8 questions answered about electronic check payments
The bottom line is always on the minds of small business owners. Accepting payment forms that are easy for both businesses and their customers is one method to keep money flowing in. One of them is eCheck.
An electronic check, also known as an electronic check, online check, internet check, or direct debit, is a digital equivalent of a paper check. With the help of a payments processor, eChecks use the Automated Clearing House (ACH) to direct debit from a customer's checking account into a merchant's business bank account.
eChecks are electronic checks that make transactions faster, safer, and easier. Continue reading for more information.
#1. What is the difference between electronic and paper checks?
While eChecks are digital, paper checks are, well, paper, and are quickly becoming obsolete. Consumers are less likely to write checks for everyday purchases or household bills, preferring the ease of electronic payment methods such as eChecks.
Furthermore, as more purchases are done online, new digital modes of payment that are discreetly, effortlessly, and swiftly are emerging. In 2018, online retail sales in the United States increased by 15% to $517 billion, and are predicted to continue to grow as a percentage of overall commerce.
Paper checks take longer to process than eChecks. There are several causes for this: 1) the time and effort required to deposit paper checks at a bank; 2) paper checks take longer to process and hold than eChecks; and 3) eChecks are processed digitally, which speeds up the process.
#2. How do eChecks and credit card payments differ?
eCheck processing differs from credit card processing in a few ways. The most significant distinction is that eCheck transfers funds over ACH rather than through card networks, resulting in lower processing fees. Acceptance of eChecks is free of credit card interchange fees, and rates can be as low as ten cents per transaction. Businesses that accept large or recurrent payments may notice a significant difference as a result of this.
#3. How do eChecks compare to electronic funds transfers (EFT) and wire transfers?
The term "electronic funds transfer" refers to the transfer of funds electronically. It's an umbrella phrase that includes eChecks, ACH transfers, wire transfers, PayPal payments, direct deposit, SEPA payments, local bank transfers, and eWallets, among other sorts of electronic payments. eChecks and ACH are examples of EFT transactions, though not all EFT transactions are eChecks and ACH.
Money is transferred from one bank account to another using wire transfers. Wire transfers are done manually, one at a time, unlike ACH transfers, which are done in batches. As a result, wire transfers are more expensive than ACH. Another distinction is that wire transactions, unlike ACH, cannot be reversed once initiated, making them less secure than ACH.
#4. What is the procedure for eCheck processing?
A business must first get the customer's information, including their bank routing and checking account numbers, in order to accept eCheck payments. This information is available online, over the phone, or by filling out a paper form in person. Most businesses now have websites and can provide a secure form page for collecting this information from customers.
The merchant's bank can connect directly with a customer's bank using this information. The direct debit takes place via ACH once the funds have been validated.
Every year, a significant amount of money is transferred using ACH. To give you an idea of the volume, consider that ACH Network Volume increased 5.8% in Q1 2019 compared to Q1 2018.
The stakeholders involved in ACH electronic check payment processing are as follows:
An originator: The merchant cashing the eCheck. The customer provides the essential information to the originator, who then starts the direct deposit process (see above).
The originator's bank, also known as the Originating Depository Financial Institution, is a business bank (ODFI). At the originator's request, the business bank creates an ACH entry, collects payments from a range of customers, and delivers them to an ACH operator in batches.
An ACH operator sorts the fund requests and deposits the monies into the company's bank account.
The customer's bank: an RDFI gets the request, checks that the funds are available, debits the customer's account, and credits the business account.
While ACH payments used to take a few days to post, the National Automated Clearinghouse Association (Nacha), which administers the system, has enabled additional capabilities that now allows for same-day funding.
#5. Can accepting eChecks help a company increase revenue?
Yes, indeed. Because checking account numbers do not change as frequently as credit card numbers, eCheck payments assist businesses keep payments coming in. As a result, payment breakage is less likely.
While accepting eChecks is beneficial to any sort of business, it is particularly well suited to the following:
Businesses that rely on subscriptions
eChecks enable recurring payments, autopay, and auto-renewal easy and convenient for businesses and their consumers, whether it's for music, memberships, or magazine subscriptions. Electronic check payments should be considered by any business with a subscription-based strategy, whether it's an online tea-of-the-month club or a health club with monthly fees.
Businesses that operate online
A company can offer a product to a consumer once and then collect money from them on a monthly basis, sometimes for years. It's the most cost-effective sales model available, and it's been expanding online in recent years.
Companies that take large payments
Banks communicate directly with other banks when using ACH to move funds for eChecks. Businesses save money by avoiding interchange fees by removing the middlemen involved in processing credit card payments. If your company handles payments in the hundreds or thousands of dollars on a regular basis, taking electronic check services could save you a lot of money.
#6. What level of security are eCheck payments protected with?
Inherently, eChecks are more secure than paper checks. With Regulation E, they are also subject to additional consumer protections.
For eCheck transactions, there are five primary security components:
Authentication is the procedure through which the payment provider confirms the identity of the person submitting the account information. Authentication guarantees that the merchant does not receive fake payment information.
Encryption is the technique of “masking” sensitive data so that it becomes non-sensitive—and so useless—if it is stolen. All ACH transactions, including eChecks, that take place over unprotected electronic networks must be encrypted.
Public key cryptography is a component of the encryption process that is used to encrypt data and safeguard it during transmission.
A digital signature with time stamps is an encryption mechanism that ensures that eCheck transactions cannot be copied fraudulently.
Digital Certificates, such as the SSL Certificate, are issued by Certificate Authorities to protect information, encrypt transactions, and enable secure communication.
Duplicate detection is a fraud detection approach that keeps an eye out for duplicate eCheck transactions and other questionable behaviour.
#7. What am I going to require in order to accept eChecks?
A firm must engage with a payment processor or payments gateway, as well as a financial institution that can handle this type of transaction, in order to accept eChecks. The type of hardware and software required is determined on how eChecks accepted.
A check scanner, for example, is required if a merchant wishes to accept eChecks at the point of sale. If they wish to accept eChecks online, they'll require payment software that can handle this type of transaction.
#8. Is it time to add eChecks to your payment alternatives for your business?
Customers are more inclined to spend their money and return to a business if they provide additional payment choices. Accepting eChecks automatically increases a company's revenue potential.
Speak with your bank and payment processor to learn more about electronic check payment processing. They can assist you decide when it's the best moment to add eChecks to your payment mix and how to make the most of this payment option.
