Credit cards dominate e-commerce payments but Canadian businesses want to offer their customers more payment options. We’ve put together an infographic comparing credit card and bank account payments. Thanks to VoPay’s innovative Intelligent EFT / ACH (iQ11) product, businesses can now accept online bank account payments, just like credit cards while saving 80% to 90% in processing fees.
Non-sufficient funds, NSF, and insufficient funds all mean the same thing and are fairly self-explanatory: a lack of funds in one’s account to cover a transaction. When a transaction or payment attempts to go through an account, the bank takes time to compare how much money is in the said account versus how much money is required for the payment. When there is a lack of funds, the bank either rejects (NSF) or allows (overdraft) the transaction to go through. Both options have costly repercussions, especially on businesses.
Interestingly, there are plenty of articles on the cost of an NSF for consumers—and how to avoid insufficient funds in personal bank accounts with overdraft protection and proper budgeting—however, there isn’t much information out there for businesses.
Business owners are the ones most likely to incur the very real and highly damaging costs of an NSF and that’s what we’ll talk about today.
Let’s quickly look at the repercussions of a “bad cheque” (or check), for example, on a customer. This is important because the business and consumer are inextricably linked and are often one and the same (as in business-to-business B2B relationships).
According to Nerd Wallet, some U.S. states allow businesses and merchants to charge customers up to $30 for handling costs of an NSF. On top of this cost, the banks can also charge the consumer a fee of around $30. That consumer now owes $60 in processing fees on top of the original amount, which has yet to come out of their bank account—and may eventually require legal action and collections agencies, which could damage their credit rating.
For a business owner, that ability to charge customers for NSF fees is both good and bad for business, depending on how you look at it. Hitting customers with NSF fees, of course, is not a great way to build a good brand reputation, credibility, or encourage repeat, loyal customers. The same applies if the business and consumer are one and the same in a B2B relationship. For example, if a business owner pays a contractor or landlord with a “bad cheque” their reputation and credibility are on the line at the very least.
Regardless of whether the business owner can, in fact, collect a fee for the bounced or bad cheque, this is still not the most costly offence of an NSF.
Beyond fees and reputation damage, the actual cost of an NSF for businesses is the damage that it does to its regular business flow. That is the daily workflow, transactions, accounts receivable, and above all else, the available cash flow.
Let’s say that a small business budgeted for a certain large payment to come in at the beginning of the month and planned their cash flow, projects, bills, and other payments according to that invoice. They receive the cheque on time and mail it to the bank to be processed. Several weeks later, they receive a notice that the cheque bounced and that they owe a processing fee.
The tardiness of this NSF notice is the first and perhaps biggest offence. Had the small business owner known that the cheque was bad weeks ago, they could have adjusted their cash flow, budgets, and bills accordingly—and simply not gone through with the transaction (or tried billing a different account).
Worse, the customer could be long gone or difficult to track down, now that the quid pro quo doesn’t apply. Also, if a trusting relationship wasn’t previously established, the business owner could be out of luck for this payment or have a difficult and expensive time collecting.
This slow turnaround time can be detrimental to the available cash flow for businesses, especially those on a tight budget, large invoices, and many bills. There is, of course, always the risk of not getting paid or having to spend valuable time and money doing accounts receivable—and chasing people down for money weeks after the fact.
Here at VoPay, we’ve found a solution to eliminate the risk for businesses and digitize bank payments. Our platform tells the business right away if there are sufficient funds in the customer’s account immediately—without ever sharing bank account details or introducing security risks.
VoPay uses open banking technology to authenticate EFT and ACH transactions instantly with lower transaction fees than a credit card. This allows businesses to reduce and prevent NSF fees, process payments faster, track transactions easily and stay on top of cash flow.
Digital disruption has overhauled age-old processes in every industry to be more customer-centric, user-friendly, connected, and, above all, digital. For the financial industry, digital technologies such as electronic transfer funds, or EFT banking, helps banks meet rising consumer expectations and smooth over omnichannel experiences. Today, we’re focusing on the rise of electronic fund transfers (EFTs).
A 2018 trend report from Payments Canada found that while the number and dollar value of payment transactions using cheques and cash continues to decline over the years, debit, credit, and electronic fund transfers (EFTs) have seen an upswing.
EFT banking stands for electronic funds transfer and is something that many of us now take for granted as a new norm. It’s the expectation that your salary was automatically deposited into your bank account. It’s a quick payment of your credit card or monthly bills online. It’s the tap of your debit card when you purchase your groceries or a coffee.
In this blog post we will consider:
EFT banking is also known as electronic banking and is a type of online payment. As the name would imply, it’s the digital transfer of funds from one account to another without ever requiring a bank teller to assist or to create a paper trail. It allows businesses to transfer and collect payments between vendors and suppliers quickly and efficiently. EFT payments can be used instead of cash and paper cheques.
There are many different types of electronic fund transfers, some of which consumers and business owners use on a daily, weekly, or monthly basis. One main distinction for EFT banking is whether or not it required human interaction to complete the transaction.
Here are some main types and use-cases of EFT payments:
Likewise, there are pay-by-phone systems, direct payments between buyer-seller businesses, and electronic cheques (or e-cheques), which we’ll discuss in our next section.
ACH payments are also referred to as e-cheques or electronic cheques. They are a type of EFT or electronic payment and are any EFT payments that go through the Automated Clearing House (or ACH) Network. This network is a secure system that connects all U.S. financial institutions and is quickly becoming the go-to payment method for transferring money.
In fact, in 2018, the ACH Network handled nearly 23 billion EFTs, totalling a value of over $51.2 trillion.
EFTs have many advantages, including:
Some of the disadvantages of shifting business and personal banking processes to online systems are the same as upgrading any kind of process. It requires some time, research, and due diligence to look into the security features, cost-benefits, and efficiency and effectiveness of EFT payment options. Likewise, other systems such as automated billing, invoicing, and accounting systems may require updating and organizing digitally.
In order to accept and initiate EFT payments as a business, you will require permission and bank account information from the customer, business or vendor. If you’re using your bank account, you will need to have your customer, business or vendor fill out a contact and account information form. Once you have this information, you can set up the EFT payment via online banking.
With this EFT payment setup, you can transfer funds from one account to another at an agreed-upon date. The amount of time to transfer funds depends on your EFT provider or your institution’s provider. Setting up recurring EFT payments is a great way to avoid having to set up payments and collect financial information.
Traditionally the B2B payments space has lacked innovation, with digital solutions primarily focused on serving the B2C market. Recent research from Ernst and Young LLP (EY) and Payments Canada supports this, outlining that Canadian businesses are currently spending up to $5 billion on processing payments. This overspend is mainly due to issues prevalent in the payments industry such as a lack of transparency, traceability and available data on payments processing.
Positive changes are happening in Canada’s B2B payments landscape, with FinTechs now challenging the status quo and modernizing payments by introducing new technologies. This includes open APIs that eliminating some of the payments industry’s key pain points. However, a recent survey by Payments Canada outlines that over 80% of Canadian small businesses still want more payment options to be available and one of the most important factors for these businesses is safety and security.
With this in mind, what are the key benefits of digitized payments for B2B businesses today?
New automated solutions, such as account-to-account transactions which enable B2B customers to make online payments without needing to handle a credit card, can cost 80% – 90% less than traditional credit card payments which typically place a heavy burden on a business’ profit margins. Moreover, with digital payments businesses can experience significant cost savings compared to traditional methods such as cheques, which incur high processing and material costs not to mention postal delays and the numerous security implications.
Recent research on global SMBs found that 59% identified security as a critical differentiator when selecting a Payment Service Provider. Digital bank account payments address security concerns by removing the vulnerability associated with providing credit card information and all transactions are completed with clear traceability.
Innovation in the payments industry has enabled businesses to gain insight into the end-to-end transaction lifecycle and make payments in real time. This digitization of payments opens the doors for businesses to make faster payments and access much richer and more comprehensive data analytics. This can assist businesses by improving cash flow insights and predictability by identifying areas which drain resources and allowing them to reallocate where needed and streamline operations.
Finally, payment solutions are no longer being designed with one party in mind and instead businesses are able to reap the rewards of increased efficiency and transparency whilst also being able to empower customers with quick and frictionless payment flows.
Overall, the B2B payments industry is only going to continue to evolve as we enter 2020 and at VoPay we hope to see more B2B businesses embracing the many benefits that these innovative solutions are finally affording to them.
