An electronic check (eCheck) is a type of electronic funds transfer (EFT). Instead of signing a paper check, users enter their banking information into an online digital gateway. A type of eCheck Processing is online bill payment. Compared to paper checks, eChecks are quicker and more secure since they take place via the Automated Clearing House (ACH) network. It is one of the widely used business checks and e-commerce transaction procedures.
The Processing Steps
To make sure all that money gets where it’s supposed to, the eCheck process takes several steps:
– Payment Authorization
The customer first adds their banking details and authorizes payment. This is normally done using an online payment portal. Both one-time transactions and recurring payments are eligible for authorization.
– Payment Request
The company’s payment processor generates a payment request using the account information of the customer. The processor delivers these requests in batches to the Automated Clearing House at designated times each day.
– Payment Confirmation
The ACH processes the payment request by classifying the batches and forwarding them to the customer’s bank. The bank validates the information and confirms the availability of funds.
After transaction verification, funds are routed from the customer’s account to the company’s account.
Benefits of eCheck Payments
Business checks like eChecks have a number of benefits that make them appeal to both businesses and customers.
- They are more secure than credit cards or paper checks. Payments processed over the ACH network have the lowest value-based fraud rate, according to the Federal Reserve.
- They are less expensive than credit cards. The average cost of an eCheck transaction is between 0.5% and 1.5%. In contrast, credit card processing costs range from 1.5% to 3.5% on average.
- It facilitates recurring payments. eChecks are a cost-effective solution to provide clients with monthly subscriptions or auto-pay options.
- They are more reliable for recurring payments than cards. eChecks use bank account information rather than credit card details, which can be lost, stolen, or expired. This reduces the chance of payment rejection.
- They are quicker than paper checks. Processing for eChecks normally takes 3-5 business days. These are usually completed before a paper check is mailed.
Parties Involved in eCheck Processing
Check payment processing involves four key parties:
- Originator. The process of direct deposit is started by the company.
- Bank of the originator. The bank of the company is also known as the Original Depository Financial Institution (ODFI). It collects payments and transmits them to an ACH operator in batches.
- The ACH operator. This party handles fund requests and deposits funds into the originator’s bank.
- Bank of the client. The customer’s RDFI receives the request, checks the availability of funds, debits the client’s account, and credits the originator’s account.
These electronic business checks are far more secure than paper checks. To avoid unauthorized use, the online payment processing software encrypts sensitive information. The best way of encryption and securing data in transit is public key cryptography. Furthermore, the transactions are prevented from duplication by digital signatures with time stamps. The SSL Certificate also protects data, encrypts transactions, and facilitates secure communication. This fraud detection strategy monitors and flags multiple duplicate eCheck payments as malicious transactions.