What is An eCheck and How Does it Work?

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What is An eCheck and How Does it Work?

When adding a new payment option to a businesses’ suite of current solutions, it’s important to be informed and educated on all aspects of the new avenue - including how it works, what merchants must do in order to accept and process the new form of payment and understanding if it makes a business more profitable, among other key inquiries.

eChecks are a payment option becoming more frequently used at checkout, and we’re here to provide the basics to fully breakdown what they are and how they function.


What is an electronic check and how does it work?

An electronic check, more commonly referred to as an eCheck, is the digital form of a traditional paper check. eChecks are also referred to as online checks, internet checks and direct debits, and are processed electronically, online or through the Automated Clearing House (ACH) network that is specific to the U.S.

If it’s an ACH direct payment, the funds are pulled from the payer’s bank account and deposited into the other. If it’s an ACH direct deposit payment, the transfer is between a company or a government entity and an individual’s account. In short, an ACH payment can be peer-to-peer, business-to-business, or business-to-customer.

And with the number of debit, credit, ACH and check payments growing, eChecks are also a payment alternative to consider for merchants who can use the ACH network to withdraw money for their products and services directly from the customer’s bank account, with the assistance of a payment processing partner.

The benefits of an electronic check

Electronic checks have several advantages compared to paper checks, credit cards and wire transfers - we’ll break down why below.

Electronic check vs paper check

Traditional paper checks are manually processed, while eCheck transfers are handled digitally. This makes eChecks:

  • faster, as they take less time to process
  • safer, as manual check handling has more potential for error, while eChecks come with several security features to ensure a secure payment process (i.e. authentication, encryption, public-key cryptography and digital signature, and “Regulation E”, put forth by the Federal Reserve Board)
  • more convenient, as a consequence of the above

Electronic check vs credit card payments

Merchants may prefer eChecks over (or at least alongside of) credit card payments because they:

  • can be cheaper to process, thanks to lower transfer costs
  • can grow a merchant’s customer base by attracting those who don’t have or don’t want to use credit cards
  • can help with lowering the number of declined payments caused by expired credit cards
  • can handle recurring payments more easily, as bank account numbers change less often than credit card numbers

Electronic check vs wire transfers

Electronic checks are part of the “EFT family” of payment methods that fall under the category of “electronic funds transfer”. These include a range of options such as ACH transfer, eWallets or wire transfer. Compared to wire transfers, eChecks:

  • are transferred in batches, so they’re ideal for businesses that process payments in bulk and don’t want to be limited by stricter transaction amounts, while wire transfers are processed manually and individually
  • are typically less expensive than wire transfers
  • are more secure than wire transfers, which cannot be reversed once initiated

How can merchants accept and process an eCheck

Here’s a breakdown of how merchants accept eChecks and how the process goes from the perspective of the customer, the business, the banks involved and the ACH operator.

How to accept eChecks

Merchants need to work with a payment processor or a payment gateway and a financial institution to accept eChecks.

1.First, the merchant applies for an eCheck merchant account and provides information such as their Federal Tax Identification Number (EIN), number of years in business and estimated processing volumes.

2. Once approved, merchants will need one of the following solutions to process eCheck payments:

  • Hosted payment page: a simple, branded hosted payment page (HPP) will be necessary for online stores that cannot or don’t want to handle payment processing on their site – through the right payment provider, the setup is quick and PCI compliance is provided as well

How are eChecks processed?

The average eCheck payment process can be broken down to the following steps:

1. Requesting authorization: The customer must authorize the transaction before it starts through a signed contract or an online form, among other options.

2. Setting up the payment: The payment information is loaded into the payment processing system.

3. Initiating the payment: With all the necessary information, the business begins the payment process:


4. Depositing the funds: After verification, the requested amount is deducted from the customer’s account and moved to the merchant’s account within 3-5 days typically.

5. Confirming the payment: The customer receives a receipt about the payment process.

Businesses that should consider accepting eChecks

Merchants who encounter at least one of the below business scenarios should seek a payment processing provider to get started with eCheck acceptance. Businesses that:

  • Currently handle a large volume of paper checks
  • Offer subscription or membership products or services
  • Often accept recurring payments
  • Are entirely or partially run online
  • Often process payments in bulk
  • Sell higher-priced items and handle large payments
  • Receive donations regularly

Find a payment processor to accept eChecks

There are a number of reasons why merchants should integrate eChecks into their payment acceptance solution set, but mainly, offering all possible options to their customers at the checkout is most ideal for sales and revenue.

With a payment processor that provides the infrastructure and technology to help with accepting and processing eChecks smoothly, as well as offering access to integration options and a reliable support team, businesses will be on the right track to success.

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