How are eChecks and ACH Different from Each Other?

by | Dec 10, 2019 | Blog, Business, Payment Solution, Technology

With innovation and technology, those specializing in merchant services have found modern ways for merchants to process payments securely. This has allowed businesses to reduce their reliance on traditional banking and use more electronic means to make transactions. Merchants also found other ways to make online transactions without using credit cards that sometimes may charge higher fees and cut into their profits. These new innovations gave birth to the eCheck and the Automated Clearing House or ACH.

 

The terms eCheck and ACH have been used interchangeably by most people many times, they could be mistaken for twins. While both do share some similarities, one is totally different from the other.

 

Both have the ability to electronically transfer funds from one bank account to another. But to know what sets one apart from the other, we have to break each one of them down.

 

So, what is an ACH?

 

The ACH is a network that connects banks and financial institutions, and this allows businesses to use their bank account information to process payments. It also refers to the entire process used to move money electronically from one bank account to another. 

 

What makes the ACH handy is that individuals can now use the information associated with their bank accounts to manage payments. Through the ACH, they can pay bills through the company’s website by only providing their account and routing number. The ACH can also be used to post a credit to an account such as a direct deposit for payroll. 

 

For businesses, having an ACH merchant account allows them to withdraw payments from their customers’ bank accounts directly as long as it is authorized by the customer. The authorization can be done either by a signed contract, the customer’s acceptance of a company website’s “Terms and Conditions,” or a documented proof of authorization such as a recorded voice conversation.

 

What needs to be remembered is that a transaction is an ACH whenever it requires you to provide the bank account and routing numbers to do so.

 

The eCheck, defined

 

The eCheck, on the other hand, is simply a modern and electronic version of the traditional paper check, which makes electronic payments more convenient. Simply put, the eCheck is more of a payment than a process, which is what an ACH is. It also makes use of checking accounts than the actual bank account and routing numbers to make payments. 

 

To make it even clearer: the eCheck is a mode of payment that relies on the ACH network to process said payment. Essentially, money is withdrawn from the payer’s checking account, transferred over to the ACH network, and then deposited into the merchant’s checking account. 

 

eChecks and paper checks are the same, but since eChecks are not printed they can be accepted over the phone or through the internet. Paper checks can also be converted into eChecks by businesses, and can be submitted and processed electronically.

 

To process an eCheck, there are basically four steps to follow:

 

  1. The merchant requests an authorization from the customer to complete a particular payment transaction.
     
  2. Once it has gained the authorization, the merchant then sets up the payment by putting in the eCheck information into its online payment processing software. 
  3.  After the payment information has been set up, the business can now finalize and submit the payment, which automatically starts the ACH transaction process. 
  4. Lastly, the payment is automatically withdrawn from the customer’s bank account and deposited into the merchant’s own account. The merchant’s online software then confirms the payment by sending an official receipt to the customer.

 

Overall, both ACH and eChecks are direct and electronic bank transfers that benefit many merchants because they improve cash flows and offer more security as they are backed by banking institutions and the United States Treasury. Both also have lower costs compared to credit card transactions with their fixed and nominal rates. By going paperless, both also help improve efficiency by cutting down those multiple trips to banks.

If you are a merchant looking for ways to simplify payments and speed up your transactions though eChecks, Agapay would be glad to help you out. To know more about our pricing model, talk to one of us here.