As you’ve been learning about different transaction types and pros & cons of each for your business, you’ve probably come across EFT and ACH. Some people use these interchangeably, some confuse them, and some use them without exactly knowing what they mean.
As a business owner, it’s advantageous for you to be informed. Different payment types dictate the flow and cost of money exchanges. Even a small percent change in fees or timing difference across types can make a world of difference. Taking the time to develop the most optimal payment system for your business will serve you for years to come and lay a proper foundation for growth and scaling.
With that in mind, let’s learn about EFT (electronic funds transfer) & ACH (automated clearing house).
EFT stands for electronic funds transfer.
An electronic funds transfer (EFT) is ANY transfer by two corresponding banks or financial institutions that is strictly handled by computerized systems.
In other words, this is a broad term for modern transaction methods. As long as it doesn’t involve direct human contact and is facilitated through a computer, then it’s considered an EFT. You can think of it as an umbrella term of sorts, so EFTs can be wire transfers, direct debits, ACH payments, and more.
EFTs have exploded in popularity following the invention of the internet, eCommerce, and digital cash.
Virtually all components of a traditional transaction are being digitized — invoices, receipts, payments, and EFT systems are an essential component of this.
So why accept electronic checks, digital debit transactions, etc. if credit cards are so popular these days?
Cost and convenience.
EFTs are significantly cheaper than credit cards — averaging at around 1% in fees as opposed to 3% or so for cards. For businesses of all types and sizes this offers significant incentive to support and encourage customers to use EFT methods.
While features and specifics change payment type to payment type, there are some common characteristics across all EFT payment types.
ACH, or automated clearing house, is like a check without the paper.
ACH payments are a type of EFT. If EFT stood for electric cars, then ACH would be a Tesla or Nissan Leaf. So ACH can be a type of EFT but EFT can’t be a type of ACH.
It’s a computer-based clearing and settlement facility that exchanges funds between two depository institutions. ACH is most commonly used in recurring invoicing (monthly auto-drafts) and direct deposit programs. ACH is cheap to send money with and relatively easy to set up, making it an attractive option for businesses that conduct large, recurring bills (think B2B or consulting fees).
There are a multitude of benefits from a customer and employee convenience perspective, but the most tangible reason for supporting ACH is the cost-saving potential. Out of the types of EFTs, ACH is the cheapest.
Let’s walk through an example to demonstrate:
If you’re selling an item at a list price of $1,000, let’s consider the fees via each transaction method. It will never be uniform across the board, but let’s play along for this example.
Typical fees for each type are approximately:
Paper Check: $1.57*
Credit/Debit Card: $19.10 (1.9% x $1,000 fee + $0.10 transaction fee)*
ACH: $0.26 – $0.50 depending on assumed risk*.
ACH is about a third of the cost of a paper check (not including labor) and a fraction of the cost of credit cards — especially on high-ticket items.
Now imagine how much that would add up over a month, a year, even five years of transactions.
EFT payments are generally cheaper — without the need for paper statements and direct human contact, you save labor, fees, and materials. Paper checks get lost and mailing letters is slow, making EFTs an obvious (and sometimes required) choice for businesses.
Accepting EFT and/or ACH requires two primary assets: a merchant account and a payment gateway, and most payment processing services (including Tidal Commerce) can help you get everything you need sorted out.
There are many options for payment processing, but many fail to facilitate proper PCI training and tools to help your business stay safe. Ask them specifically about how their payment gateway helps protect against fraud & how they can make being PCI compliant easier for you.
At the very least, the service you choose should have:
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