Navigating the U.S. National Payment System

Navigating the U.S. National Payment System

Sila is a comprehensive financial app-building package that can enable any entrepreneur to build their business from the ground. With the capabilities of Automated Clearing House (ACH) money transfers, automated bill pay, savings accounts, and more, Sila can enable these financial features due to its firm connectivity within the U.S. National Payment Systems. 

Sending money and paying for items online has become so commonplace that we often take for granted the National Payment Systems that allow this to happen. 

As part of this complex conduit of financial products and services, we thought we’d take a deeper dive into how these important transactions are made, and how advancements to information technology enable bigger and better features within this model.

What are the National Payment Systems in the U.S.?

The national payment systems refer to a system of financial products, services, and financial institutions that are in charge of the clearing and settling of financial payments. The payments industry is vast; there are national payment systems in countries all over the world, and many of them operate through the Central Banks or reserve banks of that country. 

How each national payment system works depends on the country, technology, and infrastructure supports that help to facilitate the processes. The system is also set up for national and consumer protection. Each national process link commercial retail money transfers to buyers and sellers and help to grow a healthy economy. 

As with any market, payment systems operate according to supply and demand. On the demand side, users want availability, low transaction costs, interoperability between systems, privacy, legal protections, and security. On the supply side, payment service providers are a source of revenue for banks and other financial organizations and open up new markets for technology providers to provide unique products and services. 

By offering new products, like credit card payments and local payment methods, suppliers can provide revenue to banks while providing money transfers options to consumers and payment methods to merchants.

How The National Payment System Works Within the U.S.

In the United States, the National Payment System operates around the Federal Reserve Bank, the U.S.’s central bank, which controls the Automated Clearing House (ACH) Network for clearing and settling domestic money transfers, and the Electronic Payments Network (EPN), a private-sector payment network. 

For cash transfers, money is sent through ACH debit. This enables electronic money transfers through mobile payments, financial apps, and recurring payments through banks. In order to do this, banks are given a routing transit number (RTN) from the American Banking Association, and this is the number that financial institutions use to communicate their money routing system. Banks are approved to provide certain levels of financial services by becoming approved through the Federal Reserve Bank. This allows them to facilitate money transfers. 

To do this, the money is funneled from one bank, through the messaging and routing platform, to another bank or through retail, large value, or securities clearing and settlement systems. 

Money can also be sent cross border, but that requires a different communication system, notably the SWIFT network, which stands for Society for Worldwide Interbank Financial Telecommunication, which links over 200 countries. Each country is given a SWIFT code, much like an American RTN, and payment can be facilitated internationally. 

How Clearing and Settling Works

Clearing and settling payments is a major part of how financial transfers operate as they ensure that payment system risk is minimized. There are three main types of clearing and settlements:

  • Retail systems: retail systems typically process “small-scale” financial transactions, which can still equal upwards of $1 million. 
  • Large value systems: settle large transaction amounts. 
  • Securities systems clear securities, or common and preferred stock, bonds, and other types of instruments.

Clearing refers to the transmission and reconciliation of payment orders and establishing what the final amounts and positions should be. Settlement refers to the actual event of settling the obligations, including debiting and crediting the accounts of each party.

The integrity of the global financial system relies on the accounting of each transaction, which may occur on a gross or netting basis. Without these clearing and settlement systems, or if settlement happened on a real-time gross basis, the chances of one party defaulting are increased, which could affect the parties involved in the transaction, as well as others connected to those parties and throughout the national payments systems. 

How National Payment Systems Maintain Integrity

Guidelines for settling and clearing help to maintain integrity within each system. The U.S. follows the guidelines established by the Bank for International Settlements (BIS), which set up 10 Core Principles for Systemically Important Payment Systems, each designed to provide risk mitigation and for clearing large value transactions. 

The U.S. Federal Reserve System also abide by certain activities which help to maintain integrity, including: 

  • Conducting monetary policy
  • Promoting financial system stability
  • Supervising and regulating banking systems
  • Facilitating the smooth functioning of the national payment system
  • Developing and administering laws and regulations governing consumer credit and community development.

Through these principles and activities, consumers can rely on a secure and regulated national payment system, which is vital not only to how Americans send money but also to the global financial system. Technology that fits into this model, therefore, adopts the same practices and principles and can also contribute to improved integrity, like increased security, automation for compliance and monetary policy, and stability. 

As users within that network, our clients are educated on why maintaining integrity is so vital and how things like compliance are built into our platform. Sila users must still maintain compliance with best practices and we can do so in a way that positively contributes to the economic ecosystem that is the national payment systems. 

Sending Money Through the U.S. National Payment System

As a payment app software, Sila had to navigate much of the complexity of the U.S. National Payment System to offer its premium services. To do this, Sila is a bank agent with Evolve Bank & Trust, which, as an Originating and Receiving Depository Financial Institute (ODFI and RDFI), enables ACH transfers and many other banking features.

This is one of the biggest responsibilities of Sila in successful ACH payment processing, and it is one of the main reasons why all Sila users must verify their ID through Know Your Customer (KYC) or Know Your Business (KYB). Tapping into the national payment system is a right for U.S. residents, and financial services must maintain a level of compliance to keep this system reliable.

Through Sila, users have access to wide range of financial services:

  • Access to an FDIC-insured pass-through account
  • Digital wallet access
  • Identity verification technology
  • Electronic payment technology
  • Instant ACH transaction capabilities
  • Card transactions through our partner services
  • Bank account linking through Plaid
  • Direct deposit technology (ACH debit)
  • Ach debit and ACh credit transfer capability for U.S. citizens and permanent residents
  • Programmable money features with the SILAUSD stablecoin

Any user wishing to take advantage of Sila’s powerful code to create an ACH processing app, international bank transfer app, or debt serving app, must clear the rules of the ACH Network and continue to follow best practices for compliance and ACh transactions.
With the technology to facilitate faster payments and open up the doors of the money transfer system in the US, trust in Sila. Reach out to our sales team or sign up for our Thursday demo.