Everything you need to know about eChecks, a new form of electronic checks that allow people like you and me to get paid by ACH payment directly.
Secure servers encrypt and protect all personal and financial data during eCheck transactions.
Your payment provider should follow all the payment standards established by financial institutions around the world to ensure security and reliability.
eChecks enjoy faster processing time than digital checks. There’s no physical movement between banks. It’s all done electronically. No slow scanning by clerks or person needs to be involved.
Because they use ACH to transfer funds, they’re also cheaper than credit card payments.
Receive your funds sooner and pay less for your payments.
Best part, you save a lot of paper making an echeck a very environmentally-friendly alternative to checks.
eChecks are perfect for recurring payments.
Payers complete a single form and continue making their payments regularly and painlessly. Also known as ACH payments.
Businesses know they’ll always receive their payments quickly and reliably, and without the expense charged by credit companies.
Use eChecks to take payments from customers and sell subscriptions to clients. Give a gift to a relative or accept donations from well-wishers. eChecks provide all of the benefits of traditional checks but without the paper and with much more speed.
In 1930, Albert Haddock received a bill from the British tax authorities for the sum of £57 and 10 shillings. That was a large sum of money in those days, and Haddock wasn’t happy about paying it. He made his feelings clearly known by writing a check with the words:
To the London and Literary Bank, Limited Pay the Collector of Taxes, who is no gentleman, or Order, the sum of fifty seven pounds £57/0/0 (and may he rot!) ALBERT HADDOCK
He wrote the words in red stencil on the side of a cow. He took the cow to the tax office, left it there and demanded a receipt.
Or he would have done, if the story had been true. In fact, the account was made up by the writer A.P. Herbert and has become an urban legend focusing on the flexibility of checks. After all, the material of the check is the least important aspect of it. More important is to whom it’s made out, the amount and the signature. Whether it’s written on a piece of paper or the side of a cow shouldn’t matter at all (unless you’re the one who has to process it).
That’s the principle behind eChecks. Although the use of paper checks has fallen by more than half since 2001, according to the Federal Reserve about 20 billion checks are still written every year, and together they have a value of more than $22 trillion. That’s more than four times the value of credit and debit card transactions combined. Despite the range of other payment systems available, from automated clearing houses to digital payment platforms like Due and peer-to-peer payment tools like Venmo, checks remain convenient, easy to understand and familiar. Both individuals and businesses continue to use them.
But maintaining a system based on paper is rapidly declining. A paper system is difficult to use and can be expensive. The data on paper checks have to be entered into computer systems, leaving room for occasional errors. They have to be transported and stored physically. They can take time to process, are open to forgery and theft, and leave long floats that create the potential for check kiting and other types of fraud.
In 1998, the Financial Services Technology Consortium began trailing the eCheck electronic payment system with America’s Department of the Treasury. Instead of using paper, an eCheck uses a computer file to convey much of the same information provided in a traditional check. The payer enters the name of the recipient and the amount. He or she uses a digital signature to provide authenticity, the checks are numbered to make them easy to trace, and the money comes directly from the payer’s bank account. The main difference, from the point of view of the payer, is that instead of putting the check in an envelope and entrusting it to the mail system or arranging a time and place to meet with the recipient (if they can find a recipient willing to accept checks), they send the file digitally and instantaneously through the Internet.
For the payee, placing the funds in their own account requires little more than pushing a button. There’s no need to endorse the check or pass it over the counter after driving to the bank and waiting in line.
Like paper checks, eChecks don’t provide guaranteed completion. They can bounce, they can be stopped, and they can be blocked by closed accounts and liens. For an additional fee, they can also be made more certain through the use of certified eChecks or a bank cashier’s eCheck.
eChecks retain at least some of the float familiar to paper checks. The float lasts from the time they are sent to the time they clear, and can be as long as three to four days. But as we’ll see in this report, an eCheck is faster, easier and much more convenient than paper checks.
“Marcel” was robbed by someone using an eCheck. Writing on Sitepoint, he explained that someone purchased services from him using an eCheck sent through Paypal. A month later, the customer complained that someone had gone “on a shopping spree” with their Paypal account. They then requested a refund from their bank. He didn’t understand the risk of eChecks.
Marcel lost $120. He concluded that he would never accept eChecks or any checks again unless they came from a trusted customer.
Another forum contributor took a more sober view. “This has nothing to do with eChecks,” he wrote. “You’d have the same problem if they paid by credit card and filed a chargeback, or if they paid with PayPal funds and reported the transaction as unauthorized. The merchant is almost always the liable party when an unauthorized transaction is made, even if there was no way for you to know. It’s a cost of doing business.”
So much for eChecks as a risky form of payment. While you can find case study after case study describing businesses and customers that have been defrauded. Sometimes it’s out of millions of dollars, by people using paper checks. You’ll struggle to find examples of people who have lost money as a result of eChecks. Even Marcel’s story dates back as far as 2008.
The security of an eCheck is a result of a number of measures built into the eCheck system that have substantially reduced the risks involved in the transaction process. In this chapter, we’re going to look at the two biggest risks involved in the use of eChecks, and how to reduce them.
The weakest point in securing a paper check is the signature. Easy to forge, it’s supposed to bean authenticator to authorize the transfer of thousands or even millions of dollars. In our day, it’s a remarkably outdated way of authorizing the check and preventing check fraud.
It’s also one of the key reasons that paper checks remain the most frequently targeted payment method chosen by fraudsters. According to the AFP, 71% of companies that experienced attempted payments fraud in 2015 were victims of check fraud. That represents a fall from 77 percent the year before but only because businesses have continued to move away from the use of paper checks. For fraudsters, checks are common, they’re familiar and they don’t always require a great deal of ingenuity to use. Although some methods may be quite sophisticated, it’s easy to steal a check and forge a signature on paper checks.
Digital checks have made forging signatures a great deal harder through the use of digital signatures. These work in a number of different ways. However, they’re always more than a scrawled name on a piece of paper — or even on a screen. They use asymmetric cryptography and typically employ three algorithms:
The algorithm can identify if the signature has been altered and it’s impossible to forge or to steal.
Signature check fraud is a real problem for anyone using paper checks. But for users of eChecks, it’s not a realistic risk at all.
When it comes to check fraud, the same is true of other parts of a check that can be forged. Altering the amount on a check or changing the name of the recipient all rely on the eye of a teller to spot the alteration — and tellers have so little time that it doesn’t take too much more than courage (and audacity) for a fraudster to be able to push through an altered check. In 2013, “Lisa,” a reader of the consumer magazine Consumerist, found that her bank had processed no fewer than thirty checks, each for just over a thousand dollars each. The payments had emptied more than $32,000 from her account, placing her more than $30,000 overdrawn.
The checks were clearly fake. They had used Lisa’s name and her account number but they did not show her partner’s name on the address information. Despite that missing data, the bank honored each one of the thirty checks.
The bank reimbursed Lisa for her losses and she opened a new account… and was once again the victim of fraud. This time though, the method wasn’t a fraudulent paper check but an eCheck for $180.33 sent to Sprint.
Again, the bank repaid her, but that fraud is worth noting. One advantage that eChecks have over paper checks is that they can’t be altered or stolen or forged or copied. But the information used to create an eCheck can be taken. Like a paper check, an eCheck requires knowledge of the customer’s name and bank account details, both of which can be easily accessed. So while the risk of forgery is much lower for eChecks than it is for paper checks, the risk isn’t zero.
Even businesses that only accept eChecks and not paper checks will need to keep an eye on their accounts and try to spot any unauthorized payments.
One of the biggest advantages of using eChecks is that they’re familiar. Paper checks have been in use in one form or another for more than a millennium, and they’re easy to understand. In effect, they’re little more than an efficient letter sent to the payer’s bank authorizing the sending of a sum of money from one account to another.
So creating an eCheck is straightforward too — and it is but the process that isn’t entirely as familiar, yet. Users of eChecks won’t be pulling out their checkbooks and reaching for a pen. They’ll be opening a browser and filling in a form. This is what you need to do:
Anyone writing a check needs to make sure that they have enough funds in the account to cover the payment, and this is also important for people sending eChecks. Because the float time is so much shorter, users of eChecks can’t write a check on a Wednesday knowing that they’ll be paid on Friday. The check might be presented at the bank within 24 hours so buyers shouldn’t consider writing an eCheck until they’re certain that they’ll have money in their account at the time they write the check.
eChecks are sometimes offered as a payment option by sellers who will supply the eCheck form. They might also be one of the options on a payment platform like Due. Or, they could be a feature on a bank’s website. Open the feature and you’ll be presented with a form.
That form won’t look like a paper check because paper checks are printed with a great deal of information already included: routing number; account number; check number; the name of the account holder; and the name of the bank.
When writing an eCheck all of that information has to be entered manually.
The name of the account holder and the bank will be straightforward. You might also need to specify whether the funds will be drawn from a savings account or a checking account. The routing number and the account number will be less familiar. The easiest place to find that information is on the bottom of a paper check. The routing number will be nine digits long, and the account number will be between eight and ten digits long. If you’re using your bank’s website to create the eCheck, you should also be able to find both the routing number and the account number on the site.
You’ll need to enter the amount, and you might need to state whether the payment is one-time or recurring, and if recurring, you’ll want to add the frequency of the payment. Some platforms might also demand a check number, which should be the number of your next available paper check. Just be sure to void that physical check.
Other than having to enter those pieces of information manually, the rest of the form will be very familiar. If you’re writing an eCheck on a banking site rather than the seller’s own platform, you’ll just need to enter the name of the payee.
Because you’ll be entering so many numbers manually, it’s worth taking a minute to make sure you haven’t made any mistakes or confused the routing number and account numbers. Once you’re sure everything’s accurate, hit submit to start the payment process.
Creating an eCheck then is relatively straightforward. Even if the process isn’t quite as familiar as writing and signing a paper check, it’s not difficult. The fields are self-explanatory and the information is easy to find. It won’t take more than a few minutes, and it’s unlikely to take longer than writing a paper check.
A tougher challenge is knowing when to use an eCheck.
Buyers now have a huge range of different ways to pay for goods and services. From a handful of cash to a wave of an NFC-enabled smartphone, we’ve never been offered more ways to part with our money. Paper checks remain among the most popular methods, even for businesses, in part because they’re familiar and have a ready-built infrastructure. But also in part because they’re simple and relatively secure; it is much easier to steal a credit card number than to alter or forge an eCheck.
And, of course, checks are also cheap. The alternative to a check is usually a credit card company. They can charge 3 percent or more as a transaction fee, or a wire transfer that can cost $30. In contrast, checks can look like a reliable and low-cost alternative… and eChecks remove much of the slow speed that can drag down their use.
Payers then should consider using eChecks in the following circumstances:
There’s a reason that insurance companies (and lotteries) usually make their payments with checks; other methods are much more expensive. When you’re moving a large sum of money from one account to another, a check is usually the cheapest option and it’s cheaper than other payment methods that may take a percentage of the transfer amount as a transaction fee.
That doesn’t mean that you can’t also use eChecks to move small amounts, but a small additional transaction fee that might be charged by a digital payment platform will buy a much faster process.
There’s really no reason any more to write payments on pieces of paper. The banking system is entirely computerized. The checks are only going to be scanned and digitized as soon as they reach the bank so you may as well save yourself the paper and both you and the bank some time by doing it all online anyway, and you will care more about your account accuracy than anyone else will. Ask the payee if they can accept an eCheck instead of a physical check.
Making regular payments by check is a pain. Landlords, for example, often demand a pile of dated checks which mean that you have to sit and write them out by hand. Far better to set up a payment process that’s as reliable as an automated transfer and you only need to fill in the online form once.
One easy alternative to making payments that could be made by check or eCheck is to use a digital payment platform. The transfer is almost immediate and the rates, especially for small payments, are always competitive. Sometimes the transfer is even free.
But not everyone keeps funds available in their online accounts. If you find that you don’t have enough funds to make that simple transfer and don’t want to wait to bring money into the account, an eCheck can make a useful alternative.
For payees, the decision to accept an eCheck is even simpler:
eChecks are faster than paper checks. Cash is, of course, immediate and a transfer made through an online payment platform is lightning fast. An eCheck might mean a delay of a day or two, which is fine for most online purchases, and it also works for regular payments like rents. If a businessperson can take a check, they can take an eCheck.
Sometimes the payer pays the transaction fee, and sometimes the payee pays. If you’re paying by eCheck, it has both the cheapest and the most convenient option.
Businesses should put as few obstacles as possible between the customer and the cash desk. It’s possible that a business owner will have customers who don’t have credit cards or who are reluctant to use them online. You might be selling in person to someone who doesn’t have cash or who is demanding a payment on an online platform that they aren’t using. Accepting an eCheck along with all your other payment options makes it easier for the customer to pay the bill and buy your services.
Writing a check is simple and familiar. Writing an eCheck becomes simple and familiar, as well. You merely need to have your bank account number and your routing number. Using an eCheck is not a huge challenge and for either buyers nor sellers, and it’s a valuable addition to the range of payment options.
The earliest surviving check doesn’t look like much. It’s a rectangular slip of gray paper with a trace of red sealing wax in the bottom left corner. Written across the page is an instruction to Mr Morris and Mr Clayton to pay £400 to a Mr Delboe. The slip is signed by Nick Vanacker and dated “London the 16th of February 1659.”
It might be nearly 400 years old. But, that early check has almost all of the elements that are found in a modern check. The amount (a sizable sum in 1659) is written in numbers and letters. A signature authorizes the payment, and the check is sent to the bank at which the payer holds an account. Morris and Clayton were London-based bankers and scriveners.
Even the shape of the document would be familiar to anyone who owns a checkbook today. The only differences, in fact, would be the absence of an account number, a routing number and a check number… and the copperplate handwriting.
The reason that checks have changed so little since the seventeenth century is that they haven’t needed to change. They’ve always been an efficient way of informing a holder of funds to release some of those funds. They contain no more information than they need to and all of the information required to complete the transaction.
Even as credit and debit cards became more important, checks have continued and will continue to have a role.
In the same way that television hasn’t entirely supplanted radio, so paper checks are unlikely to disappear completely in the foreseeable future. But the rise of eChecks does appear to represent the old fashioned checks biggest threat. This is an even greater than payments made by plastic and greater than the slow take up of NFC payments.
For both businesses and customers, eChecks seem to be the sound future. And, the speed of processing an eCheck has already come down, and it’s likely to come down even further. One way to look at check history is to see it as progress towards greater clearance speed and higher efficiency. Between 1939 and 1952, the number of checking accounts in the United States doubled to reach 47 million.
Around 8 billion checks were written in 1952, a figure that’s less than half of the 20 billion written in 2015. But without a change in the way that checks were processed, that growth would not have been sustainable. In the early fifties, if a check was deposited at a bank that wasn’t used by both the payer and the payee, it would be sorted by hand and tallied at least six times before it cleared. In a branch employing 40 members of staff, at least seven would be needed just to process checks full time.
The adoption of machine readable accounts, routing and check numbers at the bottom of the checks made the work more efficient. The more recent practice of scanning checks when they’re deposited so that the physical check has little use once it’s reached the bank and no longer has to be transported has made the process easier and faster still.
The removal of the whole paper stage of the check process was really inevitable. Why write the check details down, when everyone now has a computer terminal in their pockets and can key in those details directly?
The challenge to that growth has always been a mixture of tradition, legislation and technology. Millennials are changing all of that — quickly. People are often reluctant to change a method that they feel works for them and may be more willing to spend time writing checks by hand than learn a new way of creating them. Legislation is changing too. The Uniform Electronics Transaction Act and the Electronic Signatures in Global and National Commerce Act (ESIGN) have both gone a long way towards codifying the acceptance of digital signatures and providing a framework for the digital processing of checks. At the same time, the increased sophistication of public key cryptography, the commercial use of digital signatures, and secure data networks have all helped to make eChecks safer and more reliable.
The result is that recent years have seen a merging of the processes used to send eChecks and those used by automated clearing houses. Once the writing of a check moved away from the check book and onto the screen the name itself began to look like an anachronism. Send or receive an eCheck and you are in effect making an electronic funds transfer.
That merging is likely to continue until the next generation comes to pay their rent… and wonders what the “check” part of an “eCheck” refers to.
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