Electronic checks, or eChecks, are growing in popularity. They are quick and convenient, which makes them attractive to business owners and individuals. However, are they safe to use?
What is an eCheck?
An eCheck is a replacement for paper checks, that is processed electronically. Instead of using a physical piece of paper with routing and account numbers, merchants or consumers can simply input that information into a payment system and the payment is processed.
An eCheck can also be processed over the phone, rather than online. Instead of using a paper check, the consumer can give their routing and account numbers to a merchant over the phone who can manually input them into a payment processing system. The money will still be debited from the checking account, just as it is with a regular check.
How Does an eCheck Work?
The Automated Clearing House (ACH) is the network through which eChecks are processed. ACH is governed by the National Automated Clearing House Association (NACHA) which is responsible for ensuring compliance and consumer protection. Together, these two agencies facilitate the processing, efficiency, and safety of eCheck transactions.
To process an eCheck, the routing and account numbers for both the consumer account and the merchant account are needed. The ACH and NACHA govern this process and ensure that the numbers are accurate and the money from a transaction ends up in the correct account.
There are four steps to processing an eCheck:
- Authorization – the consumer signs or confirms the transaction amount and account numbers
- Submission – once the transaction details are approved, they are submitted to the payment processor. PayPal and Venmo are two simple examples of this, but there are countless processors on the market.
- Verification – The ACH will now verify all the information is accurate and that the account numbers are not fraudulent.
- Release of Funds – If everything checks out, the funds are released from the debiting account and deposited into the crediting account.
During this process, there are multiple layers of security and encryption to protect consumer data. We’ll talk about that next.
Dangers of eChecks
As with any type of online payment, eChecks are not without risk. However, they are far less risky than most people may assume.
The biggest risk with an eCheck is the risk of cancellation. Due to differing policies and regulations between financial institutions, some payments get canceled because one bank uses a different set of rules than the other.
From a security perspective, the biggest risk with an eCheck is processing it over the phone. If a consumer gives their routing and account number to a merchant over the phone, the information could fall on someone else’s ears, who could then use it to make fraudulent purchases online. This is not highly prevalent but is definitely a possibility.
Another interesting perspective on the safety of eChecks is mail theft. If a criminal steals mail out of your mailbox that contains a bank statement or any other document that includes your routing and account numbers, they could use your information fraudulently. Again, not highly prevalent, but possible.
Benefits of eChecks
The fact remains that eChecks are one of the most secure forms of payment available on the market today. They have multiple layers of security that protect consumer data and make sure the funds get to the correct account. Here are some of the key benefits of eChecks:
Security – For reasons already discussed, security is one of the major benefits of using eChecks, for both consumers and businesses. High-level encryption, data transfer, and secure storage of the information all contribute to a safe environment in which to process eCheck payments. There is also additional security in using this form of payment, instead of handing over a paper check with all your account information on it, which could get lost or stolen.
Speed – eChecks are processed quickly and efficiently, which saves time for consumers and merchants alike. The transaction includes automatic verification through the ACH, which cuts down on the time it takes to process a check. This is a huge improvement over the 3-5 days it often takes to process a paper check.
Customer Experience – Because eCheck processing is available through a variety of methods, it allows consumers more options for payment. This includes mobile platforms, online options, and a variety of methods that can be used at a brick-and-mortar store.
Reduced Processing Costs – The speed and efficiency of eCheck transactions, coupled with the lack of paper necessary to process them, cut down on the costs associated with accepting check payments.
Environmentally Friendly – For obvious reasons, eChecks are far more environmentally friendly than paper ones!
There are a handful of other benefits associated with using eChecks, but these are typically the key areas of concern for consumers and merchants.
International transactions are possible with eChecks, but not quite as convenient. Since banks in the United States operate under different regulations than those overseas, this can sometimes be a challenge. However, it’s not impossible.
The ACH is a United States entity that does not operate overseas. If a consumer or merchant wants to conduct business in foreign countries via eCheck payments, they may need to work with SEPA or NEFT, which are basically Europe’s version of ACH. This process could involve creating additional bank accounts at foreign banks. Merchants will need to do some due diligence to find out what each country requires and how to set it up.
Are eChecks a Match for Your Business?
Using eCheck processing is an excellent fit for many businesses for all the reasons listed above. If you’re thinking of using them for your business, here are some of the key benefits to consider:
- Lower processing fees
- Improved settlement times
- More options for your customers
However, adding a new form of payment to your business is not without its own set of tasks. To set up eCheck transactions, you’ll need to first speak with your current payment processor. Various processors will have different steps that need to be taken to set up this option. These may include adding security features to protect consumer data during eCheck transactions.
Payment systems are generally configurable for whatever a merchant needs, but you should explore this in more detail before moving forward. Your processor can give you the information you need to make the right decision for your business.