Most ISOs dont promote automated clearinghouse (ACH) payments to their merchants. In fact, if you asked a random salesperson in the payments industry to explain what an ACH payment is and how it works, you would most likely get an incorrect answer.
The reasons are simple: the economics of selling credit cards versus ACH, consumer preference for using plastic for high-volume payments, and the fact that ACH hasnt been packaged for tidy and appealing delivery to merchants or consumers.
But change is on the way. The big news is coming from Nacha, the association that creates and manages the private-sector rules governing ACH payments.
Nacha is taking steps toward a same-day ACH settlement. Through a phased approach, NACHA seeks to move the ACH network from todays single, next-day settlement to multiple, same-day settlements for virtually any ACH transaction.
Now you get the peril part of our headline. The credit card will still play the central role for merchant service providers, but it will be foolhardy to ignore the value and simplicity of ACH payments.
ACH payments offer an efficient, cost-reducing alternative to checks and cards.
The challenge has been to make credit cards and ACH interchangeable for consumers. The market segments that are the best fit include healthcare, education, municipal government, B2B, insurance, utilities, home services, associations, non-profits, online sales and professional services.
Some companies blend credit cards and ACH payments to remove the barriers that have held ACH back from expansion.
We should clarify, though, that ACH is already widely used. Nacha says that ACH network volume grew to almost 22 billion electronic payments last year, an increase of 4% over 2012. Some $38.7 trillion was transferred over the ACH network during 2013, an increase of 5% over the previous year.
Credit card processors recognize that merchants expect a full selection of payment options. Features like same-day funding and integrated credit card and ACH that simplify acceptance could bring opportunity.
An ACH payment comes out of a customers bank account. Because most banks are connected to the ACH network, those transactions are relatively inexpensive for banks and businesses to process.
The merchant accepting the ACH payment pays a fee thats not affected by credit card interchange. Say a business processes $100,000 in combined credit card and ACH payments. If 30% of those payments were made as an ACH, the merchant would save $825 per month, compared with making all of the payments on credit cards.
Besides having no interchange fees, ACH does not have chargeback or retrieval fees. An ACH payment can be returned, but merchants find the savings from accepting ACH payment outweighs the risk.
The ACH network also facilitates direct deposit and direct payments.
ACH payment is ubiquitous and its cost is low, thanks to the careful development of a reliable central processing network.
ISOs can add ACH to their offerings and should follow the same careful selection process they employ when selecting card processing and partners. At this point it is just a good solid business decision.
Richard McShirley is chief marketing officer of Transmodus, an ACH technology provider.