An eCheck, also known as an electronic check, is the digital version of a traditional paper check. To send an eCheck, you provide similar information as you would with a check, including your bank account number, routing number, and payment authorization. An eCheck is easier to process than a paper check, as paper checks require more logistical overhead. Also, eCheck payments use a different payment infrastructure than credit cards, debit cards, or wires.
In 1717, the Bank of England made use of the first “preprinted” form to act as a promissory note. The holder of this preprinted form could promise money to someone by writing the exact amount and signing it. Later on, the Bank of England would issue money to the receiver of the note. In order to prevent fraud, the bank issued these preprinted promissory notes on “cheque” paper, and hence, the modern-day check was born.
Although we might not use paper checks as much as we did 30 years ago, many of the online transactions we make do in fact use a digital version of a check. This is called an eCheck, and although they are similar to paper checks, there are some differences.
What is an eCheck?
Digital eChecks are primarily used to purchase items online when a merchant asks you to enter your bank account details for payment. An eCheck works much like a traditional paper check in terms of the information the check writer provides. To send an eCheck, the buyer must include their account details, routing number, and payment authorization. However, eChecks are significantly faster to process, as the overhead required to deal with physical paper and signature verification does not exist for electronic payments.
Many online retailers will accept eCheck payments in addition to other payment methods, such as credit cards and wire transfers. But eChecks have a different internal payment processor. Here is a breakdown of the different people and banking entities involved during the successful submission and processing of an eCheck.
The customer is the one that issues the eCheck. This person enters their checking account information, in most cases online, to purchase goods or services. In the case of a recurring payment, the customer enters their checking account details once, and the merchant should process their subscription payments as eChecks.
This is the person that receives the eCheck, in most cases, the merchant. Once the eCheck is received, the originator then initiates the deposit/transfer process.
Also referred to as the Originating Depository Financial Institution (ODFI), the originator’s bank acts on instructions sent by the originator. The originator’s bank then sends it to the ACH network, which is an important term in regard to eChecks.
ACH stands for Automated Clearing House, a U.S. financial network used for electronic money transfers. ACH is the gateway to electronically processing the fund request. The ACH will process funds and establish both a “credit entry” and a “debit entry.” A credit entry refers to money being credited to a designated account. A debit entry refers to money being debited from a designated account.
The customer’s bank receives a request from the ACH portal, and the money debits from the account. The money is then sent to the originator’s bank. Typically, the merchant doesn’t receive every eCheck written as a separate transaction. In many cases, the ACH will process a few at a time and send chunks of money to the customer’s bank for various transactions.
How do I send an eCheck?
Most people think of “sending a check” as writing a paper check and sending it in the mail. You do “send” eChecks as well, but you send them using a digital infrastructure rather than a physical one. Most of the time, to send an eCheck you will fill out your banking information online. There are other processes at work, however, to ensure the authenticity and deliverability of an eCheck.
Enter relevant information
When you issue an eCheck, you will need to enter your banking information, similar to how you would when writing a paper check. This includes your full name, routing number, account number, and any other information that may be needed, such as a home address.
This is not always required. However, a digital signature with a time stamp can help prevent fraud.
Authentication acts in tandem with a digital signature (or without one) to verify that this customer is indeed real and willing to part with their money. Most of the time, you see this when you get an authentication window that pops up after you have entered your relevant information. Usually, you are required to enter your bank account login information for authentication.
Just like people can technically steal paper checks out of mailboxes, people can steal banking information via digital transfer. In order to solve this problem, everything entering and exiting the ACH network uses encryption to protect the data.
A certificate authority (CA) is an organization that validates identities. They issue something called an SSL certificate, which gives the proper keys to unlock the encryption. This is how the data goes from encrypted to unencrypted.
Duplicate detection is another fraud prevention measure to flag duplicate transactions or strange activity. This is of particular importance to try and detect bots, which might be programmed to keep drawing the exact amount from an account over and over again.
eChecks vs. credit card payments
Many people will use a credit card or debit card when they buy online. But paying with a credit card uses a completely different payment infrastructure than an eCheck. This is why you are often charged an extra fee to pay with a credit card. With a credit card, there is a middleman in the form of credit card companies. These credit card companies have their own payment infrastructure that does not use the ACH network and so their processing fees will generally be higher.
eChecks vs. wires
Although not nearly as common domestically, wires are still one of the primary methods to send money internationally. Wire transfers are similar to eChecks in that they move from bank to bank, with a clearinghouse in between. However, wires between banks do not use the ACH network; instead, they use a domestic clearinghouse or international clearinghouse. The Clearing House Interbank Payment System (CHIPS) is an example of this. Wires can sometimes take longer than ACH transfers, but the ACH system will send originators money in tranches from many different checks. Wires using systems like CHIPS will only process one transfer at a time, and so the fees are relatively high.
If you want to send money to a friend or family member, you can compare your options and use one of these money transfer services.
Is it safe to pay by eCheck?
Yes, eChecks incorporate various levels of encryption and security, such as certificate authorities and duplicate detection, to prevent fraud and data theft when making an eCheck payment.
Is an eCheck the same as a bank transfer?
Yes, when you send an eCheck, you are basically transferring money from one bank to another. A wire transfer is slightly different because only one transaction is sent at a time, which costs more in fees and can take a little longer.
How long does an eCheck take to process?
Usually, it takes 24-48 hours to send an eCheck.
Can anyone pay by eCheck?
Anyone with a checking account can pay via eCheck. You just need to provide your bank account number and routing number. The merchant also has to accept this type of payment, and they may ask for other information, such as your full name or home address.
Do banks accept eChecks?
Yes, banks accept eChecks.
What is a drawback of using an eCheck?
An eCheck could take a little more time to process than a debit card or credit card transaction. You also have to provide your bank account and routing numbers, so even though there are fraud protections in place, you may not feel comfortable doing that.
- An eCheck, also known as an electronic check, is the digital version of a traditional paper check. The ACH network processes eCheck payments just like traditional checks.
- To send an eCheck, you need to provide your banking information, including your bank account number, routing number, and payment authorization.
- As they are processed, eChecks go through different levels of security and encryption to be considered safe.
- All checks, including eChecks, have different payment infrastructure and processing methods when compared to debit or credit card payments and wires.
View Article Sources
- Automated Clearinghouse Services – Federal Reserve
- How To Spot, Avoid, and Report Fake Check Scams – Federal Trade Commission
- Electronic Check Processing – Bureau of the Fiscal Service
- ACH Withdrawal: What Is It & How Does It Work? – SuperMoney
- How to Verify a Check – SuperMoney