What is an eCheck and How Does it Work
- 5th January 2020
- Posted by: Avinash Chandra
- Category: Digital Marketing
The world is going digital at a rapid pace. Digitalization and technology have made payments hassle-free and convenient. With other evolving modes on digital payments, eCheck payments (or eCheque payments) have made transacting online for businesses easier than ever. Despite being an extremely safe and secure payment method, several businesses prefer sticking to the traditional method of paying checks. If you too are not so familiar or comfortable with the idea of an electronic check, we are here to help you out!
What is an eCheck?
In the simplest words, an eCheck is the electronic or digital representation of the traditional paper check. It is a 100% accepted, established and used online payment method. All renowned major payment gateways offer the electronic check payment services to their customers. Contrary to popular belief, it is one of the most secure and cheap methods of online payments. It is a method to make payment online that saves a lot of time for both parties – the payee and the customer.
What is eCheque Payment
eChecks can be used to make payments online to pay another party directly from your bank for their goods or services. In order to send an electronic check, you need a checking account. A checking account is a type of deposit account that is held by any financial institution that allows deposits and withdrawals. The account should be with a bank that provides the facility of echeque payments.
Things You Should Know About eChecks
- eCheck is the perfect solution for businesses of the 21st century and have replaced the paper check processing.
- It is not an expensive payment method and is a safe transactions and payments system that uses world-class security. It is extremely dependable because of its automated verification processes.
- It is suitable for all bank customers, whether a small business, a mid-sized business or a large scale business, that possess a checking account and an ACH merchant account.
- It contains the same information as the paper check processing.
- It is based on the same legal framework as the conventional paper check processing.
- After the ACH payment is initiated, payment processing, which means the transfer of the funds into the account number provided by the payee, will take anywhere between 3 to 5 business days. The payment processing time depends on the payment gateway service and banking institution your account number is associated with.
- eChecks also have traditional facilities like reconciliation and stop payment.
- Electronic check payments can also be set up for recurring payments.
- Echeck is an electronic payment method that can be also used to deposit the salaries of your employees.
To understand the concept of eCheque better, let us first try to understand what ACH and EFT mean.
eCheck vs ACH
ACH – Automated Clearing House
Automated Clearing House is an electronic network that is utilized by financial institutions to provide technology and infrastructure to companies that process payments. So, when a customer sends the payee an eCheck, the money is withdrawn electronically from the customer’s checking account and is transferred through the ACH network. The money is then received in the payee’s bank and then transferred into the payee’s account. In case you want to register your business for a checking account, please contact your bank and ask if they offer checking account services.
The payment needs to be pre-authorized by the customer either through acceptance of website terms and conditions, or a contract or any other form of authorization accepted by the payment company. We shall discuss in detail in the upcoming sections.
EFT – Electronic Funds Transfer
An electronic check or an eCheck payment is just one payment method of the various methods available in the vast umbrella of electronic banking that electronic funds transfer EFT can offer. Electronic funds transfer includes:
- Debit card transactions
- Credit card transactions
- ATM withdrawals
- Wire transfers
- Direct deposits
- Automated Clearing House disbursements
Now that we understand the important terminologies, let us try to learn how it all works.
How does an eCheck work
An eCheck is a type of an Electronic Funds Transfer EFT that utilizes the ACH network for processing payments from customers to the payee’s account. The technology for eCheck transaction was developed for covering any type of traditional paper check processing and transaction. Electronic check processing eliminates most of the manual tasks of getting the check cleared. Here are the 4 steps that are involved in the processing of an eCheck transaction:
1 Request for authorization:
In this step, the payee receives authorization from the customer validating their transaction. The payment can be authorized through a click of a button, through a contract, an online form or even on the phone. The payments will clear only if there is authorization from the customer in any form and not otherwise.
2 Setting up the payment:
Once the payment is authorized by the customer for transactions over the automated clearing house network, the payee enters the payment information into the online payment processing software. Once the payment information is accurately entered, the payee will save the inputs. The withdrawal of the funds is monitored by the payment processor. This is done by overseeing the check from the bank account of the customer.
On this stage of the process, a verification procedure is conducted. This procedure makes sure the routing number and account number between the banks are correct. This can be done manually by the payee or by the payment software. Once all is verified, the transaction is given a go-ahead. Then, it enters the automated clearing house network. This shall initiate the process of the ACH payment. At this stage, the money is being transferred from the customer’s account to the payee’s account.
4 Deposit and payment confirmation:
At this point, the funds have been withdrawn from the customer’s account and have been deposited in the payee’s account. Depending upon the payment processing company, the transaction might take a certain number of days for the transaction to reflect. Once (and if) the payment is successful, both the parties are notified via email (or other modes of communication available).
Are eChecks safe?
In case you are wondering how safe eChecks are, the following are the state-of-the-art security systems incorporated:
- Public key cryptography
- Digital signatures
- Certificate authorities
- Detection of duplication
- Encryption and authentication
You might be shocked to know that eChecks are way safer than paper checks. An AFP Payments Fraud and Control survey was conducted in 2017. It was found that about 74% of the participating institutions’ experienced check fraud. Through eCheck payment, information is passed directly to the financial institutions.
The electronic check simply goes in fewer hands which reduces the opportunity of fraud. When you submit a paper check, you might miss out on filling in important mandatory details. It would result in checks not going through. In the case of eCheck transaction, this isn’t possible because the transaction won’t be initiated until you enter all the required details.
Benefits of eCheck Payment
The following are the many benefits of eChecks:
- The cost associated with an electronic check is lower than a paper check.
- Like we learned in the previous section, eCheck is way safer than paper check processing.
- eChecks are easily understood by banking institutions.
- The interface for transfer and withdrawal of funds is user-friendly.
- It is offered by all major and trusted payment gateways.
- As compared to other payment methods, cost per transaction is considerably low.
- It also strengthens and leverages the relationship between the banking institute and the account holder.
So if you are still worried about eChecks- be assured. It is one of the safest and most secure methods for making digital payments. So, if you deal only in traditional checks, be ready to go digital and start using eChecks. Talk to your bank now and get more clarity.
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