ACH vs Credit Cards: Making the Switch to Bank Payments

Posted on November 23, 2023

It's time to expand your payment rails as consumer preferences shape how businesses handle payments. Two contactless payment options, ACH (Automated Clearing House) and credit cards, often emerge as demand for contactless payments surges.

It's a decision that can significantly impact your business, and with nearly 70% of North American merchants now witnessing an uptick in customers seeking contactless payment methods, the stakes are higher than ever.

So, let's delve into the ACH vs. credit cards debate to help you determine which payment method aligns best with your business needs now that preferences are changing and technology is evolving.

How Does Credit Card Processing Work?

Credit cards are today's primary method for businesses to collect payments electronically.

Here's the gist of how it works.

When a customer purchases using their credit card, a relay race takes place. First, the cardholder swipes or inserts their card at the point of sale. At this moment, your trusty merchant service provider steps in, sending a payment request to the acquiring bank. This bank then gives the thumbs-up or thumbs-down to the request.

If it's a green light, the request continues its journey to the issuing bank, which is the one that issued the credit card to your customer. Here, the actual transfer of funds from the customer's line of credit to your merchant bank account is sealed.

In simpler terms, a credit card is a handy, pocket-sized plastic card issued by a bank or business that empowers the cardholder to make purchases.

This means they can buy goods or services even if they lack cash in their bank account.

What Does The ACH Transaction Process Look Like?

ACH, short for Automated Clearing House, is an electronic money transfer system connecting two financial institutions. 

Consider it as bank payments for moving funds between accounts, be it checking, savings, or electronic checks. These transactions are regulated by the National Automated Clearing House Association (NACHA).

Though it's not a government agency, NACHA collaborates with various governmental bodies, including the Federal Reserve and state banking authorities, to ensure the reliability of electronic payment systems used by U.S. financial institutions.

ACH Payment Processing

In Canada, it's called an Electronic Fund Transfer (EFT); in the U.S., it's called an Automated Clearing House (ACH). But regardless of the terminology, both systems serve the same purpose in enabling swift, secure, and efficient electronic payments. This is the natural alternative to credit card networks.

There are two main types of ACH transactions: ACH credit and ACH debit. ACH debit is the way to go when dealing with regular, recurring charges like monthly bills or direct deposits since the payment receiver initiates the transfer. A payer initiates a transfer of funds electronically through the ACH credit process.

ACH is also characterized by push and pull payments. Push payments involve the account holder initiating the transaction by sending funds to another account, while pull payments see the recipient withdrawing the funds from the account. 

Now, why opt for ACH? Well, it's steadily becoming popular, especially in B2B transactions. It's all about speed, efficiency, and cost-effectiveness. ACH payments offer a swift and hassle-free way to transfer funds, making them a business favourite.

Comparing ACH vs Credit Cards

When it comes to recurring payments and subscription services, both ACH and credit cards offer convenient solutions. In fact, an advanced ACH payment solution can be touted as the perfect alternative to credit card payments. 

First off, they possess everything credit cards have. Credit cards can be tokenized, and so can ACH transactions. Processing recurring payments with credit cards is relatively straightforward, as is deploying an ACH bank account payment solution. 

ACH transactions, however, outperform credit cards in some very significant ways. And this is what makes them appeal to merchants and platforms alike.  

Fix Code 54. ACH payments don't expire, and that means no failed payments due to the credit card expiration date. This is not to be taken lightly, considering failed payments reportedly cost the global economy upwards of $118.5 billion annually. Chasing up failed payments unnecessarily consumes a significant amount of workforce resources. 

ACH Bank Account Payments Cost Less

ACH transactions typically incur fewer failed transactions than credit card transactions, often up to 15% less. Moreover, ACH payment solutions with account and fund verification, such as those offered by VoPay, means organizations can eliminate return rates almost entirely at less than 2%

And last but certainly not least,  ACH transactions are renowned for having some of the lowest costs in payment processing. In the ACH vs. credit card fees showdown, ACH transactions emerge as the most cost-effective champion (credit card fees 3% vs ACH payment at mere cents) 

ACH vs Credit Cards Costs

For businesses with a high sales volume, the savings from opting for ACH transactions will accumulate rapidly, ultimately bolstering the company's bottom line. 

For instance, think about businesses that collect monthly subscription fees or payments. Choosing ACH or EFT payments over credit cards can save both the end user and the provider processing fees. Plus, there's a significantly reduced risk of payment transactions failing. 

This alone makes it a compelling reason to weigh your options and decide which payment method aligns best with your business's financial strategy.

Another factor to consider is the processing time. While traditional ACH transactions can take anywhere from three to five days to process, advanced ACH payment processing technology allows for same-day ACH processing. This matches credit card transaction processing that generally happens within 24 hours to three days from the transaction date. 

ACH payments through a reliable payment API connection can offer the same convenience and security as credit cards. The key advantage is that these payments cut out unnecessary go-betweens, allowing money to move directly and leading to substantial savings in human resources and repetitive data tasks for your business.

Should You Offer A Credit Card Or Bank Account Payment Solution? 

In an ideal scenario, the answer is a resounding "yes"! Why? Because the modern consumer landscape is diverse, providing multiple payment options is advantageous and often expected. The choice between credit card and bank account payment methods should be driven by the nature of your services and your target audience.

Today's consumers value flexibility when it comes to making payments. By offering both credit card and bank account payment solutions, you cater to the varied preferences of your clientele. Moreover, providing alternatives to traditional credit card transactions, such as Electronic Funds Transfer (EFT) and Automated Clearing House (ACH) payments, can offer significant advantages.

With their cost-effective nature, these alternatives not only enhance the consumer experience but also pave the way for a future where they may establish themselves as permanent payment options. This forward-thinking approach benefits consumers and businesses, leading to cost savings and a more robust financial ecosystem.

Upgrade to Advanced ACH Payment Processing with VoPay

Choosing between ACH and credit cards isn't just a financial decision; it's a strategic one. Undoubtedly, ACH transactions have a clear advantage, particularly in cost savings and flexibility.

So, if you're considering switching to bank payments or simply adding bank payments to your payment offerings, VoPay is here to help. 

Our Advanced ACH Payment Processing enables you to process ACH transfers at a flat-rate transaction cost. This allows you to manage ACH payments efficiently at scale, whether they involve bulk payments or recurring transactions. Our technology features multiple payment rails and is complemented by a dedicated Payment Portal and seamless API integration. This combination empowers your business to navigate payment processes more efficiently and positions you at the forefront of payment technology.

Unlock substantial savings and elevate your payment capabilities today! 

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