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
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.
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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.
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).Learn more about OCT transactions
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:
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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.
Other popular providers include:
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:
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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.
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.