What is an ABA Routing Number?

What is an ABA Routing Number?

The routing transit number (RTN) is a nine-digit code that appears on checks drawn from personal or merchant accounts. Each discrete code identifies a different banking institution; currently, there are approximately 26,895 active routing and transit numbers in use. The code is referred to as an ABA routing number because it was first designed by the American Bankers Association (ABA) in 1910; the company is still responsible for assigning new ABA numbers today.

Identifying the ABA Routing Number

The RTN is the first series of numbers printed at the bottom of a check, appearing just left of the code designating an individual account number. The first four digits of the code identify the Federal Reserve Bank district in which the banking institution is located. The second four digits identify the bank itself while the last one classifies the type of check or negotiable instrument.

Uses for an ABA Routing Number

The original use of RTNs was to expedite the time it took for a paper check to make its way from any number of merchant accounts back to the banking institution from which it was drawn. Like the zip code on a letter, an ABA routing number facilitated the sorting process and reduced the time it took for payment processing to be completed.

With the advent of electronic payment processing, however, the primary role of the ABA routing number has shifted from a sorting to a tracking and identifying function. There are now two types of ABA routing numbers, one for funds being credited to or debited from an account and the other for wire transfers. The code is used to set up direct deposits that will pass through the Automated Clearing House, to bill payments directly to customers, and to direct wire transfers. ABA routing numbers are also used in the process by which companies clear checks written at local businesses, such as the grocery store.

Finally, the ABA routing number is used by the Federal Reserve’s Fedwire, a real-time gross settlement funds transfer system. This network of over nine thousand participants allows for time-sensitive electronic transfers of large sums of money, including national debt payments. By 2009, over 631 trillion dollars had been transferred via Fedwire.

Limitation of the ABA Routing Number

ABA routing numbers are only used in domestic US money transfers; international money transfers use the SWIFT, IBAN, and BBAN code systems.

All About ABA Routing Numbers

Anyone who closely examines a traditional paper check will notice two sequences of numbers printed along the bottom edge, with a clear mark of delineation between the two sequences. One sequence is the bank account number, and the other is the American Bankers Association routing number. The routing number designates which specific financial institution holds the account of the check issuer. Both numbers are essential in order to ensure that withdrawals or deposits affect the intended account. The ABA routing protocol also applies to electronic banking transactions such as direct deposit and electronic bill payment options.

Paper checks and paperless transactions initiate the same debits or credits from the perspective of the business banking account. Payments received from credit card processing through the use of merchant accounts result in electronic credits to the business account. Authorized withdrawals from the account result in electronic debits. The ABA routing number effectively guides each transaction through the financial network in order to reach the applicable bank location of the merchant account holder.

The routing number, also referred to as a transit number, is always nine digits. The digit sequence signifies how the transaction is to be routed and processed through the Federal Reserve system. The positioning of numbers within the sequence designates the specific location of the financial institution within that institution’s Federal Reserve district, and which data center will process the transaction. ABA routing numbers generally apply only to domestic transactions. The same routing number is valid for both paper and electronic transactions, but a different ABA number is used for domestic wire transfers.

Businesses with merchant accounts are reliant on routing numbers to facilitate acceptance of both credit cards and debit cards. A debit card transaction requires an immediate account inquiry in order to generate an approval code for a requested amount. Debit approvals are often dependent on the available balance in a specific account at a specific moment, and are approved and processed literally within seconds. Periodic settlements of both debit and credit card processing totals are automatically deposited into the designated account of the business, usually on a daily basis. An applicable credit card processing fee is usually deducted from gross proceeds in order to calculate a net settlement amount for automatic deposit into the designated bank account of the business.



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