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.
eCheck payment processing involves several key steps:
Before starting the transaction, you need to request authorization from your customer, which permits the transfer of funds from their account to yours.
This can be obtained via an online authorization form, a signed order form, a contract, or a recorded phone call.
Once you’ve received authorization, you need to capture the customer’s payment details, including their:
If the customer has authorized you to take recurring payments, you’ll also need to outline the schedule for future transactions.
Once you’ve captured your customer’s payment details you can securely submit them to your payment processor for verification.
Your payment processor will then send the payment request via the ACH network, which, provided they have sufficient funds, debits the requested amount directly from your customers’ account.
If you have multiple eCheck payments to process, your business bank will aggregate transactions from multiple customers and send them as a batch to the ACH network.
It usually takes between 3 to 5 days for the funds to be deposited into your business bank account. In the meantime, the customer will receive a receipt from the processor confirming that the payment has been successful.
You can make an eCheck payment to another business as long as they have an ACH merchant account, which allows them to accept electronic payments.
To make the payment, you just need to follow the steps outlined above but from the perspective of the payer rather than the payee:
You can make cross-border eChecks via each country’s national automated clearing system for electronic fund transfers. For example, in Europe, you need to submit eCheck payments through the Single Euro Payments Area (or SEPA).
Aside from the network used, the process for international eCheck transactions is roughly the same as for domestic eCheck payments.
Approve request and transfer funds - the eCheck request is submitted via the relevant clearing system and your domestic acquiring bank communicates with the customer’s international issuing bank to verify the details and transmit the funds. It can take between 3-10 days for a cross-border eCheck payment to arrive in your account depending on your customer’s bank and location.
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 differ from credit card payments because they authorize the direct debit and transfer of funds from the customer’s account. That means that, if they don’t have sufficient funds, they can’t make the payment. In contrast, a credit card payment allows the customer to make payments by borrowing against a line of credit from a provider such as Mastercard, which they settle at a later date.
Additionally, it is typically the merchant that authorizes an eCheck payment by requesting authorization from the customer, whereas the customer usually initiates a credit card payment.
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.
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 and subscription services, such as newspaper or magazine subscriptions and music service subscriptions.
eChecks are certainly more secure than paper checks, as they can’t be physically lost or stolen. But how does their safety compare to other electronic payment methods?
Well, actually. Firstly, because you have to gain authorization directly from the customer, you can be fairly certain that the payment is legitimate, which reduces the chance of chargebacks. And, if there is an issue with the transaction, ACH payments can be reversed within five days, unlike wire transfers, which can’t be changed.
Additionally, every payment sent through the ACH network is encrypted, meaning the details can’t be read without a key. This prevents hackers from exploiting your personal information even if they do intercept the transaction.
Finally, eChecks can be a safer way for subscription businesses to take recurring payments, as bank account details are less prone to change than credit card information
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:
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.
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.
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.
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.
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
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.
It usually takes three to five business days for an eCheck to process. If the payment is made on a Friday, you’ll have to wait until after the weekend for it to be processed. That means it will be processed by Wednesday at the earliest.
Provided there are no issues with available funds or customer verification, it should take a minimum of three and a maximum of five days for an eCheck to clear. Remember, for international eChecks, it can take as long as 10 days.
Despite the numerous advantages of accepting eChecks, there are some potential drawbacks for merchants, including:
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.
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.
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.
Yes, Checkout.com can help you to process eCheck payments via the ACH network.
ACH payments are just one of dozens of payment methods supported by the Checkout.com platform. We allow you to offer all the most popular alternative payment methods wherever you operate, from London to Lagos. Build loyalty and drive revenue using Checkout.com payment methods