5 Reasons to Choose ACH Payments

Money movement is the backbone of the economy but in a lot of cases, making and accepting payments can cut into the profit margins for merchants who must pay processing fees up to 3.5% on each transaction for credit cards.

A cheaper option is paper checks but they’re the most vulnerable to fraud and, quite literally, could mean accepting checks that can’t be cashed. And, while paper checks have the lowest transaction cost, they end up costing more in time and labor.

But there is another way.

In this post, we will cover:

• What is an ACH Payment?
• How Does an ACH Payment Work?
• Types of ACH Transfers
• How ACH Payments Are Different from Electronic Funds Transfers (EFTs) and Wire Transfers
• Benefits of Accepting ACH Payments
• How MX Supports a Shift to Digital Solutions

What is an ACH Payment?

ACH payments are electronic money transfers between two banks or financial institutions processed through the National Automated Clearing House Network (NACHA). The Automated Clearing House (ACH) Network allows for moving money between bank accounts across the United States, called an ACH payment. This transfer is much cheaper than credit card payments and more secure than paper checks. 

While some businesses are still hesitant to adopt ACH, it is quickly growing. More than $72.6 trillion worth of funds were transferred as ACH transactions in 2021. The biggest use case for ACH today is direct deposit for employee paychecks, followed by online and peer-to-peer (P2P) payments.

How Does an ACH Payment Work?

ACH transfers are processed using a batch processing system to manage millions of transactions each business day. These batches are processed at six set intervals throughout the business day. The time it takes to complete the ACH transfer depends on when the transaction is submitted, the type of transaction, etc.

Types of ACH Transfers

There are 2 types of ACH transfers:

1. Direct deposits, or an ACH credit. An ACH credit means that money is added to an account, such as direct deposit for an employee paycheck.
2. Direct payments, or an ACH debit. An ACH debit means that money is taken from an account to, for example, pay a bill.

In addition to direct deposit for employee paychecks, other common examples of ACH transfers include using online bill payments, deposits into an investment account, employer reimbursements for expenses, etc.

How are ACH Payments Different from Electronic Funds Transfers (EFTs) and Wire Transfers?

ACH transfers are one type of electronic funds transfers (EFTs), but not the only one. An EFT is any type of digital transaction. Other types of EFTs can include:

• Credit card transactions
• ATM withdrawals
• Wire transfers

Wire transfers differ from ACH transactions in a few ways:

• ACH transfers are for domestic transactions only. Consumers will need to use an international wire transfer for any international transactions. 
• While wire transfers can be faster, usually processed the same day, they are also higher risk as the transaction cannot be stopped once the funds are received.
• Wire transfers are more expensive, with fees starting at $10 for each wire transfer, while most ACH transfers are free.

Benefits of Accepting ACH Payments

Is accepting an ACH payment better than credit card or check payments? Here’s the bottom line.

1. ACH is More Cost-Effective

ACH transactions work much the same as credit card transactions with no set fee. However, the costs tend to be significantly less. For instance, even if the credit card transaction fee is just 1%, ACH tends to be only 0.5%. On a $500 transaction, this is the difference between $5 and $2.50, which adds up over time.

2. ACH Payments Do Not Take Long

How long do ACH payments take? The general assumption is that ACH payments take 3-5 days to process. But, the reality is the modern ACH Network offers choices in how fast things are processed. For ACH credits, options are either “same-day,” “next-day,” or “2-day” payments. For ACH debits, the options are either “same-day” or “next-day” payments.

3. ACH is Longer Lasting

With recurring payments on credit cards, consumers have to update their information every time they get a new credit card, which is typically every 3 years. This is more annoying for the consumer and leads to a high number of credit card failures for the business. With ACH, recurring payments last as long as the bank account remains active and there’s no risk of a failed payment due to outdated information.

4. ACH Forces Better Fraud Controls

A new rule from NACHA went into effect on March 19, 2022, that requires originators to establish account validation and routing number verification methods as part of their fraudulent transaction detection systems. With ACH payments growing exponentially, so does the risk of fraudulent activity. This new requirement helps combat fraudulent activity by requiring originators to validate consumers’ account information before a debit transaction occurs. By leveraging balance checks and instant ACH verification technologies, organizations can mitigate ACH returns and protect against NSF and overdraft fees by having a clear view into available funds.

5. ACH is Simpler for Recurring Payments

Auto-pay using ACH direct debit is a great solution for recurring payments so that businesses aren’t paying high processing fees every month. It’s cost-effective for the business and simple for the consumer to set up.

A Shift to Digital Solutions

The challenge for most businesses will be convincing consumers to switch from paying by credit card to paying with ACH, aka “Pay by Bank.” As digital experiences make it easier for consumers to use ACH, this switch may become easier. And, businesses can sweeten the deal with discounts, bonuses, or other incentives to take the place of those credit card reward points that consumers relied on in the past.

The shift in consumer behavior towards digital solutions is on the rise, and MX's Instant Account Verification solution lets your customers quickly authenticate the account information needed to initiate an ACH payment in a matter of seconds. And, Balance Checks enables organizations to verify account balances in less than 5 seconds with reliable connectivity, streamlining the payments process, reducing risk, and delivering a better customer experience.