- ACH payments are cheaper than credit card transactions.
- ACH payment requests are sent out once a day.
- ACH requests do not guarantee payment.
The ACH Network (Automated Clearing House) has seen growth in its transactional volume in the fourth quarter fiscal year 2020. According to the press statement, there were 7 billion payments made during this time. This was a 9 percent increase compared to the same period in 2019.
Moreover, B2B payments climbed by 15 percent compared to the fourth quarter ending 2019 to reach 1.2 billion.
Direct Deposit has been the ACH Network’s biggest growth areas. The segment increased by 11 percent with over 2 billion transactions. The product is mainly used by businesses for payroll purposes.
A significant number of government-related payments such as unemployment benefits, tax refunds, and social security benefits are also made via the Direct Deposit network.
Why Companies are Choosing to Make Payments Via ACH
ACH payments continue to gain traction because of a myriad of benefits that they have over other conventional means of payment. Top among them is that they are inexpensive, and record keeping is much easier as all payments are recorded electronically.
This distinct feature means that ACH payments take up fewer resources when compared to paper checks, for example.
For businesses, electronic transactions via the network make it easy to track income and expenditure. Accounting, as well as more in-depth financial management tools, can be accessed by going through the account’s transaction history.
Moreover, many companies find that making payments via credit card, is often more costly than ACH transfers. The costs become magnified when there are a lot of recurring payments to be made.
For comparison, a credit card fee is approximately 2 percent of the funds being transacted plus the processing fee which varies depending on the network. ACH transactions on the other hand typically cost approximately $0.30 total. The option to automate recurring payments only increases the benefits.
A Few Drawbacks
A major drawback of ACH though is that real-time approval of transactions is not available. Credit cards are more effective in making live verification confirmations.
Among the biggest differences between ACH and credit card transactions is that with the latter, there is guarantee of payment. This is because credit cards rely on a financial network to verify whether a person qualifies for a credit limit. Once the transaction is approved, the funds are immediately transferred to the merchant.
ACH, on the other hand, does not make guarantees about the requested funds. The transaction is typically made as a request for funds. Moreover, the requests are usually bundled and sent out for processing just once a day.
As such, delays occurring due to problems with account settlements can take days to settle. In the event of Non-Sufficient Funds (NSF) or a blocked account, for example, the recipient will only be able to ascertain the cause of the rejection a few days later.