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.
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
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.