Practical Ecommerce

Accepting ACH Payments and eChecks

A consumer must have a credit card to purchase products from an ecommerce site, right?

Not necessarily. There are payment-processing options that allow ecommerce operators to deduct the purchase price directly from the bank account of a customer, without the customer having or providing a credit card number. These online processing options are becoming more popular, and are based on the automated clearing house (or, “ACH”) banking network, which is a long-established, federally regulated system that allows banks to send money back and forth to each other. Virtually every bank in the United States is a member of the ACH network and the dollar volume of ACH transactions is huge: $6.3 trillion for Q4 2005.

Ken Kaiserman is Managing Member of SportsKids.com, a provider of equipment and services for youth sports. “We sell services to youth sporting leagues via our website,” says Kaiserman. “But, frequently those non-profit leagues don’t have credit cards. So, we use eCheck.Net, an ACH payment solution from Authorize.Net, to allow the leagues to pay us directly from their checking accounts. In the past, individual league volunteers would pay us with their credit card and then get reimbursed by their league. But, we can now eliminate that step. Saves everyone a hassle.”

To use Kaiserman’s example, the process works like this. An official with the youth league would enter the league’s bank name, bank routing number and bank account number (all of these numbers appear at the bottom of a check) into Authorize.Net’s eCheck.Net interface. Once submitted, the payment enters the ACH system. Through this system, Kaiserman’s bank would, essentially, present the league’s bank with a payment demand, which would then return the money to Kaiserman’s bank, provided the league has the funds to pay. The process is similar to the flow of checks in that it can take several days, but it all happens electronically. Similar to a check, an ecommerce merchant may want to delay an “ACH shipment” until the payment clears.

Kelly Mayes is a product manager with Authorize.Net and oversees its eCheck.Net program. Mayes said that ACH allows entrepreneurs to reach an untapped market. “Offering a non-credit card payment option is crucial to expanding your consumer base,” states Mayes.

What Do You Need To Know?

Probably the most vital understanding one can have about ACH is to know what it’s not. It’s not credit card processing. ACH doesn’t provide for a realtime authorization of transactions, for example. Similar to credit cards, solution providers like Authorize.Net collect a percentage of each transaction. But typically, ACH transactions are less expensive to accept than credit card transactions, thereby providing saving costs for the merchant.

Mayes noted, however, that Authorize.Net provides industry standard validation for eCheck transactions, and is continually looking for additional ways to let the ecommerce entrepreneur know that a purchase on his or her site is the real deal. Nevertheless, she recommends that business owners offering an ACH payment option to customers wait about five days before shipping any product purchased via the technology.

Recurring Payments

Many merchants also use the ACH network for automatic, recurring payments from their customers. Take Nicolas Christo, a magazine publisher in Orlando, Florida. Christo’s publication is called My City Eats and Entertainment, and he receives recurring memberships from participating restaurants. (Christo’s website is Orlandoeats.com.)

“Our member restaurants provide us their banking information when they sign-up,” said Christo. “We then automatically deduct our membership fees from their bank accounts each month using Authorize.Net’s ACH system. It saves us from having to print and mail invoices, and we get our money much faster.”

“But don’t tell anyone,” laughs Christo. “It’s our little secret.”

How Do I Integrate It Into My Site?

To integrate an ACH solution like eCheck.Net into your website, you’ll first need to sign up by completing a short application. Once approved, a programmer is recommended for actually integrating eCheck.Net into your website unless your shopping cart already connects to the ACH processing platform.

Mayes said eCheck.Net offers a customizable application program interface similar to the one used to process credit card payments, which means the programmer wouldn’t have to start from scratch. If you already use Authorize.Net for credit card payments, the programmer just needs to change a few things here and there to make eCheck.Net fit with your website. Moreover, many ACH solutions like eCheck.Net also offer “virtual terminals”, which provides merchants with a web-based interface to accept ACH payments from consumers.

Is It Secure?

ACH transactions are governed by the National Automated Clearing House Association (NACHA), whose mission is to, “promote the development of electronic solutions that improve the payments system for the benefit of its members and their customers (nacha.org). Amongst its primary functions, NACHA works to develop and implement risk management initiatives. In many ways, security issues concerning ACH are no different than security issues concerning credit cards.

As an ecommerce business owner, your primary concern will be with the security of the online form processing required to gather a user’s information at the point of purchase. This includes using a 128-bit SSL certificate and following standard security best practices. (Editor’s Note: See “Ecommerce Fraud: Build a Human Firewall

Conclusion

Payment options factor into a consumer’s decision regarding where to shop. Whether it’s online or off, providing a non-credit card payment option is essential to maximizing your consumer base.

To successfully accept checks online, you need to understand the basics of the ACH and integrate to an electronic check processor like eCheck.Net. You’ll probably need to temporarily employ a web developer familiar with basic systems integration and make sure your security is up-to-date. However, that initial investment can well be made up by the additional business you may attract by offering your customers more ways to pay.

Practical Ecommerce

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Comments ( 10 )

  1. Legacy User January 20, 2007 Reply

    Disclaimer – I am the VP, iDistribution 2.0 for one of the global leaders in online payments.

    To make your best decision, please consider these factors as well, as ACH is not the only alternative payment type that is safe, secure and protected by sophisticated Fraud Protection Servers.

    1) Fraud Protection – how sophisticated are their fraud servers? Do they move beyond the simple realm of address/billing information verification and are they able to flexibly adjust by merchant type, country, payment type, payment history and even time of day
    2) Customer Support – do they have a multi language Call Center to provide real time customer support to finish the transaction and provide the highest levels of user satisfaction
    3) Languages – does their call center offer multi language capability
    4) Currencies – are multiple currencies accepted around the world enabling global commerce
    5) ASP v. PSP Model – is there no fee for hardware/software upgrades installation as a result of being web based and able to integrate seamlessly with legacy systems
    6) Data – can you access the user/sales data a) real time b) on demand c) batch processing d) customizable formats
    7) Hidden Fees – ensure that there are zero hidden fees. Monthly maintenance costs, set up fees etc are unnecessary and should be part of their business model.
    8) Cost – Does the solution offer an aggregation engine to help control your costs and provide the ability to reduce on transaction costs?
    9) Micro Payments – no aggregation engine = no profit for micro payments
    10) Company History – does the company have experience in online payments and is an established presence? Has institutional investors cast their confidence behind the brand.
    11) Offer Management – can you get as creative as you desire in creating compelling online offers a) subscription b) Pay Per Use c) Pay Per Download d) Pay per View e) donor management f) Video on Demand g) Pay Per Time h) and of course traditional shopping carts
    12) Security – is the company PCI compliant
    13) Online Conversion – does the company understand what drives improved online conversion and adapt their solution accordingly, or do they simply discuss fees and integration with you?
    14) Transparent Fee Structure – forget about being charged ongoing maintenance fees, set up fees or being charged a fee for each country you want to sell in…the model should simply be this – when you (merchant) make money, THEN the company makes money. Simple…transparent…trustworthy.
    15) Brand Support – does the company allow your user (Guest) to stay within your brand experience?

    Before considering one option over another…I offer this advice…offer the MOST possible ways for your online Guests to pay.

    This is not about one company over another…but rather about payment types. If you offer the most ways to pay…you will drive incremental, non cannibalized revenue from alternative payment methods while collecting upon the traditional credit/debit card business.

    — *Jamy Nigri*

  2. Legacy User January 27, 2007 Reply

    Thank you Jamy, for your insightful comments. That was equally or more useful than the original article!

    — *Beth M.*

  3. Legacy User January 28, 2007 Reply

    Hi Beth! You are welcome, and I thank you for the kind words!

    I used to play in the online space for the Walt Disney Travel Company, and surprisingly enough, very few people know about online payment solutions!

    If anyone would like suggestions re this space, please feel free to ping me: jamynigri [@] gmail.com.

    All the best
    Jamy

    — *Jamy Nigri*

  4. Legacy User February 20, 2007 Reply

    I don't understand something. Why do I need a third party at all for ACH? Why can't I just use my bank and my customer's bank? I understand why I need a third party for Visa, because there are only two companies- Visa and Mastercard – but since ACH is a huge network, why can't I just either join the network, or just ask my bank to initiate an ACH transaction on my behalf?

    — *Kevin*

  5. Legacy User February 20, 2007 Reply

    The issue, Kevin, is linking the ACH payments to your shopping cart, so that your online customers can choose this option in real-time during checkout.

    Thank you for the post.

    — *Kerry Murdock*

  6. Legacy User February 21, 2007 Reply

    I'm not sure I agree with you that that's the issue. Suppose I have my own web site with SSL and PHP, and I have my own system that can let a buyer enter their bank account. Why do I need a third party? ACH transactions cost $.0001 cents for the ODFI, so I imagine my bank should only charge me nominally more than this:

    http://www.nacha.org/News/news/pressreleases/2007/Pr020507/pr020507.htm

    So again, I can see why I need a 3rd party for Visa because Visa controls access to their service, but ACH is a network of thousands of banks with a ridiculously low per use cost.

    — *Kevin*

  7. Legacy User February 21, 2007 Reply

    That makes sense, Kevin. I can see your point.

    — *Kerry Murdock*

  8. Legacy User January 10, 2008 Reply

    Kevin,

    There are several reasons why you need a third party:

    1. Online ACH transactions have to be coded as WEB (sec code) and there are rules for that. The main being that no one other than the owner of the bank account and the ACH operator, bank or third party ACH processor, are allowed to touch that transaction. You cannot take the information from the consumer on your website and then enter it in a bank software and process it. This is against NACHA rules for WEB transactions.

    2. A third party operator might also help you with scrubbing of those transactions by using several verification systems that range from in-house private negative databases to verifications through Star ATM and other networks.

    As far as the cost, you are right, an ACH is relatively cheap when you look at the raw cost from the FED or NACHA, but actual pricing are nowhere near that since that raw cost is not considering the following:

    1. Bank/processor liability.
    2. Processing costs.
    3. Communication and infrastructure costs.
    4. Support personnel, etc…
    5. Profit Margin.

    Actual ACH pricing to merchants range from 0.15 cents up to a flat fee plus a % to higher risk merchants.

    — *Alfonso*

  9. Legacy User January 22, 2008 Reply

    I have already created Authorize.Net – AIM transaction method (in PHP) for my client. For this I have found the sample PHP code in the Authorize.Net website.

    Now my client needs to implement the eCheck.net. I didn't get any PHP code to implement echeck.net.

    I need to know,
    1. whats the procedure to implement ACH (eCheck.net )
    2. From where I get the PHP Code for eCheck.net.

    Please help me out.

    — *Ashok*

  10. Legacy User February 9, 2008 Reply

    Quoting this:

    "Mayes said eCheck.Net offers a customizable application program interface similar to the one used to process credit card payments, which means the programmer wouldn’t have to start from scratch. If you already use Authorize.Net for credit card payments, the programmer just needs to change a few things here and there to make eCheck.Net fit with your website."

    I am a software developer and i just need the integration sample code with eCheck in any popular platform like ASP.NET, PHP, VB etc. Could you tell where exactly should i go, i went through the documentation provided by Authorize.net and did not find such thing.

    — *Babur Mansoor*