The 2021 Q2 volume of eCheck payments reached a 7.3 billion count with a value of $18.4 trillion. That’s an increase of about 25% compared to last year. Such rapid growth makes more and more company owners consider offering this payment method to their clients. But what exactly is an eCheck, and how does it work? Read ahead to find out how such payments function and whether your business can benefit from them.
An eCheck, also known as an electronic check, ACH transfer, or direct debit, is a digital version of a paper check.
eCheck payments are equivalent to traditional paper checks in the majority of ways but are transmitted electronically, which makes them an easier, faster, and safer payment method.
What Is the Difference Between ACH, EFT, and eChecks?
EFT is the abbreviation for “Electronic Funds Transfer”. The EFT term covers many types of transactions, such as:
ACH means “Automated Clearing House” and is the digital system utilized by banks and financial institutions in the US to provide infrastructure for entities that process payments.
Essentially, eChecks are an EFT type that implements the ACH network to process financial transactions.
How Did the ACH Payment System Begin Dealing with Checks?
The ACH payment network was introduced in the late 1960s as a response to the increasing use of paper checks. At that time, payment industry players were overwhelmed with concerns about the capacity of the existing technology. Their main question was: “How to efficiently manage the growing volume of financial operations involving paper checks?”
The ACH enabled merchants to accept paper checks by utilizing the routing and account numbers linked to the payer’s bank account alongside the authorization from the client. Due to this, merchants gained the ability to withdraw money directly from the payers’ bank accounts immediately upon receiving their paper checks.
In the 1990s, the ACH network was further adapted to handle not only paper checks but also eChecks by integrating with evolving digital payment technologies.
Electronic check payments utilize ACH to perform a direct debit from a payer’s checking account to a business’s bank with the help of a payments processor.
Before we start explaining how to initiate a digital check payment, it is worth mentioning that such a transaction requires customer authorization, which can be done in more than one way, namely:
A business, on the other hand, needs to have a merchant account to be able to accept such digital payments for their goods and services.
How to Make an eCheck Payment: Data Required
To conduct an electronic check payment, the consumer has to provide the same data as they would on a paper check, namely:
As a merchant, you will need to include the following details about your business to accept eChecks:
Parties Involved in the eCheck Payment Process
There are four main parties involved in the payment processing of eChecks:
eCheck Processing Steps
Electronic check processing consists of the following steps:
If the money fails to reach the account within the expected timeline, it is advisable to contact the payment processor or financial institution to inquire about the payment status and investigate any potential issues.
Main Security Components of Electronic Check Payments
Electronic checks are significantly more secure than paper ones. Here are the core security steps a digital check payment goes through:
Now that we have thoroughly answered the question “What’s a digital check?” you may be uncertain whether your company will benefit from this payment method. eCheck payments are advantageous for a variety of business types, such as:
If your company belongs to at least one of these categories, it is worth looking into the possibility of integrating eCheck payments.
Checks have gone a long way, evolving from paper to digital format, but there is still considerable potential for their further innovation. Here are some current trends and developments that are set to shape the future of electronic checks:
As you can see, the rapid technological progress paired with the benefits of eChecks is driving a significant transformation in the digital payment world. This tendency makes eChecks an increasingly important financial instrument that should not be disregarded by merchants striving to attract customers and up their sales.
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