ACH vs eCheck: Difference and Comparison

Technological advancements made tremendous changes in money transactions, providing numerous options for people to make their financial dealings. Electronic money transactions emerged as the safest and most rapid method for financial trades.

Paper cash and paper checks are taking a backseat in the present world, where E-checks and digital transactions are gaining prominence. ACH and E-checks are two essential terms in the financial world often used interchangeably, but there are many similarities and notable differences between them.

Key Takeaways

1. ACH (Automated Clearing House) is an electronic network for financial transactions in the United States; eChecks are electronic versions of paper checks.
2. ACH transactions involve directly transferring funds between banks without needing a physical check; eChecks are processed digitally but still require the same authorization steps as paper checks.
3. ACH transactions are faster and more cost-effective than eChecks, but eChecks offer more familiarity for those accustomed to traditional checks.

ACH vs eCheck

The difference between ACH and E-check is that ACH is a money-transferring process used for the transaction of money from one bank account to another. E-check is the short form of electronic check, and it is a method of payment used as a replacement for traditional paper checks. 

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Comparison Table

Parameter of Comparison	ACH	E-check
Definition	ACH is the name of a financial transaction process between a customer and a company or a similar kind of transaction.	E-check is a method of payment used extensively as a replacement for traditional paper checks for present-day financial transactions.
Mode of function	ACH is working based on the information about the customer’s bank account to make the financial dealings.	E-checks are similar to paper checks, and the payment is made according to the preferences of the payer.
Transaction	With the information provided by the customer, automatic payment updates are possible with ACH.	E-check does not allow any automatic payment updates.
Type of payment	Many payments are possible through ACH, and E-check is one of them.	Payment is only through the online processing of the E-check
Safety measures	Safety measures are comparatively less since you provide the payment details in advance.	Multiple levels of authentication for the routing of funds to ensure safety.

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What is ACH?

Automated clearing houses – ACH – are electronic payment processes when a person authorises a source entity like an institution or company to make a bill payment by directly debiting from their bank account.

In the ACH mode of payment, funds are shifted from one bank account to another via a centralized system capable of directing towards the final destinatiAutomaticized costs are beneficial to merchants and consumers.

ACH networks are responsible when employers pay their employees wages by direct deposit method. ACH networks are reliable when people pay bills electronically from their checking accounts.

Some types of payments that can be activated through ACH are given below

1. Payment made by a customer to a service provider
2. Direct deposits a business owner makes to their employee’s account.
3. Transfer of funds from one bank to another by a consumer
4. Payment of funds by a business to the vendor.
5. Funds sent by a taxpayer to local organizations or IRS.

To make a payment through the ACH system, the company requesting a fee (either to send or to receive funds) requires obtaining the bank details of the other party. Once the customer’s bank details are accepted, ACH can initiate the payment in the correct amount to the destination account.

In most cases, ACH payments are fully digital. But even today, some people like to use paper checks instead of digital payments, but the fund transfer will be through the ACH gateway to the recipient. 

 

What is eCheck?

An E-Check or electronic check is a method of fund transfer through the internet or a similar data network intended to function as a regular paper check. The electronic format of the check makes its process in a few steps. 

An E-check has many features to ensure security than regular paper checks, consisting of authentication, electronic signatures, public-key cryptography, encryption, etc. Direct deposit made by the owners of a company or business entity is one of the commonly used versions of an E-check.

E-checks can be issued and operated with comparatively less expense. E-checks are digital banking methods and part of a category of financial exchange called EFTs.

The emergence and fast spreading of E-commerce is the need that paved the way for the development of E-checks to make transactions smoother and faster.

E-checks can be used for all the purposes of a paper check, and similar legal bindings are applied in the case of its transactions.  The lack of the need to print and post statements makes using E-checks less expensive.

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Main Differences Between ACH and eCheck

1. The main difference between ACH and E-check is that ACH is an electronic payment transaction process, whereas E-check is a payment method.
2. E-checks are paid through ACH, and any online payments are possible through ACH.
3. ACH is based on a centralized system, but E-checks are between the payee and payer. 
4. E-checks are safe and authenticated by multiple levels of security. ACH can initiate payment updates from the previously collected data from the payers.
5. ACH and E-checks use different flows of information. The legal bindings are other for ACH and E-checks. The risk management terms of ACH and E-checks are also extra.

References

1. https://www.ingentaconnect.com/content/hsp/jpss/2008/00000002/00000002/art00011
2. https://aisel.aisnet.org/jise/vol14/iss3/7/