between the accounts themselves is used for the sake of funds transfer using either a similar or different financial institution.
Some of the most vivid applications of the EPN system are the transfers that take place for the payrolls, social security benefits, debit transfers, tax refunds, and insurance-oriented premiums. All of these financial matters are not handled directly as a digital footprint for these services needs to be established as a record-keeping exercise before these funds can land in the accounts of the concerned parties.
Introduction to the Electronic Payments Network (EPN)
As explained earlier, the EPN is going to act as a clearinghouse for large sums of money because of the fact that the conventional banking environments don’t allow for such bold sums of money to be transferred from one place to another without incurring heavy fees and other regulatory workarounds.
Therefore, the EPN network becomes the first priority of that crowd who simply wants their transactions to be completed in real-time. Institutions that are affiliated with the EPN network via authorized channels are hence able to execute various bulk orders in real-time; it doesn’t matter if these orders are debit or credit; if there is a proper association between the concerned institution and the EPN service, then they are obliged to facilitate such requirements.
To make it all easier and palatable for you, try to understand it this way; there are two potential monetary instruments that are wildly used in the United States these are the federal reserve bank and the EPN system.
Both of these systems are tasked with clearing out the automated clearinghouse transactions within the country.
The original purpose of the electronics payment network was to engage with recording transactions, but its duties and rules have been revised, and therefore today, it can facilitate you with one-time debit transfers from my credit and debit transactions having large sums of money and facilitating transactions that naturally take place on the internet and telephone networks.
Many personnel like to engage with automated cleaning house payments because of the fact that these are efficient, convenient, and more secure as compared to a transaction that is being conducted by a conventional or centralized banking authority.
On the other hand, there are fewer transaction fees involved because of the peer-to-peer nature of the network, which is always a plus point. When it comes to direct payroll deposits, an electronic payment network is a significant part of it as most of these deposits are made by employers who prefer going with electronic payments over other modes of finance.
This definitely saves those employers trip to the bank itself to take care of the deposit shenanigans, as everything takes place digitally, thus saving them a headache and futile consumption of time towards that task.
If by any chance you are engaged with the recurrent billing, or it is a business portfolio for you, then, by all means, the EPN banking is going to be a plus for you because it allows for more robust processing of your transactions while only allotting you the minimal fees as compared to the transactions that take place with the help of credit cards or even checks.
How Does Electronic Payments Network Work?
To help you better understand how the whole system works, let us take the lead with the help of an example where an originator or individual has asked for a direct deposit using the ACH networking system. They would have to electronically submit the request into the ACH system, which is then received and facilitated digitally rather than being communicated in the form of a check.
The originating depository financial institution here takes the lead by making sure that this specific entry has been deposited by a valid user, and after running multiple background checks, this thing finally goes live, and the ODFI enters that specific ACH entry into the system. ODFI continues to aggregate these payments from the customers, and these payments are consistently deposited and transferred in consistent batches to the said ACH operator at a predetermined time frame.
These ACH operators, may it be the reserve bank or the EPN network itself, receive these vivid and predetermined payment entries along with the valid paperwork from the ODFI. All transactions have to be manually sorted and then made available by the operator to a receiving depository financial institution or the RDFI.
The receiver’s account, which the originator provided in the very beginning, is then debited and credited as per the entries of the ACH; the receiver can be a single person, an organization, or a business of any kind.
Each and every ACH credit transaction takes about one or two business days to be orchestrated in a timely fashion, but as for the debit transactions, these can get settled in less than 24 hours because of the fact that there is only a subtle element of background check involved and most probably than not takes only a couple of hours for all affairs to fall into order.
Transactions Facilitated by the EPN
A variety of payments are actually handled by the EPN; these can either be debit or credit payments that need to be authorized in the first place for them to be processed. These kinds of special payments are therefore subjected to the EPN server because it first asks for permission from the proper authorities before generating or processing the payment in question. Bulk credit and debit requests are made through the EPN network on a daily basis.
And from the looks of it, it seems that EPN is more inclined toward the private sector, and some of its applications are also targeted toward the government sector, where certain expenses need to be first authorized by the proper authorities before these are processed in real-time.
A real-time example of that would be the insurance claims now, an insurance provider first needs to assess the insurance application to make sure that it is even legit and there is nothing rudimentary or out of the ordinary around it; once everything is made sure and nothing supplementary emerges.
Then the application is referred to the clearing department, and they also won’t hand over the finances to the concerned parties in a direct fashion because all of these transactions need to be documented as a record-keeping exercise for the insurance company in question.
Therefore these applications are systemically handed over to the EPN network, and after thorough validation, the transaction is processed. Another thing that needs to be mentioned here is that the EPN can handle both the recurring payments as well as one-time payment requests but mostly those that are debit in nature.
A Brief History of the Electronic Payments Network
Regarding the electronic payments network, you might be thinking that it is a private entity not having any affiliation with any particular corporation whatsoever, but it is not the case as it is properly owned and managed by the clearinghouse payments company. It is a private corporation that is being orchestrated by some of the largest commercial banks out there.
This lends EPN status of bank consortium of some sort. The network itself was developed back in 1981 when the clearinghouse company launched the use of the evening processing cycle for the sake of allowing overnight delivery of automated clearinghouse debits, which were time-sensitive.
Because of this system, many of the processed funds were made available much sooner, much quickly, which kind of rooted out the use of depositary transfers checks for the people, and more and more corporations and organizations got the hint of this incredible service, and they were leaving the depository transfer checks to engage with electronic payments network.
The electronic payment network has been at the center of almost every important automated clearinghouse innovation, and that includes the development of a first-all electronic transfer environment.
Because of this incredible invention, funds could be perceived in real-time while network operators could verify or authenticate transactions and people involved along with the processing of transactions in real-time; the whole assembly is just efficient, offer lower transaction fees, and is scalable as per the requirements of the originator.
Not only this, but this incredible invention can support both credit and debit transactions; sometimes, the debit transactions are not facilitated at all by most of the commercial banks because of the fact that either the debit throughput is lagging and they don’t have the intensive resources to perform the said transaction or due to some other perceived error but with electronic payment at work that is never the case and your funds are present in a fully secure and automated space which would eventually reach its destination much faster as compared to conventional banking.
Some of the credit transactions that can be done with the electronic payment network are social security transactions, tax refunds, and payroll commitments by the private or government sectors; not only this, but dividend deposits could also be paid with the help of credit transactions using the electronic payment network.
On the other hand, when it comes to debit transactions, these include withdrawals of all kinds, including insurance premiums, mortgage payments, loan payments, and utility bills as well. So in a way, you can use an electronic payment network to authenticate or provide all kinds of transactions, whether they are credit or debit in nature, in a fully automated and secure fashion.
Benefits of EPN Over Conventional Banking
Now you must have come around to the significance of electronic payment networks over conventional banking; it saves you time, is much more efficient when it comes to processing and actually sending the funds for a dedicated transaction, and is much more scalable as well.
An electronic payment network was developed, as you might have read about in the history section of this article, as an accessory for the transfer of funds in a digital manner.
Remember that this technology might be primitive when compared with the likes of decentralization and blockchain technology, but it was way before Bitcoin got launched as the flagship cryptocurrency. It was present way before then, and it is present now as it has completely revolutionized the conventional commercial banking systems as the whole scenario with the help of digital payments.
Digital payments were not even a thing back then because people literally had to do everything on paper, they had to write checks to whomever they wanted that money to reach, and that was a bit tedious process.
Because computers were not so much in the context back in the day and therefore arranging all that data, categorizing it, and processing all these aspects in real-time was a grave challenge. With the help of an electronic payment network, people were finally able to send and receive money in real-time, automate their transactions, and employers were able to present their employees with their paychecks in an automated fashion where they got the money on the first date of every month without any practical delay.
The government was happy with the electronic payment network system because this way, they could oversee all these transactions and have the authority to red flag some of these transactions which were not legitimate or came from shadowy sources.
A plus point that was presented to the government sector with the help of electronic payment network was the fact that even before the paycheck was cashed by the employee of an organization, whether it was private or government sector, the government was already able to tax that specific person, deducting whatever premium they had on their paychecks for the tax that they did owe to the system.
This was an incredible evolution in the financial world which finds multiple applications still to this date, and in all fairness crypto market and blockchain technology still haven’t been able to overthrow the electronic payment network, and it is still working along with the likes of Reserve Bank in the automated clearinghouse environment.
That is why the EPN network has such huge potential, and all these years, it has been rolling forward, whereas many other monetary selections and programs have been shut down by the government for various discrepancies that they had. EPN has been updated many times, and it is possible that in the light of the recent developments in the decentralized world, it might receive a few new updates to remain competitive.
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