What is an eCheck?

July 07, 2019

With the myriad payment types consumers are using today, many business owners want to know, “What is an eCheck?” Like its name suggest, an eCheck is simply a digital version of a paper check. eChecks are also known as electronic checks, online checks, internet checks, and direct debits.

eCheck payments are made through the Automated Clearing House (ACH) Network, which transfers funds between bank accounts. Unlike a traditional paper check that is processed manually, eChecks are processed electronically.  Usually no additional hardware is needed to accept eChecks; the merchant must just work with a payment processor that enables this type of transaction.

But aren’t checks a thing of the past? While the convenience of credit and debit cards have reduced the usage of checks, consumers still prefer to use the payment form for many scenarios. And there are circumstances that make accepting checks more beneficial for merchants, as well. Read on to learn more.

How eChecks work

An eCheck may be used in-store where a merchant scans a customer’s written check, or online where the customer enters their banking information in a secure portal.

In both scenarios, the customer’s bank account information, along with the purchase amount, is electronically transmitted through the ACH to initiate a withdrawal from the customer’s bank account and a deposit into the merchant’s bank account.

The beauty of an eCheck is that it’s almost immediately known if the customer has sufficient funds for the purchase, thus avoiding a returned check.

Types of payments that use eChecks

eCheck payments can be made for all types of purchases, including recurring subscriptions (see below).

The ACH Network, which facilitates eCheck payments, is also used for debit card transactions, direct payroll deposits, government payments such as Social Security benefits, and much more. In fact, the US Treasury has selected eChecks as the only electronic payment method available to make large payments on the internet.

eCheck security

Electronic data encryption has come a long way in preventing fraud and data theft. For merchants accepting eChecks, choosing a payment processor with robust security capabilities for digital payments, including encryption and tokenization, is key.

On the consumer side, eChecks are significantly safer than paper checks, since there is no physical document and fewer individuals with access to the account information. If a fraudulent charge is made via an eCheck, consumers are protected by Regulation E (Reg. E), which details the steps consumers must take to report errors with EFTs, and the steps financial institutions must take to rectify the situation.  

It’s also worth noting that unlike wire transfers (which also move funds from one back account to another), eChecks can be reversed and are thus considered a more secure payment type.

Benefits of accepting eChecks

Accepting eChecks offers many benefits, including:

  • Lower transaction costs than with credit cards
  • Fewer limits on the transaction amount, making eChecks a great payment choice for larger ticket items
  • Easier recurring payments with less breakage since bank account numbers change less frequently than credit card numbers
  • Faster processing and deposits than traditional checks
  • More secure and cost-effective than traditional paper checks
  • Ability to safely accept out-of-state and international eChecks

Types of businesses that should accept eChecks

While nearly any type of business can accept eChecks, this payment type is especially suited to those that:

  • Have recurring payments, such as a utility company
  • Have a subscription service, such as a streamlining music
  • Operate on a membership model, like a gym  
  • Offer payment plans
  • Sell higher prices items
  • Accept donations on a scheduled basis
  • Want to offer all the payment options consumers expect today

In summary, many people simply prefer to pay by check. So, for those businesses that accept traditional checks, there’s no reason not to accept eChecks and enjoy the benefits of real-time funds authorizations, reduced risk of fraud and returned checks, and faster payments.

If your business is not yet accepting eChecks, now’s a good time to start. Integrating eChecks into your payment acceptance options is quick and easy, and can positively affect your bottom line with greater sales capabilities and more streamlined accounting. Ask you payment processor for more information.