Making Sense of the Alphabet Soup of EDI, EFT, FEDI, and ACH

Posted by Brooke Lester on Jul 7, 2022 11:25 AM

Making Sense of the Alphabet Soup of EDI, EFT, FEDI, and ACH

When it comes to electronic payments, there is a virtual alphabet soup: EDI, EFT, FEDI, and ACH. What do they stand for? Are they interchangeable?

EDI, FEDI, EFT, and ACH are not the same. This post clarifies the similarities and differences between them. Here are the details.

What are Electronic Payments?

Electronic payments are a way to transfer money from one account to another using the internet, phone, or mobile device. They're often used to pay bills and transfer money between banks.

There are many different types of electronic payments, including:

  • Automated Clearing House (ACH) – transfers funds between banks and financial institutions.
  • Electronic Funds Transfer (EFT) – transfers money directly from one bank account to another bank or institution's account over the internet or telephone lines (also known as "remote deposit capture").

Let’s discuss electronic payments from the EFT, EDI, and ACH perspective. 

EFT payments are electronic transfers used to transfer money from one bank account to another. EFT stands for Electronic Funds Transfer, also known as direct deposit. This payment method is the most popular type of electronic payment, as it can be used for payroll, vendors, and other types of payments.

Electronic payments such as EFT have become an essential part of the financial industry over the past decade. Banks need to ensure they have an adequate number of employees capable of handling these transactions efficiently to meet customer demand and keep up with competition from other banks that offer similar services.

Electronic direct inward remittance (EDI) payments are the electronic equivalent of paper checks. They allow you to pay another business without ever having to leave your desk. EDI payments are made through a network, such as the Automated Clearing House (ACH), and can be used for business-to-business transactions like invoices or bills.

As with any electronic payment, EDI payments use a standardized format called an Electronic Data Interchange (EDI) file that contains information about who gets paid and what they're being paid for. The system then automatically sends them an invoice for the amount owed by their bank account at some point in time after receiving the file from your company's bank account.

Further, your bank or credit union may offer you the option to pay bills electronically with ACH payments, which the institution initiates. This is a cost-effective way to pay because it does not require the exchange of paper checks and can be processed immediately upon submission. 

A recurring payment occurs regularly—for instance, your utility bill or mortgage payment—and ACH allows businesses and individuals alike to make these payments quickly and conveniently without having to cash out at an ATM every month.

What is EDI?

EDI stands for Electronic Data Interchange. This technology allows organizations to electronically transmit data back and forth in a standard, structured format.

What kind of information is transmitted through EDI? Companies use EDI to send orders and invoices. Because these documents are sent electronically, firms save time and money. There is no need for human intervention, which reduces any errors. EDI is used in a variety of industries, including financial services.


FEDI stands for financial EDI. It is a subset of EDI technology that deals specifically with financial transactions. FEDI has a wide cross-section of users; companies, banks, and governments at the state and federal level utilize this technology.

What are some examples of FEDI transactions? Clearing data, cross-payments, debits, and credits are some of the information that travels across networks. FEDI is used by a wide variety of industries to ensure that payments reach their destination securely and quickly.


EFT stands for Electronic Funds Transfer. This is an FEDI transaction in which financial institutions transmit funds between one another.

Because EFTs are so common, they are the most well-known type of FEDI transactions (although most people have no idea what FEDI, let alone what EDI, is). Advances in EDI technology, coupled with the growing popularity of the Internet, have fueled that usage. EFTs are probably one of the more recent types of FEDI transactions to hit the scene; the late 1990s saw the rollout the electronic commerce, corporate extranets linking suppliers and customers, and related network-based technologies.


ACH is short for Automated Clearing House payments. These type of payments are all EFTs.

While the terms “EFT” and “ACH” are used interchangeably, they are not the same things. In the banking industry, ACH refers specifically to the ACH Network, the U.S. electronic payment network that features Direct Deposit and facilitates over 20 billion consumer, business, and government transactions worth over $40 trillion. The ACH Network is backed by NACHA, the organization that oversees payments in the US.

That last bit is very important. There is more than one type of EFT transaction. There are EFTs for credit cards, debit cards, and those for virtual or digital currencies. ACH is the only type of transaction governed by NACHA, and NACHA rules are designed to protect both banks and consumers.


NACHA, also known as the National Automated Clearing House Association, is an organization that maintains and operates a secure financial transaction infrastructure. In layman's terms? NACHA sets the rules for ACH transfers (which you may have used to send money to your landlord or mortgage company), so they don't get hacked by cyber-criminals. Banks are required to follow these rules, which include things like time limits on stopping payment and verifying the identity of their customers before allowing them to send payments.

NACHA is a membership organization that sets the rules, standards, and solutions that enable ACH payments to be made safely and securely. NACHA governs the ACH Network through its corporate structure and governance model. The association's membership comprises financial institutions across the U.S., each regional payment association acting as its respective regional operating center.

The ACH Network Rules govern how all participants conduct business on the network. At the same time, the Operating Guidelines set forth specific requirements for making payments using this system (for example, what information must be included with each transaction).

These rules are updated periodically to ensure they meet the needs of consumers and businesses. They are enforced by individual banks and other organizations that use these funds in their day-to-day activities.

The alphabet soup of payment terms does not have to be confusing. While EDI, FEDI, EFT, and ACH are all inter-related, they are not the same thing. They are each a part of a larger mechanism that enables the fast, smooth, and efficient transmission of information (especially payment data).


What is the best electronic payment method?

While the terms are often used interchangeably, there are some significant differences between ACH and EFT. ACH (Automated Clearing House) is a network that allows financial institutions to make payments between each other. It's similar to an email system where one bank can send payment instructions to another bank via a secure, encrypted network. ACH payments are processed in batches, usually once per day.

EFT (Electronic Funds Transfer) is an electronic version of cash withdrawal or deposit at a teller window. Like with EFT, your bank debits your account when it sends money out and deposits funds into your account when receiving them from another institution or customer.

The difference lies in what happens to the money.

The difference lies in what happens to the money. ACH is a batch process; EFT is a real-time process. If you purchase with your credit card, you’ll get the goods immediately, and your bank will process the payment later. But if you use Paypal or Venmo, those transactions are processed almost instantly, and there’s no waiting for your money to go through (and get charged).

So how does that affect how much money is left over after all is said and done? Well, imagine two scenarios:

  • You buy something online with your credit card that costs $100. Your bank processes that transaction just fine; it knows where it came from and can send it on its way as soon as possible.
  • You pay someone back $5 via Venmo (or any other instant payment app). This time around, there are no intermediaries—the person who received their funds doesn't even have access to them until they've been transferred over into their account at their bank.

In an ACH transaction, the money moves from one bank account to a master account called a “clearing house” before moving on to its final destination. This is similar to how your paycheck gets deposited into your bank account and then goes through a few intermediate processing stages before it hits your hands. You see this method in action when you use direct deposit or send money from one person's checking account to another person's checking account via an ACH transfer.

A batch process means transactions are grouped and processed at once, which means they'll be more likely to arrive on time than if they were sent individually.

ACH payments are processed in batches, usually once per day.

So what does this mean? Well, you'll have to wait until the payment processor is ready with their batch of transactions before they accept your payment and move it into their queue of pending withdrawals.

When you use an ACH transfer to make a payment, it’s processed in batches by the bank or financial institution where you have your account. This means that your money will be transferred in one go when they receive all of the necessary information from you—usually once per day—and often on weekends. This is why ACH transfers are generally faster than EFTs: There is no need for approvals or double-checking before sending them off to their destination.

Another advantage of ACH transfers over EFTs is that they are generally more secure because they don’t require passwords or other personal information when making payments (or depositing funds). However, this does mean that if someone were able to get hold of your debit card number and PIN code (or any other identifying information), he could use it to withdraw money from your account without ever needing access to anything else about your finances—including where those accounts are held.

All things considered, the best payment method for you will depend on your specific needs. If you need to make a quick payment or one with a deadline approaching soon—like paying an invoice or sending money to a friend—EFT may be the best option. However, if you’re looking to deposit funds into your bank account over time (such as setting up automatic bill payments), ACH can be more convenient and cost-effective.

What are the benefits of electronic payments?

Electronic payments are faster than paper checks because they can be processed in real-time, whereas paper checks are often stored for up to a week before processing. In addition, electronic payments can be processed faster than paper checks because they require fewer steps (paper check routing).

Electronic payments are cheaper than paper checks. Not only does it cost less to process the payment, but there's also no need for printing or postage. Plus, you can integrate your electronic payment stream with other systems at your business, including accounting and human resources software. You can use this integration to pay vendors directly from your account without sending out a physical check every time a bill comes in—which saves you even more time and money overall.

Electronic payments are also helpful when paying employees their wages and benefits because they're convenient (not everyone feels like waiting in line at the bank) and secure (employees don't have access to personal information). This makes them an ideal solution for larger companies with many employees worldwide who receive their paychecks on different days of each month. 

Electronic payroll services allow employers to control everything from taxes down through direct deposits made into employees' accounts, so there's no risk of incorrect information getting sent out or lost along the way due to human error during manual processing steps such as counting up all those checks before sending them out across town. And let's not forget about tax filings; submitting online allows these critical documents and other forms like 1099s to be sent off quickly without having too much paperwork on anyone's desk.

It is easier to split electronic payments into multiple groups.

It's a fact: People like convenience, and technology makes things convenient. If you like to keep track of your finances and make sure they're in order, then splitting electronic payments into multiple groups can help you do that.

With electronic payments (and especially using an automated budgeting tool), these types of things are much more accessible than ever before because they allow users to categorize their expenses based on whatever criteria they want—and even better, since modern billing systems use barcodes on checks and other documents instead of hand-written numbers like those found in old checkbooks (or even those printed out by banks).

Electronic payments can have a direct impact on customer satisfaction and loyalty.

Not only does electronic payment improve the customer experience, but it also has a direct impact on customer satisfaction and loyalty. In addition to the obvious benefits of convenience (no more waiting in line or being stuck with crumpled bills), electronic payments make customers feel valued, secure, in control, confident, engaged, and appreciated. More satisfied customers are less likely to switch providers or become dissatisfied with their current provider—which means both cost savings for the business and higher profit margins.

Electronic payments can help you stay compliant with regulations.

If you're worried about losing the paper trail on your payment, an electronic payment can help you stay compliant with regulations.

No more forgetting to write checks, no matter what month it is. Electronic payments keep a digital record of all interactions between you and your customer, making them easy to track and audit if necessary.

Plus, electronic payments can help you comply with regulations like Anti-Money Laundering (AML) and Know Your Customer (KYC). With traditional checks or cash transactions, there's no way for a business owner to verify who their customers are without asking for ID or waiting for verification documents through snail mail—something that takes time.

What are some concerns over electronic payments?

Issues with IDs and PINs

There are several ways in which a PIN can be stolen. Malware is one of the most common methods, as it allows hackers to install spyware on your computer and access personal information such as passwords and credit card numbers. The following are some other ways in which threat actors can steal your PIN:

  • By shoulder surfing: This is when someone looks over your shoulder while entering your PIN into an ATM or store terminal, then memorizes it by looking at the numbers on the keyboard.
  • By a hidden camera: Cameras can be hidden anywhere; they could even be installed inside ATMs and store terminals so that hackers have video footage of you entering your PIN while recording from afar.
  • By keylogger software: This type of software records every keystroke made on a computer, making it easy for hackers to steal information such as usernames, passwords, and credit card numbers with ease. It's estimated that around 70% of all computers have this malware installed.

Electronic payments are not yet 100% secure.

As new technologies are developed, there are often questions about their safety. In the case of electronic payments, these concerns have centered on security and privacy issues. But it's not just about identity theft or credit card fraud. 

These days, electronic payments can be traced back to every individual transaction you make on your phone or computer—mainly if you use an app like Venmo that requires a social media profile as part of its registration process. Even if you don't want your coworkers to know how much money is in your checking account, they may be able to find out, and so might hackers).

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