Digital payments glossary: Payment rails, methods, and terms

Every time your paycheck lands in your account, or you pay a bill online, you’re making a digital payment: a transfer of money that happens electronically without cash or a paper check changing hands. That money travels over a payment rail, the underlying infrastructure that routes, clears, and settles the transaction. 

Common US payment rails include:

• ACH: Bank-to-bank transfers on the ACH network. 

• Cards: Transactions run through card networks, such as Visa, Master Card, American Express, and Discover. 

• Wire: Direct, bank-guaranteed transfers. 

• Real-time rails: RTP and FedNow, settling in seconds. 

• Digital wallets: A platform that securely stores and transfers funds electronically between accounts within the same platform. 

• Closed-loop payment systems: Apps that store payment information and can only be used within a specific payment ecosystem, such as the Starbucks app. 

This glossary lists and defines the language, technology, and stakeholders supporting digital payments so you can stay up-to-date on the newest payment terms and their meanings.

ACH key terms and infrastructure

ACH credit

An ACH credit payment occurs whenever someone instructs the ACH network to “push” money from their account to someone else’s. Examples include payroll, social security payments, or a peer-to-peer transfer solution such as Venmo. ACH credits typically take one day to process. 

ACH debit

An ACH debit is an ACH transaction that "pulls" money from one account and moves it to another—such as from a consumer's personal account to that of a business or government agency. Examples include utility and mortgage payments taken directly from a customer’s account. ACH debits typically take one to three days to process.  

ACH operators

ACH operators are the entities that sort and deliver ACH transfer instructions between various banks involved in a transaction. There are two national ACH operators: the Federal Reserve Banks (through FedACH) and the Electronic Payments Network (owned by The Clearing House). 

ACH return

An ACH return occurs when an ACH payment cannot be completed for any reason, or when the payment initially settles but is later rejected. Essentially, it's the ACH payment equivalent of a bounced check. Common causes of ACH returns include insufficient funds, incorrect account information, fraud, errors, or if the account owner asks their bank to place a stop payment on the transfer. 

ACH reverse

An ACH reverse is a transaction that occurs when the payment originator requests their payment be returned, often due to a payment error.

Instant funding

Instant funding occurs when a fintech or other financial services provider grants faster, or near-instant credit for funds to a customer, before the ACH transfer has actually settled. 

Plaid Signal supports instant ACH by identifying low-risk transactions and unlocking access to funds without increasing the risk of returns.  

Nacha

Nacha is the governing body that oversees the ACH network and sets the operating rules and guidance for member banks and ACH participants. Plaid is a Nacha Preferred Partner and has been recognized for its leadership and innovation in advancing and promoting the safety of the ACH Network.  

ODFI (Originating Depository Financial Institutions)

An Originating Depository Financial Institution (ODFI) is the bank that initiates ACH requests. Each ODFI has a relationship with an ACH Originator. An ODFI is responsible for protecting ACH security and ensuring ACH returns are below an agreed-upon rate. The ODFI and RDFI are responsible for completing an ACH payment request.

RDFI (Receiving Depository Financial Institutions)

A RDFI is the bank that receives ACH requests. The RDFI must post the ACH transaction to the account listed in the payment instructions. They also report any return codes back to the ODFI. The RDFI and ODFI are responsible for completing an ACH payment request. 

The Clearing House (TCH)

The Clearing House (TCH) is a U.S. payments company and a banking association owned by some of the world's largest commercial banks. It’s the only private sector ACH clearing house (through EPN), wire operator (through CHIPS), and real-time payments provider (through RTP).

Authentication, access, and security

Authentication

Authentication verifies that a user is who they claim to be before granting account access. That typically happens in one of two ways: through open banking, or manually, either through microdeposits, which take a few days to confirm, or instant database authentication, which is faster but carries more risk. 

Plaid Identity Verification can confirm user identities by checking personal information, government IDs, and device signals in as little as 10 seconds. 

Authorization

Authorization is the process of establishing which permissions the user has granted to a third party. For example, a user might authorize a financial services app to access their bank transaction history or might authorize a business to debit their bank account to pay a bill.

Plaid Link integrates OAuth, a secure industry-standard framework for authorization, providing a better user experience and increasing conversion. 

PCI DSS (Payment Card Industry Data Security Standard)

PCI DSS (Payment Card Industry Data Security Standard) is the set of security rules any organization that handles, stores, or transmits cardholder data has to follow, covering encryption, access controls, network security, and regular testing. It's regulated by the PCI Security Standards Council, which was founded by the major card networks. 

Strong customer authentication (SCA)

Strong customer authentication (SCA) is a rule requiring extra proof of identity on consumer payments. It calls for at least two factors from separate categories: knowledge (something you know), possession (something you have), and inherence (something you are). The European Economic Area (EEA) and UK require it under the Revised Payment Services Directive (PSD2), usually by combining a password with a one-time code or a fingerprint or face scan.

Tokenization

Tokenization swaps out sensitive account data, like a card number, for a randomly generated stand-in called a token. If that token gets intercepted, it's useless on its own, since the real data stays locked away with the token provider. Card networks tokenize card numbers this way, and RTP uses a similar method for bank accounts, known as Demand Deposit Account (DDA) tokenization, through Secure Token Exchange.

Bank-based and account-to-account payments

Account-to-account (A2A) payments

Account-to-account (A2A) payments move funds directly between two bank accounts, without a card network. That's often the same person moving money between their own accounts, like transferring from a bank account to a brokerage account, but it can also happen between two different parties, such as sending money through Venmo, Cash App, or Zelle. 

A2A payments run over ACH, RTP, or FedNow, and they power account funding, peer-to-peer transfers, and bill pay. 

Plaid Link verifies and connects the bank accounts on both ends of an A2A transfer, and Plaid Transfer moves the funds.

EFT (Electronic Funds Transfer)

Electronic Funds Transfer (EFT) is a term used to describe any digital money transfer between bank accounts. It's not a rail itself, but an umbrella term that covers ACH, wire, direct deposit, debit transactions, and RTP or FedNow payments, and it's often used interchangeably with "bank transfer." The term comes from the Electronic Fund Transfer Act.

Open banking

Open banking is a system that lets consumers securely grant third-party apps permission to view their bank account data and perform payments on their behalf, using APIs instead of handing over login credentials. It supports account verification, balance checks, financial analysis, and payment initiation. Regulation varies by region.

Plaid Link is the industry-standard bank account linking interface, used by thousands of apps to connect consumer bank accounts under open banking.

Pay-by-bank

Pay-by-bank is a payment method where a customer pays a business directly from their bank account without the need for a credit card. This typically happens through open banking and runs over ACH or a real-time rail like RTP or FedNow, which lets businesses avoid interchange fees and card chargebacks. The customer links their account, then authorizes the payment, whether they're checking out, paying a bill, funding an account, or setting up a recurring charge. 

Plaid powers pay-by-bank flows for merchants and platforms by securely linking the customer's bank account through Plaid Link and moving funds through Plaid Transfer.

Push and pull payments

A push payment is one that the payer initiates, sending money to a recipient, while a pull payment is one that the payee initiates, withdrawing money from the payer's account with prior authorization. Push payments give the payer more control, while pull payments work well for recurring billing. ACH credits, wires, RTP, and FedNow are push payments, while ACH debits and card transactions are pull payments.

Cards and wallets

Credit card

A credit card is a payment card that allows users to purchase things by borrowing a small amount of money from a bank. The costs of using a credit card can include interest and fees, while benefits can include rewards for making purchases and the ability to build credit. Credit cards have a typical shelf life of three to five years because they can be lost, stolen, or expire. 

Debit card

Debit cards allow consumers to make online or in-person payments by taking money directly from their checking accounts. Debit cards can be used to access cash from ATMs, to fund digital wallets, and to transfer money to peer-to-peer apps like Venmo.

Digital wallet

A digital wallet is an application that allows you to digitally store payment methods, including cash, digital currencies, plus credit and debit cards. Apple Pay and Google Pay are popular digital wallets, both relying on tokenization and supporting tap-to-pay. Digital wallets can also hold gift cards, event tickets, and loyalty cards, and they sit on top of payment rails rather than functioning as a rail themselves.

NFC payments

NFC payments are contactless digital payments that allow consumers to “tap to pay” at a point-of-sale (POS) terminal or card reader. These payments use short-wave radio near-field communication technology to send messages between a mobile phone or tablet and an NFC-enabled payment terminal.

Cryptocurrency 

Blockchain

A blockchain is a secure, anonymous, and immutable ledger, or transaction record (financial or not). Unlike records held by banks or government agencies, for example, a blockchain is a public record stored in a digital “chain” containing blocks of data that record all past transactions. Payments made with blockchain cannot be reversed.

Cryptocurrency

Cryptocurrency, such as Bitcoin or Ether (Ethereum), is a digital currency on the blockchain network created using encryption algorithms. Cryptocurrency is verified and maintained by a decentralized system rather than a centralized entity like a government or a bank. 

Leading exchanges and digital asset investment platforms, including Gemini, Robinhood, and SoFi, are supported on the Plaid Network.

Digital payment 

A digital payment moves money electronically, without cash or a check changing hands. It relies on a payment rail, like ACH or a real-time network, to route, clear, and settle the funds. Common examples include: 

• Direct deposits

• Paying a bill online

• Moving money between your own accounts

Emerging and real-time payment rails in the United States

FedNow

FedNow is a real-time payment rail developed by the Federal Reserve and launched in July 2023. FedNow settles consumer and business transactions through financial institutions' Federal Reserve accounts and operates 24/7/365, meaning it processes transactions on bank holidays, weekends, and after business hours.

Real-time payments (instant payments)

Real-time payments are electronic payments that clear and settle within seconds, 24 hours a day, 365 days a year. In the United States, they run over two networks: Real-Time Payments (RTP) and FedNow. They're push-only and irreversible, and funds are available to the recipient immediately, which makes them useful for instant payouts, gig worker disbursements, insurance claims, and B2B payments.

Plaid Transfer supports both RTP and FedNow, enabling platforms to send instant payouts over either real-time rail.

RTP (Real-Time Payments network)

RTP is a real-time payment rail launched by The Clearing House in 2017, the first new core US payment rail in more than 40 years. It clears and settles in seconds, 24/7/365, reaches checking accounts, and caps transfers at $10 million. It's used for instant payouts, real-time bill pay, and account-to-account transfers. 

Plaid Transfer supports RTP for instant payouts and RfP (Request for Payment) for pay-in use cases. RTP itself is a one-directional network that only enables push payments, or payouts, while RfP is a messaging and operational layer that lets an end user initiate or approve a push.

International payment rails

CHAPS (Clearing House Automated Payment System)

CHAPS (Clearing House Automated Payment System) is a rail used to make same-day payments within the UK and is operated by the Bank of England. It settles the same day, has no upper transaction limit, and is commonly used for property purchases and large business deals.

Cross-border payments

A cross-border payment moves money between a payer and payee based in different countries, which usually means currency conversion and one or more intermediary banks along the way. These payments typically rely on correspondent banks and SWIFT messaging, tend to be slower and pricier than domestic transfers, and can take anywhere from a day to several days to settle, though newer rails are starting to close that gap.

SEPA (Single Euro Payments Area)

The Single Euro Payments Area (SEPA) is a payment rail managed, in part, by the European Central Bank, where payments can be sent or received in euros. It standardizes euro transfers and direct debits across Europe through schemes like Credit Transfer, Direct Debit, and Instant Credit Transfer, making cross-border euro payments about as easy as a domestic one.

SWIFT (The Society for Worldwide Interbank Financial Telecommunication)

SWIFT is a global messaging network that sends standardized payment instructions to financial institutions around the world, though it doesn't move money itself. It connects more than 11,500 institutions and is the dominant network for cross-border payment instructions, with the actual funds moving separately through correspondent banking.

Major payment rails 

ACH (Automated Clearing House)

ACH payments move between bank accounts over the ACH network, which is run by Nacha. About 93% of US workers receive their paychecks via ACH payments, also known as direct deposits. ACH is often preferred over cards for high-dollar transactions, while wire transfers are reserved for time-sensitive or international payments. These payments are processed on banking days, excluding weekends and holidays, and typically settle within one to three days.

Plaid Transfer helps move ACH payments, while Plaid Auth verifies the bank account and routing numbers needed to initiate them. 

Card rails

Card rails are the payment networks that process and approve debit and credit card transactions. Card rail examples include Visa, Mastercard, and Discover for debit and credit cards, and American Express for credit cards. Card payments are authorized immediately, but still take one to two days to settle. 

Same-day ACH

Same-day ACH is an expedited version of standard ACH, governed by the same Nacha rules but settling faster. Same Day ACH payments settle within the same business day, in scheduled windows throughout the day, rather than the usual one to two. Each transaction is capped at $1 million. It's built for same-day payroll, urgent bill payments, and faster access to funds. 

Plaid Transfer supports same-day ACH, enabling faster settlement within the ACH network.

Wire transfer

A wire transfer is a bank-to-bank transfer guaranteed by the sender, and it’s generally irreversible. Wires move over Fedwire or Clearing House Interbank Payments System (CHIPS) and settle the same day, on weekdays only. This reliability makes them a common choice for large or time-sensitive transfers, such as real estate closings, securities trades, and mergers. Costs typically run from $15 to $50 or more per transfer.

Payment processing and infrastructure

Chargebacks

A chargeback happens when a cardholder's issuing bank forces a reversal of a card transaction, usually because the cardholder disputed the charge, reported fraud, or flagged a billing error. It sends the funds back to the cardholder and results in a fee for the merchant. Too many chargebacks can put a business's ability to accept cards at risk. ACH and pay-by-bank aren't subject to card chargebacks, though ACH has its own separate returns process.

Interchange fees

Interchange fees are what a merchant's acquiring bank pays a cardholder's issuing bank on every card transaction. Card networks like Visa and Mastercard set the rates, which typically land between 1% and 3% of the transaction amount, usually the biggest cost of accepting cards. ACH and pay-by-bank avoid interchange entirely, though bank payments can carry their own percentage-based fees.

Payment facilitator (PayFac)

A payment facilitator, or PayFac, lets sub-merchants accept payments under its own master merchant account, so each business doesn't have to set up its own. This speeds up onboarding, but it means the PayFac takes on underwriting, compliance, and payout duties, along with the added risk that comes with them. 

Payment gateway

A payment gateway is a service that captures and securely transmits payment details from checkout to the processor, encrypting the data and running fraud checks along the way. Some providers, such as PayPal, act as both a gateway and a processor. Gateways are mainly used for card and digital wallet checkout.

Payment processor

A payment processor is a vendor that routes payment data between the point of sale, the payment network, and the banks involved, then sends an approval or decline decision back to the business, usually for a per-transaction fee. It's distinct from a gateway, which captures payment details, and a Payment facilitator (PayFac), which onboards merchants.

Settlement and authorization

When you swipe a card, authorization happens instantly: a real-time check confirming the card is valid and there's enough money to cover the charge. Settlement is a separate, later step, when the funds actually move from the payer's account to the payee's, typically one to two days after for card payments. That's why a fresh charge shows up as "pending" and only switches to "posted" once it settles. Knowing the difference helps when tracking cash flow, processing a refund, or reconciling accounts.

Payment rails 

Payment rails are the infrastructure that moves money from one party to another. Every payment method has a payment rail behind it: credit cards run on networks like Visa and Mastercard, and bank transfers run on ACH (Automated Clearing House).

Payment types by sender and recipient

Business-to-business (B2B) payments

Business-to-business (B2B) payments are transactions between two businesses, such as payments to suppliers, vendors, or service providers. Larger amounts are often sent over ACH or wire, though B2B payments are increasingly shifting toward real-time rails.

Business-to-consumer (B2C) payments

Business-to-consumer (B2C) payments are payments made by a business to a person, such as payroll, customer refunds, or insurance disbursements. RTP, FedNow, and push-to-debit are increasingly used to get this money to recipients faster.

Buy now, pay later (BNPL)

Buy now, pay later (BNPL) lets a consumer make a purchase right away and pay it off over time in installments. Providers like Klarna and Afterpay typically don't charge interest unless a payment is missed or late.

Consumer-to-business (C2B) payments

Consumer-to-business (C2B) payments are payments made by an individual to a business, such as paying a utility bill, buying goods, or settling a restaurant check. 

Embedded payments

Embedded payments are payment features integrated within an app or platform that can often seem invisible to a consumer. Some embedded payments can be used virtually anywhere, such as Apple Pay or Google Pay, while others can only be used within a single in-app experience, like the Starbucks app.  

Instant payouts

Instant payouts are disbursements that reach a recipient's account within seconds, offering a way to pay individuals and businesses as soon as a job is completed or funds are due. Instant payout methods include real-time payments, push-to-debit card, virtual credit cards, and remote printing of a paper check.

Plaid Transfer supports real-time payments using both RTP and FedNow.  

Multi-rail payment solutions

A multi-rail payment solution that allows financial services providers to select different payment rails, depending on their needs. For example, a provider may want to pay suppliers using ACH but deliver payroll more quickly, using real-time payments. Transfer is a multi-rail solution that supports ACH, RTP, and FedNow payment rails

Peer-to-peer (P2P) payments

Peer-to-peer (P2P) payments are payments made between family or friends, typically for things like reimbursements or other small payments. Apps like Venmo, CashApp, and Zelle often manage P2P payments.