Checks to eChecks: An evolution
The ancestor of eChecks is definitely the paper check but since they began eChecks have undergone a lot of changes and modifications. The first ever check was written on a gray paper slip in London, back in the year 1659. This check made over three and a half centuries ago contained all the vital information that is used in checks till today; the amount in numerals and words, signature and the name of the payee. Since then the format has not changed much except the introduction of a few elements like check number and routing number to trace the checks. The reason that most parts of the check have remained unchanged is that the information needed is already there since the first check and except for a few details much has never been required to be added.
Even though new fintech services are mushrooming, the importance of checks remains as people continue to use them one way or the other. Similar to how the TV media didn’t eradicate newspapers, modern digital card payments haven’t been able to completely squash the check tradition.
Post the 17th century, checks progressed and became commonplace and by the mid of 20th century they were everywhere. With the introduction of routing and check numbers at the bottom of the checks which could be read by machines, sorting of checks became more efficient and subsequently the manpower required to sort and route checks was eased. The real change came when post 9/11 banks started sending digital copies of checks rather than transporting them physically across the USA, this was needed since planes were grounded post the terrorist attack.
In 2015, more than 20 billion paper check transactions were made. Nobody thought the inevitable as checks completely evolved and embraced the digital. The progress in technology, digital signature, changing laws and policies, all made it possible for eChecks to become what they are today; a seamless and reliable method of exchanging funds.
What are the components of an eCheck?
You have seen how an eCheck differs from conventional checks and have grasped a basic concept of eChecks, now let’s get into details. First we will understand the different components or fields in an eCheck and then we will explain to you how the eCheck system works in the real world.
- Bank name and address
- Name of the payer with address
- Date when the eCheck is made out
- The amount of funds to be transferred
- 9 digits routing number
- Bank account number of the payee
- Check number
- Transit code for the eCheck
How does eCheck processing work?
eChecks are processed over the ACH (Automated Clearing House) network. The whole process consists of 4 steps: authorization, payment set-up, finalization/submission of request and finally confirmation of payment (funds deposition). Let’s now discuss each of these steps in a bit more detailed manner as to what actually happens from the point you make out to an eCheck to the point when funds are received at the recipient’s end.
1. Check Verification:
After both parties i.e. the payee and the payer agree to an eCheck transaction. The first step is when a user fills up an eCheck authorization form and sends it to the merchant, who after receiving authorization looks at the eCheck details and verifies them. The payer can conduct this step via an email, by filling up an online form or through a telephone conversation. If the payer’s payment information is correct the merchant begins to initiate the transaction by preparing it to forward to their eCheck service provider.
2. Setting up payment:
Initiating the transaction means entering the payer’s details into the eCheck payment processing software. Sometimes this information is automatically picked up by the software via the online form (it must be entered manually in case of authorization by email or phone call). If the payment is recurring, it is marked in this application in this step. Thus a single eCheck can be used to make multiple payments in case of rent, subscriptions, periodic installations, utility payments etc.
3. Submission of request:
If the information entered is final and correct, the merchant hits the send/submit button and the eCheck goes into the floating period. This marks the start of the ACH payment transaction process. Your eCheck processing has begun once this step is complete.
4. Confirmation of payment:
At this stage, the information reaches the eCheck payment service provider who initiates the transaction. This is done by forwarding the request to the ACH network. Once the payment or eCheck transaction is cleared by the ACH network, the funds are directly withdrawn (debited) from the payer’s account and deposited (credited) into the payee’s account.
What is the ACH network and how it works?
In the payments universe, the ACH occupies a very special place. ACH stands for Automated Clearing House, and as the name suggests it is responsible for clearing all kinds of electronic and digital payments. From depositing your salary into your account to processing debit/credit transactions, ACH takes care of all of it.
Yes, ACH network handles all kinds of digital transfers and electronic payments and much more. Processing of funds in-between different modes, direct money transfers, recurring payments etc. are all processed via the ACH network. Thus this system ends up processing millions of transactions each day. This whole system is automated and works all by its own. It communicates between banks telling where to debit the money from and where to credit it.
ACH transfers are beneficial in several ways since they are low fees or free, they are fully automated and do not require human interference at any point in the transaction. Once the account from which funds have to originate is acquired the ACH network gets to working the transaction.
A typical eCheck transaction involves the following parties:
- The originator : The person/organization that initiates the transaction is called the originator (for ex: the merchant, business owner)
- The eCheck service provider submits this transaction to the Originating Depository Financial Institution (ODFI) as an ACH transaction.
- The ODFI receives the transaction and forwards them to the ACH network for processing.
- The ACH network clears and settles the transaction received from the ODFI.
- The Receiving Depository Financial Institution (RDFI) obtains the cleared transaction from the ACH network.
- The receiver : The person whom the originator had designated to receive the funds.
How to use eChecks for sending/receiving payments?
Well, you have to literally make zero effort to get on this wagon. You already know everything that you need to know about filing an eCheck because it’s the same as paper checks. Anyway, we will still reiterate the process for you. It’s fairly easy and simple. You won’t need a pen or a checkbook, what you’ll need is a browser and a keyboard. Let’s begin:
1
Check your bank account balance
This is check/eCheck writing lesson 101, you need to ensure that you have sufficient balance in your account before proceeding to write an eCheck. If you don't have the required balance, the eCheck will bounce and you definitely don't want that. If you don't have the funds in your account, 'do not' write the eCheck as the 'float time' is very less and your plans of depositing the funds before the check clears are literally futile here.
2
Fill up the eCheck request form
Pull up your eCheck services and fill up the form online on their website, on an application/software they have provided or complete the authorization via an email or a telephone call. Either way, in this step all you need to do is pass on the accurate info that will go into your eCheck to your eCheck service provider. Enter all the details correctly.
3
Check details and press submit
Check again for you may have made errors entering so many numbers in separate fields. If you're sure that all the information you have provided is correct, click OK/submit button and you're all set. This is where your part ends. It only takes a few minutes, just like a paper check.
When should you use eChecks?
Spending was never easier. Today, there are scores of ways in which you can part with your money. It can be a swipe, a wave, or a dip of the card. If that’s not enough you can pay simply by using your fingerprint or myriads of other forms of digital payment systems. So, in this multidimensional payments market, where does eCheck fit in? We will tell you exactly when and where you should pull out the eCheck, well not quite literally!
Large amount transactions:
In comparison to other payment methods, eChecks are fairly cheap since their processing charges are minimum. This is the reason why it is beneficial to use eChecks for moving large funds between accounts. eChecks are also a good option for smaller funds since they do not take a large percentage of the transaction amount as processing fees.
Recurring payments:
For recurring payments like rent, subscriptions, monthly or yearly installments and utility services like gas, electricity etc. you can use eChecks. Simply cutting one single eCheck and marking it for recurring payments will do the job and you wouldn’t have to bother for making repeated payments.
In place of paper checks:
If you are still a fan of paper checks, now is the time to change sides. Use eChecks as they are safer, faster, convenient and the best part is they are paperless and you wouldn’t have to go to the bank too! Save trees, go green. Think sustainability, switch to eChecks today.
Lack of funds on other payment systems:
When you are low on funds in other payment accounts, you can use eChecks to pay. If your eCheck payment account also does not have the required funds, don’t worry as you get a ‘float time’ of 3-4 days in which you can arrange funds. Still, it has an edge over other payment methods which won’t go through if your balance is below the required amount.
When delivery issues are not pressing:
For eCommerce payments, eChecks can be an amazing payment option. Since, a day or two in delivery won’t hurt, eChecks can be used here to make transactions without worrying about an immediate transfer of funds.
To make things easier for the customer:
Every business aims to make things as easy as possible for the customer. eChecks offer a level of ease and convenience for the customer to make payments. Accepting eChecks means a whole lot more customers who may not be using debit/credit cards or other digital modes of payment.
When you pay the fee for transaction:
The transaction may be paid by the payer or the payee. If you’re paying it then go for eChecks as the transaction fee for eCheck processing is lower than any other payment method out there in the market.
When you want to play it safe:
Most eCheck service providers do not charge any set-up fee. The best part is that you make up your mind, call up a service and they hook you up with the eCheck payment system almost instantly.
No devices required:
eCheck processing does not need any gadgets or devices like POS machines etc. So you don’t have to worry about spending money on those machines and setting up which is perfect for small businesses.
What are the advantages of using eChecks?
We have mentioned lots of advantages of eChecks between the lines in the text written above. However, there are still a few left to point out. We will reiterate all of them here for your information. eChecks have the upper hand when it comes to safety, ease and transaction fees. Well, what more could a business ask from a payment method? Find out:
01
Safer to use:
Echecks are safe when it comes to processing high risk payments. They are also less prone to frauds and cyber intrusions. They offer breathing space both to customers and the merchant and keep security risk at minimum.
Greater accuracy:
Echecks are accurate since they are verified at several levels of the transaction cycle. In case of faulty data or discrepancies, they can be promptly cancelled or withdrawn from payment.
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Speed of transaction:
Echecks are quick when merchant payouts are considered and they are also a fast way of transacting international payments which is very beneficial for payouts of ecommerce businesses.
Lower transaction fees:
Echecks have the least transaction fees when it comes to processing payments. They provide a win-win scenario for both customers and the business owners irrespective of who is paying the transaction fee.
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User friendly:
It is very simple to fill out a paper check, eCheck are even easier. Users find themselves at ease when paying through eChecks mostly because they are convenient and very user friendly modes of payment.
Eco-friendly:
Think of the millions of trees you are saving which would otherwise have been chopped to print those paper checks. This method is not only eco-friendly but a sustainable one too.
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Low risk:
Echecks are low risk considering the fact that they are verified and authenticated at several stages. You can carry out those high risk or large volume transactions via eChecks without worrying about a thing.
Zero set-up fees:
Most eCheck service providers do not charge any set-up fee. The best part is that you make up your mind, call up a service and they hook you up with the eCheck payment system almost instantly.
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Hassle free:
Conventional checks required a lot of lifting and transporting between different areas but that’s not a problem with eChecks. The system is totally digital. Ready to rule the world of payments.
Risks associated with eChecks & minimizing them:
eChecks are a safe payment system but they are not completely free from frauds. Several cases have been reported in which funds were embezzled via eCheck payment system. Let’s take a look at how frauds and malpractices creep into this system and the ways to reduce them.
How frauds occur?
Theft of account and routing numbers from the invoices or eChecks is the most common type of fraud associated with eChecks. Malicious players can steal important data from users and misuse this data to create fake eCheck profiles. In this regard the ACH (Automated Clearing House) network that processes eChecks can also be compromised by cyberattackers to steal private information and siphon off funds from the accounts of unsuspecting users. Checking account number and a routing number are the two key pieces of information required by cyber thieves to execute their theft. Criminals obtain these details by phishing users into installing a malicious software which also installs keylogger onto their systems. Hundreds of millions US$ are stolen every year this way.
Detecting & diffusing frauds:
Users will always remain at risk from phishing attacks and thus the strongest defense against such attackers is to stay alert and wary of fraudulent emails. Watch out for any suspicious activity and do not get caught into the trap of fraudsters. If there is a transaction or deduction in your account that you didn’t authorize, report it immediately so that such threats can be detected. Monitor and review your accounts everyday to become aware of any malpractices. ‘Filter’ and ‘block’ mechanisms to ward off malicious links and to block unwanted links must be applied to ensure an added layer of security.
An active action by filing a police report must be taken once you discover a fraud in your account or in your organization’s transaction process.
eCheck fee structure :
You must be curious to know about the different types of fees associated with the eCheck payment system. How much does it cost to get eCheck for your business? Find out here,
Setup fee: A minimal eCheck setup fee to be paid only once. Some organizations like us also offer free/zero setup features to promote the acceptance of this mode of payment.
Monthly fee: A minimum fee charged on a monthly basis for availing eCheck services on your business website.
Per transaction fee: A percentage of the transaction amount is charged as the transaction and it depends on the amount of transaction. Usually it is considerably low in comparison to the transaction fee charged for debit/credit card processing services.
Chargeback fee: This is the fee charged for each chargeback (fee for incomplete/canceled or refund transactions).
eCheck for high risk businesses :
Some businesses are considered high risk in nature, this includes the adult-oriented industry, eCommerce, tech support services industry and a few other notable businesses. Due to their nature they are called ‘high risk businesses’ with no fault of their own and it becomes really tough for these businesses to find a reliable payment processing system. At these times, eCheck comes to rescue these businesses. For this reason several high risk merchants prefer eCheck as a payment system for their trade. This is due to a number of advantages like low processing fee, safety from high risk payment methods like debit/credit cards etc. and to offer the customers an easy way to make payments. Most of the people who do not have cards can still pay via eChecks. They offer faster and cheaper processing to merchants and make the job easier on both ends.