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AFT Transactions

AFT Transactions

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AFT Transactions

What are AFT Transactions? How are They Different From OCTs & Other Transaction Methods?

Real-time payments are swiftly becoming the gold standard in the payments industry, thanks to their speed and seamless integration into everyday life. Thanks to the modern smartphone, your credit or debit card details are saved in Apple Pay or Google Wallet, with funds at your fingertips, ready for a host of transactions. 

What you might not realize is the role of technologies like account funding transactions, or “AFTs,” in powering this seamless experience. Let’s delve deeper into what AFT transactions are, how they operate, and the numerous benefits they offer.

What is Account Funding Transactions (AFT)?

AFT Transaction

[noun]/uh • kownt • fuhn • duhng • tran • zak • shn/

An Account Funding Transaction (AFT) is a type of transaction used in the financial industry where a payment service provider, such as a bank or a financial institution, directly debits a payment from a cardholder’s account. This is typically used for services like loading funds onto prepaid cards, e-wallets, or other financial accounts.

In contrast, an AFT is basically the inverse of an original credit transaction, or OCT. With that process, the payment service provider directly credits a payment to the cardholder’s account. Here the payment service provider is pulling funds from the cardholder.

Both AFTs and OCTs are often used in concert with one another. For example, a user might load funds onto a prepaid card using an AFT, spend those funds at various merchants, and then receive a refund from a merchant via an OCT.

AFTs must comply with the rules of the card network (like Visa or Mastercard) and the card issuer, as well as the applicable regulations and standards for financial transactions. Not all cards are eligible to process AFTs.

Is an Account Funding Transaction a “Push” or “Pull” Transaction?

If you’re wondering how these two payment types are linked, let’s take a closer look at them from a functional perspective. For instance, “push” and “pull” payments refer to the two ways money can be moved between accounts. An AFT is a type of “pull” payment, as the funds are pulled from the cardholder’s account by the payment service provider.

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The receiver initiates the transfer of funds from the sender’s account to their own. The receiver needs the sender’s permission to pull the funds, and they control when and how much money is taken. For example, a business debiting a customer’s account to refill a prepaid card connected to that merchant’s shopping app.

In the context of financial services, OCTs and AFTs can be used together to facilitate a complete transaction cycle. For example, a user might use an AFT to load funds onto a prepaid card (pull payment), then spend those funds with multiple merchants. If they need a refund from a merchant, the funds could be returned via an OCT (push payment).

Why Use an Account Funding Transaction?

There are lots of reasons why cardholders would allow Account Funding Transactions. Each method offers several advantages for both businesses and consumers. Some of the key benefits include:

Speed

AFTs are often faster than traditional bank transfers. This can be particularly advantageous for businesses that need to disburse funds quickly, such as for refunds, rewards, or other payments.

Convenience

For consumers, receiving funds directly on a card can be more convenient than other methods. They don’t need to deposit a check or make a trip to the bank. The funds are immediately available to spend or withdraw.

Reduced Costs

In many cases, AFTs can be less expensive than other types of fund disbursements. They can reduce administrative costs and resources associated with paper checks, for example.

Global Reach

AFTs enable businesses to send payments to customers worldwide, as long as the recipient’s card is part of a participating network, like Visa or Mastercard. This broadens the potential customer base for businesses.

Security

AFTs leverage the security infrastructure of card networks. This can include fraud detection and prevention measures, which can give both businesses and consumers peace of mind.

Traceability

Each AFT carries a unique transaction identifier that can be used for tracking and reconciliation purposes. This can simplify accounting and auditing processes.

Versatility

AFTs can be used in a variety of contexts, from refunds to rewards to marketplace payouts. This flexibility makes them a useful tool for many different types of businesses.

You should now have a better understanding of how account funding transactions work and why you might want to use them. But, how do you actually go about initiating one?

Popular AFT Products on the Market

Several financial institutions and payment service providers offer products that support account funding transactions.

Take Visa and Mastercard, for example. Both major card networks support OCTs and AFTs through their payment processing services in the form of Visa Direct and Mastercard Send. These are typically available to businesses and financial institutions rather than directly to individual consumers.

Visa Direct for Merchants

To participate in Visa Direct, you’ll need to establish a connection to Visa’s network processing, known as Visa Net. You can achieve this through a payment gateway, a processor, or an acquirer.

Before launching, every Visa Direct program requires Visa’s approval. This process involves completing a Visa Direct Program Information Form (PIF), which outlines the proposed program’s scope and controls, including details about your Bank Identification Number (BIN), domestic and cross-border parameters, processors, and third-party agents.

MasterCard Send for Merchants

To participate in Mastercard, potential participants are required to fill out and submit the Mastercard Send Participating Institution Form (Form 1060). After approval, a separate enrollment process is required to use the Send API.

All subsequent Send transactions should be routed through the Mastercard Worldwide Network, using the Send API, Dual or Single Message System. To connect to the Mastercard Worldwide Network and access OCTs, participants may need to either use a Mastercard solution, develop their own platform, or engage the services of a third-party provider.

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Other popular providers include:

PayPal

PayPal supports a variety of payment types, which can include OCT-like and AFT-like transactions. For example, PayPal allows users to send money directly to others, which is similar to an OCT. PayPal also allows users to load funds onto their PayPal accounts from a linked bank account or card, which is similar to an AFT.

Square

Square offers payment processing services to businesses. Their services can include support for OCTs and AFTs.

Stripe

Stripe is another payment processing service that supports a variety of transaction types, including OCTs and AFTs. Stripe’s services are typically used by businesses and online marketplaces.

This is not a complete list. Many other processors and acquirers, such as Adyen and Wordpay, offer services that support OCTs and AFTs. Again, these services are aimed at businesses, rather than individual consumers.

The specific services and capabilities offered by each company can vary, and not all services are available in all countries or to all types of customers. For the most accurate and up-to-date information, it’s best to contact these companies directly or visit their websites.

Potential Downsides of Account Funding Transactions

No payment method is guaranteed to be totally free of hiccups. While it’s true that AFTs offer many benefits, they also have potential downsides. For instance, you may see:

Eligibility Restrictions

Not all cards or accounts are eligible for AFTs. You must maintain compliance with the rules of the card network and the card issuer, as well as the applicable financial regulations.

Dependence on Technology

AFTs rely on digital technology and internet access. If there are technical issues, or if a customer does not have reliable internet access, this could cause problems with transactions.

Security Risks

While AFTs leverage the security infrastructure of the card networks, they still carry some level of risk. This can include the risk of fraudulent transactions or data breaches. Businesses need to ensure they have robust security measures in place.

Transaction Fees

Fees may apply to AFTs depending on the payment service provider and the specific circumstances of the transaction. These costs need to be taken into account when deciding whether to use these types of transactions.

Regulatory Compliance

Businesses using AFTs need to ensure they are complying with all applicable financial regulations. This can include Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, among others.

Customer Education

Customers may not be familiar with AFTs and how they work. As a result, you may need to invest time and resources in educating their customers about these types of transactions.

As with any financial service, it’s important to weigh the benefits against the potential downsides and risks. Businesses should carefully consider their specific needs and circumstances before deciding whether to embrace AFTs.

Of course, this is true of any new payment technology you hope to incorporate into your operations. Consider, for instance, how this may impact your approach to fraud management and chargeback prevention. These are important considerations that need to be kept in mind when making any decisions about your payments strategy.

FAQs

What is an example of AFT transaction?

If a business debits a customer’s account to refill a prepaid card connected to that merchant’s shopping app, that would be an example of an AFT transaction.

What is the difference between OCT and AFT transactions?

An Account Funding Transaction (AFT) is another type of transaction used in the financial industry where a payment service provider, such as a bank or a financial institution, directly debits a payment from a cardholder’s account. This is typically used for services like loading funds onto prepaid cards, e-wallets, or other financial accounts.

In contrast, an Original Credit Transaction (OCT) is the opposite process, where the payment service provider directly credits a payment to the cardholder’s account.

Both AFTs and OCTs are often used together in various financial services. For example, a user might load funds onto a prepaid card using an AFT, spend those funds at various merchants, and then receive a refund from a merchant via an OCT.

What is an example of a merchant-initiated transaction?

In a pull payment, the receiver initiates the transfer of funds from the sender’s account to their own. The receiver needs the sender’s permission to pull the funds, and they control when and how much money is taken. An example of a pull payment is when a business debits a customer’s account for a monthly subscription fee. Account Funding Transactions (AFTs) are a type of pull payment because the funds are pulled from the cardholder’s account to the payment service provider.

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