For internet merchants, alternative payment options are all the rage. The bottom line is profits. The more ways a customer has to pay, the more sales will occur. Echecks are the most common alternative payment option for US buyers. Companies that accept echecks give customers another convenient way to pay for purchases. Most businesses that add echecks as a payment option experience increased sales of 8-20%.
As the US economy continues to nosedive, use of echecks will increase. As credit sources dry up, buyers are moving away from credit card purchases, and echecks will replace credit cards for a certain percentage of electronic transactions. Fees merchants pay for echecks are often significantly lower than credit card rates. Some echecks provides use a flat rate per transaction without any discount rates. Certainly, low risk merchants can expect echecks to be very inexpensive, as low as 25-55 cents per transaction.
For higher risk merchants, echecks are still cheaper than credit cards, although most echecks providers add a discount fee for high risk processing. Still, echecks processing will cost half of what credit card fees are for high risk accounts. Echecks function are a direct debit from a customer’s checking or savings account. At the checkout, the consumer enters the check routing and account number rather than credit card information. Echecks are verified and confirmation is returned to the merchant that the account is valid and that there is money in the account.
For lower risk accounts, the money is debited from the consumer’s direct deposit account via the ACH payments network. For high risk accounts, echecks are processed by Check 21 technology.
The disadvantage for ecommerce merchants accepting rechecks is that even if money is in the account at time of purchase, the money may no longer be there when the echecks file is cleared through the Federal Reserve. Most times, bounced echecks transactions are not the result of fraud, but, rather, are poor planning on the part of a consumer. Generally, resubmitting bounced echecks results in a high clearing rate.
In the ecommerce world, very few echecks guarantee options are available. The large ecommerce merchants can afford to self-insure against loss from echecks. Smaller merchants cannot. Even if a merchant can find e checks guarantee for internet purchase, the guarantees will be expensive. But, for the vast majority of ecommerce merchants, bounced echecks are usually well under 1%. The increase in sales that merchants realize from accepting echecks outweighs the risk of not accepting echecks. One of the biggest risks is losing consumers who want to pay by echecks to a competitor that offers the payment option.