SEPA payments explained
What is an eCheck?
With the growing prevalence of ecommerce, traditional paper checks have been supplanted by cards, digital wallets, and emerging methods like buy now, pay later (BNPL), which offer customers much greater convenience.
However, the electronic equivalent of the check, appropriately called the eCheck, has carved out a place in the modern payments ecosystem by offering businesses a quick, safe and easy way to make transactions through the ACH network.
In this article, we explain how eChecks work, how they compare to other payment methods, and the benefits of accepting eChecks.
A digital version of a paper check, an eCheck lets consumers pay ecommerce merchants directly from their bank accounts. Customers can authorize one-time payments or recurring payments as quickly as paying with their debit or credit cards.
With the assistance of payment processors, eChecks use the Automated Clearing House (ACH) to debit customers' checking accounts directly and transfer the money into online retailers' bank accounts. Although the ACH network is U.S.-based, it also includes Guam, American Samoa, the Northern Mariana Islands, and the U.S. Virgin Islands.
How do eChecks work?
Processing eChecks is similar to how paper checks are processed, albeit faster, as the process is completed electronically.
These are the steps to process an eCheck.
- The online merchant requests authorization
The ecommerce retailer must obtain authorization from the customer before starting the transaction. The merchant can do this via an online payment form or a signed order form, for example.
- The retailer captures the customer's payment details
After receiving authorization, the merchant must collect and input the customer's payment information, e.g., the customer's bank account number, the bank's routing number, and the type of account, into the online payment processing software. For a recurring payment, the online business will also collect information regarding the recurring schedule.
- The payment processor verifies the information
Before the merchant can receive the funds, the payment processor runs some basic checks to verify the customer's information. For example, does the customer's name match the name on the bank account they're using for payment? After validating the information, the payment processor begins processing the transaction.
Learn more: What is an AVS check?
- The money is deposited into the business' account
The payment is withdrawn from the customer’s bank account automatically, then three to five days after the transaction is initiated, the money is deposited into the merchant's bank account. The online software also sends the customer a payment receipt.
How long do eChecks take to process?
eChecks usually take between 24 and 48 hours to verify. Once the transaction has been approved, the payment must be sent through the ACH network, which means it should take between three and five business days for the funds to clear and arrive in the recipient’s bank account.
How cross-border eChecks work
Although eChecks can also be used for international charges, there isn't an official global governing standard. Rather, each region has its own national automated clearing systems for electronic funds transfers, such as the ACH in the United States. For example, in Europe, it's the Single Euro Payments Area (or SEPA), while Australia uses the Direct Entry batch-based payment service and India relies on the National Electronic Fund Transfer (or NEFT) system.
Here's how ecommerce merchants can process international eCheck transactions:
- The merchant offers eChecks as a payment option
The online retailer offers the customer the choice of paying with an eCheck. The customer making the payment then gives permission for the payment in writing by filling out a form online or giving confirmation verbally over the telephone, for example.
- The e-commerce merchant collects payment transaction data
The customer submits their payment transaction information through the payment processing service. This information includes the bank routing and account numbers, the type of account, and the amount of the transaction.
In the case of international eChecks, the customer may need to fill out additional fields, such as the international bank account number or IBAN, the standard international numbering system created to identify overseas bank accounts, as well as the SWIFT code, a standard format used to identify banks and financial institutions globally. Each country has its own unique requirements.
The payment processor then verifies the customer's information and starts processing the transaction.
Learn more: What is an ARN?
- The customer's bank sends transfer details to the bank in the other country
The customer's bank that's drafting the transaction sends the details to the merchant's bank in the other country. These transactions are usually processed in bulk to reduce the need for human intervention.
- The funds are transferred
The payment processor notifies the customer and the merchant that the funds are on the way. It can take from 3 to 10 business days for the merchant to receive the money. This depends on the country, the local bank, and when the batch was run.
eCheck vs ACH: What’s the difference?
Some people use the terms ACH and eCheck interchangeably; however, ACH is the process of transferring money electronically between bank accounts. It can also be called an EFT (electronic funds transfer) process. An eCheck is an electronic check payment that replaces a paper check, rather than the process. ACH payments comprise a variety of electronic payment methods, one of which is an eCheck.
eChecks compared to EFT and wire transfer
eChecks bear some similarities to electronic funds transfer (EFT) and wire transfers, but there are crucial differences.
EFT is a more general term for any type of payment that is conducted electronically, including eChecks and wire transfers, as well as ACH payments, digital wallets and more.
Wire transfers involve moving money from one bank account to another, in one single transaction. In contrast, ACH transfers take place in batches.
How long does an eCheck to clear?
It usually takes between three and five business days for an eCheck to clear while it is processed through the ACH network.
How safe are eChecks?
Aside from their inability to be lost or misplaced (unlike a paper check), eChecks utilize a host of security measures that make them a safe option for merchants.
The first is authentication. Anyone trying to pay using an eCheck is verified to ensure that they are who they say they are, which makes it very hard for criminals to make fraudulent payments. The second is encryption. The ACH network encrypts every transaction, meaning sensitive details can’t be intercepted by malicious actors, and also uses timestamped digital signatures, so that they cannot be duplicated.
Finally, eCheck security is guaranteed by a certificate authority, which issues digital certificates like SSL - an encryption-based internet security protocol.
What types of payments can be made with eChecks?
Customers can use eChecks to make online payments for goods or services, submit mortgage payments, and transfer payments to the Internal Revenue Service, for example. Online businesses can also accept eChecks for recurring payments, such as paying monthly mobile phone bills, as well as subscription services, such as newspaper or magazine subscriptions and music service subscriptions.
Benefits of accepting eChecks
Millions of consumers in the U.S. use eChecks, a type of ACH payment, to pay for goods or services. In fact, in 2021, consumers made 29.1 billion ACH payments, valued at $72.6 trillion, mainly driven by same-day ACH and business-to-business payments, according to Nacha, the organization that maintains the ACH network. And in the third quarter of 2022, the ACH Network moved 7.6 billion payments, valued at $19.2 trillion, mainly due to the growth of same-day ACH payments.
Consequently, online businesses can benefit greatly from accepting eChecks. The benefits of accepting eChecks include:
Lower transaction fees
Credit card processing fees typically cost merchants from 1.5% to 3.5% of the total of each transaction. While the fee to process an eCheck depends on the provider, the average rate is typically between $0.10 and $1.50 per transaction.
eChecks are generally a very secure payment method, because they must move through clearinghouses that have strict regulations. With eChecks, funds are transferred directly between bank accounts, and account numbers are kept confidential.
Reduces cost of doing business
Since eChecks are automated, they eliminate most of the manual tasks that are needed to process payments, reducing the risk of human error. Intentional and unintentional human errors account for 21% of data loss, according to IBM Security’s 2022 Cost of a Data Breach report. eChecks also reduce the time it takes to fix employee errors, saving ecommerce businesses money.
Additionally, accepting ACH payments means businesses don't have to handle paper checks. This reduces the time it takes to process payments and saves employees from having to make numerous trips to the bank to deposit the paper checks.
Fewer instances of declined cards for recurring payments
eChecks can be more reliable than debit or credit cards for recurring payments. eChecks rely on bank account information, which doesn’t change frequently. Debit or credit cards can be stolen, lost, or expire.
Accepting eChecks means that recurring payments are less likely to be declined. Not only that, but customers may not remember to pay their bills. Accepting eCheck payments for recurring payments solves this issue. And with recurring billing, merchants don't have to continually bother their customers because their payments are late.
Offer an alternative to credit and debit cards
Since some people prefer not to use debit or credit cards, eChecks allow online businesses to collect payments from those who don't want to use payment cards.
Smart organizations know that the best way to remain competitive is to offer customers a variety of payment options. Consumers expect the convenience of electronic payments when purchasing goods or services, and eChecks offer customers an additional payment method that they may prefer.
Convenient for B2B payments
Although consumer use of paper checks is continuing to decline, business-to-business transactions often involve paper checks. Allowing customers to make payments using eChecks rather than paper checks can accelerate processing times as well as reduce mailing costs.
Learn more: A guide to payment processing for B2B companies
Compatible with business systems
Electronic checking is compatible with most customer relationship management systems and most online shopping carts, which makes it easy for businesses to integrate accepting eChecks into their existing systems.
Potential drawbacks of eChecks
Despite the numerous advantages of accepting eChecks, there are some potential drawbacks for merchants, including:
Slower than other payment methods (but faster than paper checks)
The process for getting customer authorization for an eCheck can be more complicated and take more work than accepting debit or credit cards. And after depositing an eCheck, an online retailer may have to wait anywhere from three to five days before the money arrives in their bank account. However, money from online payment services, such as Venmo and PayPal as well as from a debit card, is usually available within minutes. Still, eChecks take less time to process than paper checks.
No processing on weekends or holidays
Since eChecks depend on ACH processing, they don't get processed on weekends or holidays. A merchant that deposits an eCheck on the Friday before a Monday bank holiday may wait a week before the money is available. And a business that deposits an eCheck on Monday may not see any funds until Thursday.
Many banks limit the amount of money companies can send by ACH every day, every week, or every month, and some banks may also impose limits on each transaction. Organizations should check with their banks to determine whether it supports the types of transfers they need to make to operate efficiently.
eChecks can bounce
There are a variety of reasons a customer’s eCheck might bounce. For example, they may have insufficient funds, or they may have provided an incorrect bank account number or routing number.
Dealing with an eCheck that bounces can take a lot of time. In addition, a merchant may be hit with chargeback fees or may not even be paid for its goods or services.
To mitigate the risk of bounced checks, online merchants can use a check verification service to determine if the customer has an accurate routing number and an active bank account.
Can Checkout.com help businesses with eCheck payment processing?
Checkout.com doesn’t offer eChecks as a payment method. However, we do allow you to accept ACH payments, enabling you to directly debit an amount from your customers’ bank accounts without having to rely on paper checks, wire transfers, or credit cards.
Find out more about how to accept ACH, a trusted, low fee payment method, with Checkout.com
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