In our Contactless Payment 101 series, we’re breaking down the basics of processing transactions hands-free. Today, we’re talking ACH payments.
Pop quiz: Do you know what ACH stands for?
…Until I researched this article, me neither. As often as I’ve seen it pop up on bank account statements or considered using it to pay a DMV bill (rather than shuck out the extra $2 for credit card payment processing fees), I’d never really bothered to look into what ACH payment processing is, the pros and cons for businesses considering using it, or how it’s different than other forms of contactless payment.
So, in the spirit of financial literacy and doing better business, let’s learn the basics of ACH transfers together.
What is ACH Payment Processing?
It’s more accurate to call it an ACH transfer, which is also a great way to keep the difference between ACH and credit card payment processing straight in your brain. (At least, that’s true for me.)
ACH transfers are electronic transactions made directly between banks. Let’s use the DMV again as an example. When you pay your car registration via ACH transfer, those funds are removed directly from your bank — no debit or credit card number required. Typically, that means that ACH payments go through faster than some other common forms of payment processing — sometimes even on the same day.
There are two types of ACH transfers:
- ACH debit transactions — when money is pulled out of your account, such as an automatic car payment that gets taken out of your checking account each month
- ACH credit transactions — when you send, or push, money out of your account to a friend or business
What Does ACH Stand For?
Automated Clearing House (ACH) Network, which is the system that processes those payment transfers. According to Investopedia, “The ACH Network essentially acts as a financial hub and helps people and organizations move money from one bank account to another.” If you’re an overachiever, you can read more about what happens with ACH in detail on Investopedia, but if you’re like me, you just want to know why and when ACH gets used.
What Are Some Common Types of ACH Payments?
- Direct deposits, such as paychecks and tax refunds
- Direct payments, like when you pay your student loans or water & power bill via ACH
- Certain apps, like Venmo, also use ACH for moving funds
How Long Does ACH Take to Process?
If you’re lucky, on the same day. But because ACH payments are only processed in batches three times per day currently, and only on days that banks are open, they can sometimes take several days to complete, according to NerdWallet.
(Fun fact: we offer same day payment processing through Schedulicity Pay…)
What Are the Benefits of ACH Transfers?
There are some pretty clear advantages to using ACH as your go-to payment processing whether you’re the business or the customer.
- Speed. Again, most ACH payments clear within 1-3 business days. Recently, NACHA (the institution behind ACH) made it so that banks can process payments the same day they’re sent but there’s a catch: certain institutions might charge you for same-day expedited processing. Expanded same day ACH goes into effect on March 19, 2021.
- Simplicity. If you’ve ever sent money to a friend or family member straight from your bank account, you know that it’s a heck of a lot easier than mailing a check.
- Security. Again, fewer steps in payment processing means fewer hands touching your account info and money. That said, while ACH may be more secure than, say, paper checks, other forms of payment processing also offer secure transactions.
- They’re also usually free unlike wire transfers, which often come with fees.
Some businesses (and customers) prefer credit card payment processing to ACH. Usually, it has to do with one of these reasons:
- The annoying process of finding your routing information and checking account number every time. While apps like Apple Pay make it easy for you to save your cards on file on your phone and laptop, to set up an ACH payment, you’ll need to have a check handy or to log into your bank account to get your information.
- Restrictions on how much money you can transfer at once. This is determined by the bank or institution.
- Weird timing issues. Payment delivery is based on a banks’ discretion. Banks determine what time ACH payments post, so it can vary wildly when you get paid depending on whether you’re at a Bank of America or a Chase.
And that, friends, is the skinny on ACH payment transfers. We’ll be back with another Contactless Payment 101 article shortly. In the meantime, don’t forget to check out Schedulicity Pay, our built-in payment processor that offers some of the lowest rates in the industry. Or check out this credit card payment processing comparison chart.