The Automated Clearing House (ACH) is an electronic payment delivery service for the US. At its core, ACH functions to move money from one account to another. It is an excellent alternative to credit card payments, particularly for B2B transactions. Recently, there has been an uptick in use among consumers as well.
The low-down on ACH
You may be more familiar with ACH than you know. ACH goes by several different names like: echeck, ECP, automatic debit, and electronic bill payment. One of the most well known uses of ACH is everyone’s favorite day (or two days) of the month: payday. ACH is used to facilitate direct deposit from your employer to your bank account. Check yes! Increasingly, ACH is being adopted by consumers to make more payments online. Most commonly, utility companies and banks are accepting ACH payments for bills and mortgage payments.
What are the benefits of ACH?
That’s a great question, and the best way to answer it is by looking at some numbers. According to NACHA’s (National Automated Clearing House –The Electronics Payments Association) 2015 results, ACH transaction volume grew to more than 24 billion electronic payments, an increase of 1.3 billion payments or 5.6%, over 2014. Additionally, NACHA reports recurring payments “account for almost half of total ACH Network volume.” Based on these results, if your business is not offering ACH as a payment option, you’re missing out on an excellent opportunity to convert more shoppers to buyers.
Consumer vs. B2B
It’s believed the consumer usage uptick in ACH usage is due to a couple factors such as convenience and a desire to avoid credit card use. Many consumers indicate preference to use ACH over credit cards because it serves as a means to manage a personal budget. Unlike credit which allows consumers to spend funds they may or may not have the means to repay, ACH payments will only clear if shoppers have the funds available in their accounts. For shoppers who have a hard time managing a budget, this is a great compromise.
Additionally, ACH often avoids credit card processing fees. So if you’re setting up a recurring payment for things like rent or utilities, avoiding a 3% fee every month certainly adds up! Much like wallets and other alternative payments, the convenience of being able to pay with a preferred payment method is a major influencer in willingness to complete a purchase from a merchant.
In the B2B world, ACH remains the preferred payment method for one very good reason. B2B purchases are often large ticket items where a credit card limit can easily be exceeded. And if you’ve ever been in charge of buying anything with the company credit card, you know what a real pain this can be. If you’re a merchant with a large ticket item and don’t accept ACH payments, you’re making it physically impossible for a large portion of your target customer base to convert on purchases.
The Future of ACH
In the past few years, we’ve seen higher adoption rates for mobile wallets among both consumers and merchants. ACH is not only emerging as another option, it is fighting for a larger share of the payments space. ACH will be a key ingredient to compete in the world of eCommerce in the coming years. Are you setup and ready to increase your consumer and B2B sales with ACH?