A Tale of Two Payment Processes

A Tale of Two Payment Processes
June 7th, 2017 | 3-minute read

Learn how ACH payments differ from card payments.

If you’re taking payments, you’re probably aware that ACH transactions are a thing—but that might be where your knowledge of ACH ends. Here’s the scoop on how ACH transactions differ from credit card transactions:

Big Picture

ACH stands for Automated Clearing House transaction. ACH encompasses all forms of electronic fund transfer (EFT) between financial institutions. Think checks and recurring payments, where a consumer’s money is taken directly from his/her checking or savings account. ACH is not the same as a debit card payment—while both take funds from a consumer’s bank account, they’re processed differently.

Credit card transactions are made through the credit network of the card issuer. When a consumer uses a credit card, they’re using borrowed money to make purchases and payments, then paying that money off at the end of the month. (Or at least, they should be.) Credit card issuers generally assign a credit limit to each card.

Funds Guarantee

Credit card payments guarantee funds to the merchant by using a network to verify if a consumer is within their credit limit and then approving the trade. ACH payments are not guaranteed. Transactions are batched and sent for processing once a day. These transactions can be rejected for non-sufficient funds (NSF) or closed accounts, and the merchant may not know until days later. If the transaction is rejected due to NSF, a merchant will need to follow up manually with the consumer to be paid.

Processing Times

While credit card transactions take 2–3 days to process, ACH processing time is closer to 3–5 days, which is still generally faster than paper checks. However, the U.S. is working toward same-day ACH processing.

Processing Cost

ACH transactions will typically always have the lowest transaction fee (besides cash monies, of course). PaymentSpring’s ACH transactions carry a 0.8% fee, compared to 2.9% plus 30 cents per transaction fee for online credit card transactions.

Disputed Charges

ACH and credit card transactions have different dispute policies. There are only three reasons consumers can dispute an ACH charge:

  1. They never authorized the charge.
  2. The charge was processed on an earlier date than authorized.
  3. The charge was for a different amount than authorized.

With credit card transactions, the customer can request a charge be reversed simply by claiming their product or service was not as expected.

Bottom Line

There’s more than one way to process a payment. The payment option you offer should be based on what works best for you and your customers or donors.

Credit cards are often a better tool for retail transactions, where transactions are usually one-time purchases and ACH transactions don’t guarantee funds like credit cards do.

ACH transactions are best used by companies providing a service, especially an ongoing service. There are added benefits for nonprofits using ACH transactions: There will be no expired credit card numbers that disrupt repeating donations and more money ultimately will go to that nonprofit’s cause due to lower processing fees.

The good news is you don’t have to choose.

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