When it comes to paying for goods and services, business owners have more options now than ever before. Traditional payment methods like cash and checks are still very common, but there’s been an influx of digital solutions lately such as card payments and online banking transfers. Two digital payment solutions that are gaining popularity among businesses are Automated Clearing House (ACH) payments and credit/debit card transactions. The prevailing way to pay online is through credit/debit card transactions, but ACH is becoming a great alternative through the use of APIs.
As businesses continue to explore and invest in the best payment methods, it is important for them to compare different options. In this blog post, we will examine ACH payments and their advantages compared to credit card payments. We’ll look at the fees associated with each option, evaluate security measures in place for each system, and discuss how quickly funds are available to you using ACH or a credit card. By the end of this article, you will have a better understanding of which payment method fits your business needs.
What are ACH payments?
ACH is an electronic payment system that enables efficient and cost-effective fund transfers between bank accounts. Powered by its ACH network, it’s used for various payments such as payroll direct deposit, vendor/supplier transactions, bills & more – all with a higher level of security than traditional checks.
ACH vs Credit Card Payments
While ACH payments and credit card payments are both electronic payment methods, they have several key differences.
|Payment Network||ACH Network||Card Networks (such as Visa or Mastercard)|
|Average Cost per Transaction||Typically $0.26 to $0.50 per transaction||Typically 2% to 4% of each transaction|
|Transaction Settlement Timing||Up to several business days||Processed immediately|
|Support For International Transfers||Yes||Yes|
|Fraud Risk||Low incidence of fraud||High incidence of fraud (most common type of identity theft reported in the U.S. during the first 6 months of 2022)|
|Dispute Policies||60 day dispute window of the financial institution’s transmittal of the statement||60-120 day dispute window, depending on the situation|
|Flexibility||Multiple speed options; might be able to combine options to balance cost and risk||Only fast but expensive options|
The four main reasons why ACH transactions are considered to be better than credit card transactions are:
Lower costs: ACH transactions processed through the Federal Reserve are a cost-effective alternative to credit card payments, as fees charged by major networks (Visa and Mastercard) tend to be higher.
Secure Transfers: ACH transfers provide an extra layer of protection with stringent authentication requirements backed by the reliable security features of the Federal Reserve’s network, one of the world’s most secure banking systems.
Increased reliability: ACH transactions are processed in batches, offering a more consistent and predictable experience. However, credit cards process individually which can lead to significant delays or complications compared to ACH payments.
Greater flexibility: With ACH transactions, businesses can benefit from automated payments that eliminate the hassle of manual processing for every credit card transaction—allowing business owners to focus on growing their bottom line.
Overall, ACH is an effective payment system for both businesses and consumers. As a business, the lower cost processing fees make ACH a viable option for you to consider for generating revenue. Better yet, the safety and reliability ACH offers makes it attractive to customers who know that their information is secure. Embedding ACH into your payments experience can be a lucrative decision. If this payment option aligns with the needs of your business, reach out–we’d love to talk through your use case!
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