What is an eCheck and Should You Accept it as a Payment Method?

Businesses today have no lack of choice when it comes to billing. And sometimes the sheer volume of options can create more confusion than clarity. So if you are wondering what is an eCheck and how it’s different from other business payment methods, here are your answers.

First, What is an eCheck?

eCheck (short for electronic check) is a digital alternative to conventional paper checks that you are probably familiar with. It’s yet another online payment method that you can use to withdraw money from your checking account and transfer them to another person’s account or vice versa.

In more technical terms, an eCheck is one of the electronic funds transfer (EFT) types that uses the Automated Clearing House (ACH) network for payment processing.

Since eChecks are sent digitally, they usually get processed within 24-48 hours, so if the customer pays you using this method, you’ll see the money deposited into your account faster.

While eChecks are not the most popular online payment method today, they still have a fair share of supporters both among businesses and customers as per JP Morgan’s study.

Source: JP Morgan

National Automated Clearinghouse Association (Nacha) also has some interesting statistics on ACH usage:

  • In Q1 2019, $6 billion worth of ACH payments were processed.
  • B2B transaction volume increased by 9.3%.
  • Internet ACH payment volume increased by 10.3%.

Clearly, the numbers indicate that eChecks are to remain a popular payment method.

How eChecks are Different from Credit Card Payments and Wire Transfers

The main difference between an eCheck and a credit card payment boils down to how the money is transferred between the two accounts.

As mentioned, eChecks rely on the ACH network to move funds between accounts. The advantage here is that eChecks have either no or very low (between .10$ and $1.50 per transaction on average) processing fees. Payments made via a debit/credit card go through a respective card network (such as AMEX, Visa, Discover or Mastercard). Each network sets the so-called “swipe” or interchange fees that merchants need to pay to accept an incoming payment. For instance, Visa’s current interchange fee in the US is 1.51% plus $0.10 per transaction.

And if you want to accept credit card payments via a PayPal business account, the fee will go up to 2.9% + $0.30 per transaction. This makes eChecks more cost-effective for larger payments.

Wire transfers are another payment option some businesses may consider. There are several differences between a wire transfer and ACH payments like eCheck:

  • Wire transfers are executed manually, one transaction at a time. This makes every payment more expensive. ACH transfers are auto-processed in batches.
  • Wire transfers cannot be reversed, unlike ACH.
  • Lastly, wire transfers can be sent cross-border, while ACH transfers can be executed between US accounts only.

How Does eCheck Work

If you want to accept an eCheck from a customer, you’ll first need to set up an ACH merchant account with your bank. Once you are done with that, you can set up direct debit payments from customers. To do that, you’ll need to obtain the following information from them:

  • Bank routing number
  • Checking account number
  • Full name.

Using this information you can set up a direct debit via ACH network and bill your customer once or on a recurring basis. Just don’t forget to send them an invoice separately.

Here’s what happens in the background after you initiate a payment request:

  • Your business bank, called the Originating Depository Financial institution (ODFI), in this case, adds an ACH entry on your behalf, aggregates payments from different customers and sends those in batches to the ACH operator.
  • The ACH operator will then sort through all the fund requests and transfer them to your business account.
  • Your customer’s bank, a Receiving Depository Financial Institution (RDFI) in operational terms, receives the request for money, verifies that enough funds are available, debits the customer’s account and credits yours.

The entire process can take anywhere from two to forty-eight hours. While the payment isn’t instant as it is with a credit card or a digital wallet like Venmo or PayPal, it does arrive pretty fast (often the same day).

If you are wondering how to send an eCheck, the process is pretty much the same. All you need to do is provide the debitor (e.g. supplier) with your bank details so that they can put you on direct debit.

The Benefits of Accepting eChecks

As mentioned already, affordable costs and relatively fast payment processing time are the core benefits of accepting eChecks/using ACH debit.

Below are several more advantages:

  • Simplified recurring payments with less breakage. After all, credit/debit card numbers chance and expire much more frequently than bank account numbers change.
  • Low or no transaction amount caps. This makes eChecks a more attractive option for larger payments.
  • Greater security compared to paper checks and some digital payment methods.

Let’s dwell a bit more on the last point.

Are eChecks Secure?

eChecks are as secure as wire transfers and much more secure than paper checks. Specifically, there are six levels of protection each eCheck transaction has:

  1. Authentication: the ACH operator verifies that the information provided on the check is valid and ensures that no fraudulent payment data is provided to the merchant.
  2. Encryption: All ACH transactions are encrypted by default, meaning that no sensitive data can be intercepted when it’s transmitted over the Internet.
  3. Public key cryptography is a vital part of the encryption process. It’s a method for ciphering the transmitted data and ensure that only an authorized user can access it.
  4. Digital signature is another security facet in place that protects eCheck transactions against fraudulent duplications.
  5. Certificate Authorities: Certificate Authorities issue Digital Certificates such as SSL to protect sensitive information, encrypt transactions, and enable secure communication.
  6. Duplicate detection: Most systems now monitor duplicate eCheck transactions and other suspicious activity and notify users about potential fraud.

All of the above is ensured by a payment processor provider of your choice and your bank’s technical infrastructure.

What Types of Businesses Should Accept eChecks?

The short answer is any business whose customers are asking about this option. And even if they don’t, you can always add an incentive for them to use this payment method (since you’ll be saving some money on processing fees). To encourage adoption, offer a small discount for settling large payments with ACH.

More specifically, the following types of companies should consider accepting eChecks.

1. Subscription-based Online Businesses

If you need to bill your customers regularly, an ACH debit can be advantageous for both of you. Your customers won’t need to bother with updating their payment method or reaching for their credit card whenever it’s time to renew a subscription so that they benefit from convenience. And you are saving some extras on those operating costs and waste less time on payment collection.

2. Companies Offering Memberships

ACH payment usage is on the rise in the health sector for a good reason. Gyms and yoga studios frequently opt for eChecks as a primary customer payment option. Doing so also helps them retain customers as we all know that we are more compelled to head to the gym when we are already billed for the ‘courtesy’ of doing so.

3. Real Estate Companies

Paper checks used to reign supreme for making mortgage or rental payments. But both consumers and businesses recognize that this isn’t the most convenient way of settling the payment. Thus, eChecks can be a far better alternative.

4. Nonprofits Accepting Donations

Many donors these days prefer digital payments to paper checks. Giving them an option to make one-time or recurring contributions via eCheck can positively impact your fundraising goals.

5. Educational Organizations

Most now accept eChecks as tuition payment since these are processed faster and can be set as recurrent, speeding up the payment collection process.

6. B2B Businesses with Large Average Checks Per Customer

Most other companies will not always feel comfortable with settling the grand total by debit/credit card. You, on the other hand, will be losing a lot to credit card networks in terms of fees. All of the above make ACH payments and eChecks strong contenders.

Ultimately, eChecks are a suitable payment method for any type of business that needs to accept large sum payments from customers.

To Conclude

eChecks are a great modern alternative to conventional digital checks. Albeit, they do carry the same draws: they can bounce in the same way as paper checks do if there are no sufficient funds or in case of an error in any account details.

As well, to accept eChecks on your website you’ll need to invest in secure payment processing software and implement additional security precautions. As an alternative, you can handle eChecks in person or over the phone and process them via your business bank account manually.

The best way to learn more about eChecks is to contact your bank or one of the merchant payment processors who supports ACH. Both can help you decide if this payment method is right for your business.

Photo by Blake Wisz.

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