Each time a new customer integrates our ACH API, we listen and we learn a little something new. As we continue to work with and empower our customers, we want to share what we’re learning along the way.
Today, we will explore some common misconceptions about ACH integrations. While some are more obvious than others, all are important to understand as you’re considering an ACH API integration.
However, what is most important to take away from this blog post is that Dwolla is here to help you understand the ins and outs of ACH—Exhibit A, below. We’re experts in facilitating bank transfers and have dedicated ourselves since inception to providing an easy on-ramp to the ACH network so platforms and businesses can leverage it in a way that improves efficiencies.
Misconception #1: ACH transactions are the same as paying with a Debit card
ACH transactions are not the same as paying with a debit card, nor is the integration the same. Although a debit card is linked to your bank account, these debit card transactions still leverage the credit card network. ACH transactions are between bank accounts and do not run through the same networks as credit card processing.
Misconception #2: You can pull funds from a customer’s bank account without authorization
Your customers must agree to authorize an ACH transaction. To keep customers safe and in-the-know, you can’t simply debit their bank account with proper authorization. This rule isn’t from Dwolla or other ACH service providers, it comes straight from NACHA and federal and state law. In alignment with these rules, you must obtain consent from your customer in order to process a payment from their bank account. Processing a payment from a bank account without this consent is a no-go.
However, there is a solution—Dwolla’s On-Demand bank transfers allows you to process variable payments from your payer’s account. The payers simply authorize the ability to process future, variable amounts from their bank accounts upon initial sign up.
Misconception #3: ACH transfers take 3-4 days to process.
ACH transfers do not always take 3-4 BUSINESS days to complete. This misconception is an oldie, but a goodie and always worth repeating. The ACH network uses batch processing. Financial institutions are responsible for sending ACH entries into the ACH network and they tend to stick to pretty strict hours, i.e., they don’t process ACH files during weekends and public holidays. Banks also have safeguards in place to ensure funds are in place, holding funds before they make them available. This contributes to potential delays.
There are a couple solutions to combat this delay. For starters, there are Dwolla Next Day ACH transfers which can reduce the wait time for funds from 3-4 business days to 1-2 business days. Additionally, the Federal Reserve is working to improve the entire ACH network and minimize delays with Same Day ACH, which will start making its way into the market in September 2016.
Misconception #4: ACH transactions happen in one fell-swoop
ACH transactions go through several stages in the background after calling an ACH API. On the backend, once you call the API, transactions will go through a myriad of steps. Take for example, paying utilities. For example, when you pay a utility bill via ACH, your utility company’s sends an ACH debit entry to its Originating Depository Financial Institution (ODFI). The ODFI sends the debit entry to the Receiving Depository Financial Institution (RDFI) that holds their customer’s bank account.
When you integrate with Dwolla, we manage this process for you on the backend, so you can initiate an ACH transaction with a single API call. Our application tells Dwolla the “funding source” (bank account) of the payer, and the destination account or email. Behind the scenes Dwolla helps to send the transfer through the ACH network, notifying your application along the way of any ‘Event` that occurs throughout the transfer process via webhooks. Read this for a full explanation of ACH for developers.
Misconception #5: Once an ACH transaction is labeled “processing”, it’s the same as complete
With ACH, a transaction can go from processed to failed. How is this possible you ask? Simple. The ACH network connects financial institutions in the United States. On each end of those “rails” are banks and bank accounts, operating with a “wait and see approach.” When you initiate a payment it can be labeled as processing, but then becomes a “failed” transaction after the system realizes one of the bank accounts in the equation didn’t have the funds, was using misinformation, etc.
For more, take a look at this full list of ACH reject codes (aka, what would cause a transaction to fail).
Misconception #6: A created transfer is a successful transfer
Simply creating a bank transfer does not mean it has completed. The answer to this common misconception is similar to that stated above. Once you create a transfer, you will wait for it to process within the ACH network. Once the transfer has been deemed “complete,” the transfer has run its course.
Managing a payments integration of any sort is no cakewalk. That’s why Dwolla is here—to help you understand these common misconceptions and work to improve payments. If you’re interested in learning more about our White Label bank transfer API, reach out. Our integration specialists would love to work with you.