Five Questions About eCheck Payment Processing Answered

As the payments industry is becoming more digital, electronic payments are becoming the norm, and traditional payment methods are decreasing in use. Electronic checks—or eChecks—are an example of a new digital payment method.

An electronic check is a way to withdraw money from a checking account and deposit it into another digitally, with no paper required. In 2003, the Check Clearing for the 21st Century Act established the regulations for eCheck payment processing. As a result, eChecks are a quick, secure and convenient digital payment method.

In this blog, we answer the most common questions about eChecks. Review our answers to learn more about electronic checks, their benefits for your business and how you can start accepting eChecks today.

 

1. What Is an eCheck?

An eCheck is a digital check to make electronic payments from a checking account. Like a paper check, an eCheck requires basic information, but the information is collected and the transaction is processed electronically.

The electronic check payment withdraws money from a payer’s checking account, transfers the funds via the Automated Clearing House (ACH) network and makes an eCheck deposit in the payee’s checking account using a payment processor.

People can use eChecks to pay companies for bills. Businesses with an ACH merchant account can withdraw a customer’s payment directly from their bank account with the customer’s authorization.

eChecks are common for several types of payments—especially those that are high-cost—such as:

• Mortgage payments
• Rent
• Car loan payments
• Utility bills
• Fitness memberships
• Legal retainer fees
• Subscription fees

eChecks are most beneficial to these types of businesses:

• Businesses accepting large payments: For high-value payments, eChecks help you save money. eCheck processing involves fewer parties than credit card payments and avoids interchange fees.
• Online companies: Since online businesses already operate digitally, you can collect payment details online for eCheck payments.
• Subscription-based businesses: Since eChecks are a type of recurring payment, your customers can set up their account to send an eCheck on a repeating basis. Recurring eChecks are convenient for customers and your business. Customers will always pay their bill, so you’ll receive payment every period.

Other common names for eChecks include direct debit, online check and internet check.

 

2. How Does an eCheck Work?

An eCheck works like a paper check, except the information is transmitted electronically, making the process more efficient. eCheck payment requires these steps:

1. The customer starts a transaction: A customer authorizes an electronic money transfer by initiating an eCheck to a company for goods or services. A merchant must obtain permission from the customer through a contract, order form or similar method to withdraw money from their checking account.
2. The merchant collects the payment details: Once the merchant has the customer’s authorization, they can collect the details needed for the eCheck, such as the customer’s bank account number and routing number. Merchants can ask for this information via an online form, paper form or phone. For recurring payments, the customer and merchant must decide on a payment schedule.
3. The payment processor verifies the details: The merchant enters these details into their payment processing software. The merchant’s payment processor will validate the eCheck details to ensure the transaction is legitimate. Funds are verified 24 to 48 hours after the customer starts the transaction.
4. The merchant’s account receives the payment: After verification, the ACH network will process the eCheck. The funds will move from the customer’s account to the merchant’s account within three to five business days. Once paid, the customer will receive a payment receipt to confirm the eCheck has been deposited successfully.

 

3. How Are eChecks Different From Other Electronic Payment Methods?

The payment industry uses several terms for money transfers, and each term means something different. Payment types that are similar to, but not the same as, eChecks include:

• EFT: An electronic funds transfer (EFT) is a general term for electronic payments, such as eChecks, wire transfers and direct deposits.
• Paper check: A paper check is a slip of paper where customers write out payment details. They give this paper to the merchant, and the merchant uses the paper check to withdraw funds from the customer’s account. An eCheck is essentially a digital form of a paper check.
• ACH: ACH and eChecks both transfer funds between bank accounts. eChecks use the ACH network to make transfers and manage funds between the payer and payee accounts.
• Credit card: eChecks and credit cards both process electronic payments but in different ways. eChecks use the ACH network to transfer funds, have low processing fees and no credit card interchange fees. Credit cards use their own payment infrastructure to process payments, resulting in higher fees.
• Wire transfer: A wire transfer manually moves funds from one bank account to another. Wire transfers are more costly since they’re manual and less secure since payments cannot be revoked.

To understand these differences, you could say eChecks are a type of EFT that acts like a digital version of a paper check, using the ACH network to process payments quicker and cheaper than credit cards and wire transfers.

 

4. Are eChecks Secure?

Security is the primary advantage of eChecks over traditional payment methods because they are subject to Regulation E consumer protections. The security components of electronic check payments include:

• Authentication: Authentication verifies the identity of the individual submitting account information. This process makes sure that the merchant gets legitimate payment information, and the customer consents to have funds taken from their account.
• Digital signature: A digital signature is an encryption technique that uses timestamps to ensure eChecks cannot be duplicated.
• Duplicate detection: Duplicate detection monitors eCheck transactions for suspicious activity. This strategy can detect fraud, such as duplicated checks.
• Encryption: Encryption masks payment data to make it nonsensitive. Encrypted data is useless if stolen because the hacker must have the encryption key to decrypt the information. All ACH transactions like eChecks must be encrypted if they occur over unsecured electronic networks.
• Public key cryptography: This step is part of the encryption process. The key has the information needed to encrypt data during the transfer and cipher it at the receiving bank.
• Certificate authorities: The certificate authorities store, sign and issue a digital certificate to encrypt transactions, secure communication and protect information. They can certify the ownership of a public key. A Secure Sockets Layer (SSL) certificate is an example.

 

5. What Are the Benefits of eChecks?

eChecks offer several benefits for businesses and customers. Besides being a secure payment method, companies should take advantage of eChecks because they:

• Process quickly: eChecks take only three to five business days to finalize since the transaction is completed online. This timeline is much faster than paper checks, which can take more than a week due to verifying the payment details. With eChecks, you’ll get paid right away instead of waiting for your money.
• Increase revenue: Accepting eCheck payments can help your business make more money. Checking account numbers stay the same, whereas credit card numbers often change, so your payments will go through. eChecks can also be set up as a recurring payment, ensuring you get paid on time and eliminating the need to track down paper checks.
• Save money: eChecks have lower processing fees than credit cards. By accepting eChecks, your company can pay less in fees and get more money for your operations.
• Are easier to track: Hard copies of payment confirmations take up physical room in your office. With an eCheck, you and your customers will receive an email confirmation of payment, which you can store digitally.
• Cannot be lost or misplaced: An eCheck is a digital record, so it’s virtually impossible to lose. The banks and ACH network will keep track of the payment until it’s processed. Paper checks can be lost, requiring the payer to issue another check and stop the original check to prevent someone else from cashing it.
• Reduce waste: Since eChecks exist digitally, no paper is required. Your business can use less paper and reduce waste.

 

CSG Forte Can Help You Accept eChecks

Your company must have a payment processor to accept eChecks from your customers. Your business can start processing eChecks with CSG Forte, your trusted payments solution provider. Our payments platform allows merchants like you to accept eChecks as well as ACH payments and credit and debit cards.

What Are ACH Debits? ACH Debit Transactions Explained

Like many activities, financial transactions have gone digital. These electronic transactions occur primarily through an affiliated financial institution network called the Automated Clearing House (ACH) Network. This system helps move money between parties’ financial institutions simply, quickly and cost-effectively.

The National Automated Clearing House Association (NACHA) oversees the network and its transaction processing, amounting to billions of dollars moved annually. The governing organization establishes the rules and procedures for submitting and processing ACH debit and credit requests — the two main transaction categories.

In 2020 CSG Forte was named a Preferred Partner for Government Agency ACH Payment Gateways by Nacha. This is a designation given based on leadership and innovation in advancing the ACH network.

 

What Is an ACH Debit?

An ACH electronic debit is a transaction withdrawing money from an account electronically. ACH debits can pull funds from checking and savings accounts, though restrictions on debits may apply to some business accounts.

 

Identification

Whether the transaction classifies as an ACH debit depends on which party originates the request.

For each debit, there’s a corresponding ACH credit — funds received by the other party to the transaction. When you authorize a company or individual to withdraw funds from your account electronically, they initiate the request with the network. These qualify as ACH debits since they’re pulling money from — debiting — your account. The funds’ ultimate deposit into their account represents the transaction’s ACH credit portion.

 

Timing

While ACH debit payments and credits are swift, they’re not instantaneous. NACHA aggregates transactions and processes them in batches. Batches execute five times daily to facilitate efficient money transfers.

 

Advantages

ACH debits for business have numerous advantages, including:

• Cost control: ACH debit processing is generally more affordable than handling physical checks or even credit or debit card transactions.
• Better risk mitigation: Since fewer people are involved in processing, there’s less fraud and error risk.
• Faster payment collection: ACH debits provide cash flow sooner than traditional check processing.
• Improved recordkeeping: Completing payments with ACH debits creates electronic traces for easier tracking, reporting and reconciliation.
• Environmental friendliness: ACH debits reduce the need for paper checks and mail trucks that consume resources.
• Reversibility: ACH debits can be reversed when errors occur, unlike wire transfers, which are generally challenging to recapture.

 

Challenges

ACH debits can also pose some unique challenges, such as:

• Financial institution restrictions: Some account holders restrict ACH debits to transactional, daily, weekly or monthly limits.
• Limited funds availability insight: The ACH network doesn’t support immediate feedback on errors or guarantee funds availability.
• Real-time execution: The ACH network doesn’t provide instant credits, though it can significantly reduce processing time versus physical checks.

 

How Do ACH Debits Work?

ACH debits follow a prescribed multistep process.

1. The Payee Initiates the Request

The recipient submits a message to their account holder called the Originating Depository Financial Institution (ODFI), requesting it to debit the payer’s account using:

• The bank routing and account numbers of the account to debit.
• The transaction amount.
• The Standard Entry Class (SEC) code.
• A proposed transaction settlement date.

The ODFI then enters the request on the ACH network.

2. The Payer’s Account Holder Receives the Request

At regular intervals each business day, the ACH network passes these withdrawal requests to the payer’s account holder, the Receiving Depository Financial Institution (RDFI). The network bundles demand by institution, so the RFDI will get multiple debit requests with each “drop.” The RDFI investigates the requests and transmits any error messages or rejections to the ACH network.

3. The Transaction Settles

As long as there are no errors or rejections before the proposed settlement time, the ODFI and RDFI will transfer balances between each other through their respective Federal Reserve accounts. Once the ODFI receives the funds, it credits the payee’s account to finalize the transaction.

 

Main Types of ACH Electronic Debits

There are two primary categories of ACH debit transactions — recurring payments and one-time authorizations — before the activities receive additional standardized coding.

 

Recurring Payments

Establishing an automatic payment with a company gives it recurring authorization to initiate an ACH debit from your account information. For example, many consumers sign up for automatic payments on their wireless bills or streaming services. As the bill comes due each month, the provider uses the agreement to request the funds to satisfy the amount owed. This convenience ensures people don’t forget to pay and prevents late fees or service disruptions.

 

On-Demand ACH Transactions

One-time authorizations allow a receiving party to request the monies for a single transaction. They are also called on-demand ACH debits because they don’t represent an ongoing arrangement. An example is a consumer agreeing to an ACH electronic debit from their account for a tax payment or individual purchase. Under this ACH debit type, consumers generally retain more control over when a business can electronically withdraw funds.

 

Standard Entry Class Identification

The ACH network recognizes numerous debit types beyond recurring and on-demand. Initiators can use a three-character SEC code to identify the precise type:

• Accounts receivable entry (ARC): This code represents converting checks from payment drop boxes or mail into one-time authorization to debit the payer’s account electronically.
• Back-office conversion (BOC): BOC transactions use a check presented in person to initiate an ACH debit after acceptance.
• Machine transfer entry (MTE): This code applies to automated teller machine (ATM) withdrawals to debit a bank account for the funds withdrawn from the machine.
• Point-of-purchase transaction (POP): Unlike BOC check conversions, POP transactions use physical checks immediately upon receipt and return the paper check to the presenter once the system accepts the debit.
• Point-of-sale entries (POS): POS transactions may be the most common, as they use your debit card to withdraw the corresponding funds from your account.
• Prearranged payment and deposit (PPD): Recipients use this code to originate recurring and automatic payments.
• Shared network entry (SHR): Much like the MTE, the SHR code settles ATM withdrawals for machines within the same network.
• Telephone-originated request (TEL): This SEC identifier applies to payment authorizations received in phone interactions.
• Web-initiated transaction (WEB): As its name suggests, WEB is reserved for ACH debits agreed upon through internet activity.

 

ACH Debit Versus ACH Credit

ACH credits differ slightly from ACH bank debits, though they generally represent two sides of the same transaction.

A transaction qualifies as an ACH credit when an account holder electronically sends money to another’s account, typically at a different financial institution. Since they’re depositing funds rather than withdrawing them, this action is also called a “push.”

The ODFI will enter the request with ACH, which passes the crediting information onto the RDFI. Settlements occur the same way as with ACH debit — as long as the information reconciles correctly, the RDFI accepts the funds and credits the recipient’s account.

Direct deposits, electronic refunds and peer-to-peer payments are all ACH credit transaction examples.

 

eChecks Versus ACH Debit

eChecks — short for electronic checks — can represent an ACH debit, but the term isn’t definitive. While eCheck can describe any portion of the digital money exchange, ACH debit applies specifically to cases where the recipient initiates the payment request.

Another key difference is whether the money transfers via ACH. eChecks can be used to support a wire transfer that occurs outside the ACH network. Almost all physical checks go through some electronic processing, but not all result in ACH debit and credit transactions.

 

Choose CSG Forte for ACH Debit Solutions

As an experienced NACHA Preferred Partner for payment solutions, CSG Forte leverages scalable, easy-to-use technology to simplify and streamline online payment collection.

Contact us to request a personalized quote, or apply for your account today.

Use Recurring Payments to Predict Your Revenue Stream

As subscription models become more popular, recurring payments are as well. A recurring payment is a regular payment for a product or service. They benefit your customers by improving their experience and are great for your company by providing a steady revenue source.

 

What Is Recurring Payment Processing?

Recurring payments are automatic charges for a product or service used regularly. The customer agrees to have their card charged automatically according to the merchant’s payment schedule. Charges are made weekly, monthly, annually or whenever the customer’s subscription needs to be renewed.

Recurring charges are divided into two types based on the amount owed:

1. Fixed recurring payment: The customer is charged the same amount every pay period, regardless of usage.
2. Variable recurring payment: The customer is charged a different amount every pay period based on usage.

A company needs a payment service provider and merchant account to accept and process these payments.

Recurring payment solutions incur some costs. A recurring payment system charges a flat monthly fee and a percentage of your transaction volume. Costs will also vary based on the capabilities you need and the credit card issuer.

 

How Do Recurring Payments Work?

A recurring payment model takes several steps to set up:

1. The customer enrolls in a recurring payment option: The customer signs up for a subscription or opts to have their credit card charged automatically based on the payment schedule.
2. The customer chooses a payment method: The customer decides which payment mode to use for their recurring payment, such as a credit or debit card.
3. The customer agrees to the terms and conditions: Recurring payment systems must be approved by the customer. When customers accept the terms and conditions, they consent to the system storing their card details and charging their account every pay period.
4. The payment details are stored: The customer provides their card details, which the payment gateway stores for further transactions.
5. The payment is processed: The customer’s credit card network and issuing bank and the merchant’s acquiring bank approve the transaction, and money transfers from the customer to the merchant account.
6. The customer’s card is charged every period: When the next payment is due, the customer will be charged the amount owed based on the card details on file. The customer will get an invoice beforehand and a payment receipt once the transaction is complete.

Once this process is complete, your business can accept recurring payments from customers and receive payments within a few business days. The payment process repeats automatically every billing cycle, only stopping if the customer stops recurring payments or ends their subscription, or if the payment details are incorrect.

 

Businesses That Use Recurring Payments

Recurring payments used to be exclusive to a small sector of products and services. Now, many businesses are implementing a subscription model and allowing customers to make recurring payments. Any company offering products or services that customers frequently need can implement a subscription service.

Invoice-based recurring payment systems are ideal for:

• Subscription services and club sales: Recurring payments can pay the service fee every period, so the customer can keep participating in the service. Examples include streaming services and magazines.
• Membership services: Companies that run invoices for services can automate payments every billing cycle. Examples of these businesses include fitness clubs, tutoring companies and dance studios.
• Service providers: Service providers are businesses that service a customer at regular intervals and charge based on time. Examples include child care, lawn care and house cleaning.
• Government and municipal services: Government organizations can take advantage of recurring payments to ensure citizens pay their taxes on time.
• Services with payment plans: Companies that charge a high-cost service often allow customers to make scheduled payments over months. These smaller payments add up to the total service cost. Recurring payments can help customers make their monthly payments.

Recurring payments for online businesses can be used for:

• Online services: Many online services charge their customers for access to their products. Examples include mobile apps, virtual service providers and Software as a Service (SaaS).
• Subscription boxes: Subscription box companies sell subscriptions to their packages online. Subscribers enroll in the service and can be charged every period before the box is shipped to them.
• Restricted content services: Some companies make special content for paid subscribers only. Recurring membership payments can help ensure those who pay for the content can access it.
• Online learning: Online schools can charge their students every payment period for access to courses and instructional materials.

 

Benefits of Accepting Recurring Payments

Businesses that implement a recurring payment solution experience several benefits. They can:

• Have a predictable revenue stream: Subscription service payments make it easy to get predictable and stable revenue every pay period. With ad-hoc billing, your revenue is inconsistent since some customers may neglect paying their bill.
• Offer several payment options: Your customers can choose from various payment methods and schedules that work for them. Being this flexible without recurring payments is more difficult to manage.
• Simplify their workflow: Recurring payments automatically process invoices and payments, so your team will have less work to do every billing cycle.
• Enhance the customer experience: Recurring payments are convenient for your customers. They can set up their payment details and let the service charges pay for themselves without doing anything manually. By paying consistently, your customers will enjoy continuous service.
• Increase customer retention: Recurring payments encourage customers to continue to use your product or service, improving customer loyalty.
• Reduce the risk of fraud: Since the payment gateway stores the customer’s payment details, the risk of fraud is reduced.

 

How CSG Forte Helps With Recurring Payment Solutions

A payment gateway is one of many ways to process a recurring payment. Payment gateways are part of the recurring payment process by storing the customer’s card details for future charges. Companies can work with a payment gateway to support transactions.

Accept and process recurring payments with the payments platform by CSG Forte. With this platform, you can schedule recurring payments with your customers and manage these payments through account verification, returns management and more. You’ll also benefit from high gateway availability and minimal downtime with our enhanced payment gateway performance.

Contact CSG Forte for more information, or sign up for your recurring payment system today.

How Can Businesses Use Real-Time Payments?

Although traditional payment options are still around, consumers and businesses want improved payment methods to send and receive money faster. Real-time payments are a solution that became available in the United States in 2017. This platform offers significant improvements, including payments that are transferred and settled almost instantly.

Since the real-time payment network is expected to grow domestically and internationally, businesses must understand what it is and how to leverage it to improve operations. Explore our guide for everything you need to know about real-time payments.

 

What Are Real-Time Payments?

A real-time payment is a near-instantaneous payment between two parties. Its name comes from the fact that initiating, clearing and settling a payment occurs in real time, taking only a matter of seconds to complete.

All real-time payments follow International Organization for Standardization (ISO) 20022, a global financial messaging and payment systems standard. Its consistent, data-rich messaging format allows real-time payments to process quickly, which reduces errors, prevents processing delays and enhances security.

Real-time transfers operate on an open-loop system, meaning payments are withdrawn from the payer’s account directly instead of relying on a prepaid balance.

The real-time payments rail is the network that makes these payments possible. The network processes orders 24/7 year-round, so you can send and receive real-time payments at any time.

The most prominent real-time payment network in the U.S. is the RTP network by The Clearing House. The Federal Reserve is due to launch another network called FedNow in 2023. Other countries, such as India, Japan, the United Kingdom and Brazil, have their own networks to support real-time transfers.

 

Faster Payments vs. Real-Time Payments

Though faster and real-time payments seem similar, these terms are distinct with key differences. Real-time payments are a form of faster payments, but not all faster payments are real-time payments.

Faster payment solutions are options that use an accelerated payment rail to post payments quicker than traditional payment rails but are not instantaneous. They are faster because they message transactions quickly but do not settle them in real time.

Examples of faster payments include:

• Same-day ACH payments by the National Automated Clearing House Association (Nacha)
• Peer-to-peer (P2P) payment apps like PayPal, Venmo and Zelle
• Debit push payments like those by Mastercard and Visa

Real-time payments are posted and settled in real time, so the payee can receive money almost instantly. Examples of real-time payments include the RTP network and FedNow.

 

Benefits of a Real-Time Transfer

Real-time payments offer several advantages, including:

• Almost-instantaneous credit: Real-time payments are one of the fastest options available, with payments received and settled almost instantly. The real-time payment network is also available outside standard business hours and on weekends and holidays. People and businesses can send payments anytime and receive money right away without waiting for the money to be credited to the account.
• Better liquidity management: For businesses, near-instant payments support their cash flow. Instead of funds locked in processing between accounts, funds are credited to the receiving account immediately. This factor is especially beneficial for small businesses with a smaller cash flow.
• Cost savings: Real-time transfers save businesses money because this method is more cost-effective than traditional payment options. Printing and mailing a paper check takes more time and risks printing errors that delay payment. Transactions that fail to post and need to be fixed manually can become costly. The real-time transfer network eliminates these drawbacks.
• Improved communication: With traditional payment methods, communication flows in one direction—from payer to payee—and any further communication about the payment has to happen outside the platform. As a result, issues with the payment can take longer to resolve. Real-time transfers allow both payer and payee to communicate, and quick payments improve payment efficiency.
• Irrefutable payments: Real-time payments are irrefutable or irrevocable. Once the payer sends money, they cannot take it back or reclaim it. This factor is important in business because they can send and receive payments on delivery of a product or service. Instant payments also make it more difficult for parties in a contract to go back on the agreed terms.

 

Merchants Using Real-Time Payments

In the business-to-business (B2B) market, banks, merchants and companies across industries recognize these benefits of real-time transfers. Customer demand for real-time payments has increased, and governments around the world support this payment solution. As a result, more and more businesses are using this network for their payments. The total real-time transactions in the U.S. reached 1.8 billion in 2021 and are expected to grow to 8.9 billion by 2026.

The retail and e-commerce industry accounted for 34.5% of global revenue from real-time payments in 2021, the biggest share of any market. The desire for quick payment settlements from merchants and the growth of mobile-based shopping have contributed to this growth. Banking, financial services and insurance will likely increase their share in the coming years as they work to adopt real-time transfer options for their customers.

 

How Businesses Use the Real-Time Network

As real-time payment adoption has increased, businesses have found ways to take advantage of the network for B2B transactions. P2P payment apps are integrated with the real-time payment network to make transfers nearly instantaneous. Companies can use this network on P2P apps to make B2B payments, which is easier and quicker than manual processes.

Companies can also use real-time payments for B2B uses like:

• Confirming payments
• Adjusting the timing of payments
• Managing liquid funds
• Paying bills
• Reviewing payment data

 

The Future of Real-Time Payments

Given that real-time payments are increasingly more adopted by businesses and expected by consumers, this payment method will continue to improve and become the norm for digital payments. In the U.S., the RTP network—and FedNow soon—will encourage developments in real-time payments and support more users and transactions.

As more companies and people use the real-time payment network, security will become increasingly important. Financial technology is a popular target for hackers, but appropriate safeguards can keep payments secure. Fraud detection software like behavioral analytics and machine learning identify fraudulent transactions. Some governments have mandated or are considering legislation for real-time payment security.

As the use of real-time payments becomes more popular, traditional payment methods like paper checks have decreased. Checks are common in B2B transactions, but their processing costs and timeline are prompting more companies to consider electronic payments. In consumer transactions, the use of paper checks has been diminishing for decades. A report from the Federal Reserve Bank of Atlanta found the number of checks consumers wrote decreased by 63%, from 19.3 billion in 2000 to 7.1 billion in 2015.

 

Choose the Real-Time Payments Platform From CSG Forte

Manage your company’s payments with Dex, the cloud-based payments platform from CSG Forte. You can unify all your company’s transactions onto one platform and use APIs to integrate its functionalities with your platforms. As a result, you can manage your entire transaction life cycle with:

• Simplified payment operations by managing transactions and disputes
• Informed customer insights backed by data
• Enhanced reporting and analytics
• Reduced payment platforms and logins

With Dex, you’ll have more time to spend on your business because our platform will monitor and manage your payment data for you. See how Dex works by scheduling a demo with our team. Sign up today for your payment platform solution.