ACH payments are not a new concept, nor are they the sexiest trend in the rapidly-evolving FinTech ecosystem. Electronic checks have received a bad rap for not being innovative enough, but advancements and investments in the ACH payment network have taken this technology back to the forefront of many B2B payments discussions.
Whether it be for overhauling outdated legacy payment infrastructure, managing and settling payments faster, or securely sending payments across the rails better, there is a lot of potential packed into an ACH payment. While credit cards rule the B2C world, there are plenty of businesses that still rely on paper checks. In the year 2017, with e-invoicing and ACH options readily available, there is zero reason to stick with the paper method.
Similar to a check, an ACH payment is processed through an account, but done through in an electronic method — and through batches at multiple intervals during the day. Unlike the high fees associated with credit cards, ACH payments often reduce costs because of the batch processing method. It also eliminates the costly expense of sending physical checks, which bring along plenty of security issues and delays to the payment process.
Where FinTech and ACH Benefits Meet
With so much attention today given toward mobile payments and other emerging payment methods, businesses are quick to forget other valuable options, such as ACH payment. Because many businesses already operate extensively with checks, ACH seems to be a natural extension — not to mention a way to speed up business transactions, appease customers and drive up revenues.
Before organizations like NACHA invested heavily in the advancement of same-day ACH payments, there were delays in the processes that held many benefits back. Now, however, with groups like The Clearing House and NACHA, and the blessing of financial institutions across the U.S., the reality of same-day ACH became a reality in September 2016.
As a result of this move, ACH payment methods no longer face the same delays in payment processing businesses once experienced. Now, businesses have better control over their payment reconciliation, including how and when funds are settled since there are multiple processing periods available via the ACH Network.
For business, the benefits of same-day ACH are vast, including the ability to increase cash flow, move payments faster between accounts and settle those accounts faster. Both from a logistics and financial standpoint, this gives businesses of any size an advantage.
In the four-month span when same-day ACH took hold, from the end of September to the end of 2016, ACH payments saw a major uptick in usage. In fact, there were $8.8 billion B2B transactions made during that time period alone.
With a new infusion of tech that gave ACH the power to move faster across the payment rails, businesses became empowered to send and receive funds faster than ever — often with fewer fees involved. Regardless of the number of FinTech innovations that have come into the market since the switch, advancements in ACH paved way for more businesses to consider it a viable and beneficial option.
Cost Savings Found With ACH Payments
Not every ACH payment is going to save a business money, at least not in the short term. Long-term, however, this payment method has the ability to dramatically streamline business practices, boost customer loyalty (with another payment method of choice) and speed up B2B payments.
It’s also taken a slice out of the paper check market. According to a recent study, the number of checks used for bill payments declined by 20 percent in the past six years. Now, roughly 8.2 billion payments are made online, and ACH payments are one of the driving methods. Digital checks also eliminate the chance a business will experience fraud, increases the chance that the payment will get to the right recipient, and cuts down costs associated with managing the paper check process.
In fact, industry estimates suggest the cost of paying with a physical check may be up to 10 times more than ACH, and receiving a paper check is about 5 times more than ACH. These are typically the hidden costs that are eliminated by embracing digital and ACH payment methods — and are costs businesses shouldn’t have to absorb thanks to advancements across the financial services ecosystem.
So if you’re asking yourself: Should my business be ditching checks? The quick answer is yes. Of course, not everything in business payments is that easy. There are a few things to consider.
ACH payment rates aren’t always the lowest, but they can reduce payment processing costs because, unlike credit cards, ACH payments offer a flat rate instead of a percentage. Relying on ACH is also a better way to ensure the transaction will be conducted without error — creating less of a chance for error, disputes, and chargebacks. Relying on digital payments, particularly via ACH payments, can give businesses a lower rate when compared to credit cards.
Appease More Customers With ACH Payment Methods
Mobile and digital payments are becoming increasingly popular, but they are not dominating customer spend quite yet. Credit cards still rule, but that doesn’t mean customers aren’t open to new ways to pay. To cast a wider customer net, ensuring you aren’t alienating any population, accepting ACH payment is one way to ensure you are catering to a more diverse audience.
Whether or not your customers have a digital mindset, it’s important you offer them multiple ways to pay — one of which should be an ACH payment. Not only does it fill a gap to those who typically only can rely on paying via cash, credit or check, it can offer another, faster, more secure way for your customers to pay. Particularly with the increased availability of same-day ACH, managing and settling transaction can be done faster than ever before.
Regardless of how many FinTech innovations enter the market, one thing will always be true in B2B payments: Customers expect new, better, faster and secure ways to pay. And they want to choose how and why they pay your business a certain way. ACH payment methods can check off that box.
Where ACH Fits Into the Future of FinTech
Digital is the future. No matter what form factor actually ends up dominating customer spend, or how you want to label it (digital, electronic or mobile), the future of payments is all about providing faster, more secure ways to pay. As more banks embrace the concept of ACH payments — and all the details mentioned above — business and customers can reap endless benefits as a result of adopting the rapidly-changing payments scheme.
What’s also helped propel FinTech investments forward is an appetite in the financial community for an easier way to process payments electronically, but through a method that doesn’t increase security vulnerabilities.
Sure, not every business may be on board to make the ACH payment switch, but the data suggests that this is where the future of payments is headed. In 2016 alone there were 25 billion ACH payment transactions, which amounted to $43 trillion. This is attributed to the fact that more than 90 percent of financial institutions are prepared to originate same-day ACH debit and credit payments.
Through the evolution of the ACH Network, more customers and businesses have the opportunity to embrace electronic payment methods. As trends have shown, the world is increasingly shifting toward digital in order to enable a new generation of business payments that strips away the barriers that restrict companies from growing.
Anna Lothson is a content contributor for Payline Data. She previously wrote for PYMNTS.com, as a Sr. Content Producer, where she focused on financial services and payments innovation, fraud and security, emerging payments, and FinTech news, research and thought-leadership content across the payments industry.