For a long period of time, cards have played an important role as the most popular forms of payment in business transactions. Although using cards is convenient and easy as well as having quick authorization processes, there are fees involved when processing payments through card systems. This prompts many merchants to seek out other types of payment methods including ACH, eChecks, and pay by bank.
What Are ACH, eChecks, and Pay-by-Bank Payments?
ACH stands for Automated Clearing House. This is an electronic mechanism that transmits funds directly from one account to another. ECheck can be defined as a digital form of the physical check, which is transferred through the ACH network.
On the other hand, Pay-by-bank services are another step ahead from traditional eChecks. In such cases, consumers connect their bank accounts and initiate transactions directly from the banks. This excludes the need for card networks in the payment process.
Why Merchants Are Exploring Bank-Based Payments
ACH and pay-by-bank payments benefit from being cheaper to process. For one, card payments involve interchange rates, assessments, and markup fees from processors. On average, bank-to-bank payments are far cheaper and therefore make sense in the case of businesses that make many transactions.
Using such payment options helps businesses to be less reliant on card payments while at the same time giving more options to their customers.
Which Businesses Benefit Most?
Bank-based payments are especially useful for companies engaged in processing large payments or recurrent payments.
These include:
• B2B companies collecting payments against invoices
• Household rental management companies collecting rent payments
• Utility companies providing water or electricity
• Education institutions receiving payments for tuition fees
• Medical centers collecting payment from patients’ balances
• Subscription-based firms
For large payment amounts, a little saving on costs will go a long way towards improving profits.
Potential Challenges to Consider
Even though ACH and pay-by-bank payments can result in reduced fees, they might not always be the best choice for all transactions. Consumers might be more used to paying with credit cards and might enjoy using the rewards, security features, and conveniences associated with cards.
ACH payments might even require more time for completion compared to payments via card, depending on the payment provider.
Finally, merchants should look for the help of a payment provider who is offering robust security controls, account validation capabilities, and anti-fraud mechanisms.
Finding the Right Balance
Rather than replace cards altogether, what is often the best course of action for most companies is to offer more payment choices. Providing ACH transfers, eChecks, and bank-based payments together with credit cards offers the consumer more choice at lower cost to the merchant.
With advances in payment technologies making bank-based payments simpler to deploy and more common among consumers, companies adopting such technologies have much to gain.
