e-ValuCheck versus ACH:
The advantages of paper checks versus ACH transactions include:
Consumer Acceptance - Most online ACH checks offer an explanation of what an ACH transaction is and how it posts to your account. Many sites offering an ACH check even have a FAQ section that tries to explain what an ACH is and how it will be described on your checking statement, when it will be charged to your account, how the ACH system works, etc. Most consumers have no idea what an ACH is and that scares them and diminishes the acceptance rate. Last year Americans wrote 59 billion paper checks while there were only a little over 5 billion ACH transactions. Direct deposit of payroll accounted for more than 3 billion of the total ACH transactions and government initiated payments represent the majority of the remainder. ACH was created for repetitive payments and not for one-time payment transactions. That descriptive statement of ACH usage can be found in NACHA's own statement of rules and regulations.
Tangibility Issue - Consumers are trained to look for a piece of paper as proof of payment and for resolution of dispute. The average consumer writes 22 checks per month and receives either the cancelled checks or images of their checks back every month end. Americans have been well trained in this manner and even though ACH has now been available for over 30 years in the US, it is a hard habit to break.
Funds Availability - Via our e-ValuCheck partnership with EDS, we can print e-ValuChecks in 40 geographically dispersed EDS print locations. This capability allows us to look at the ABA routing number of each consumer check and to then route each check to the print location located closest to where each check is drawn. EDS then makes local deposits daily and can obtain same day availability on most items and next day availability on all remaining items. This localized print capability allows e-ValuCheck to obtain quicker funds availability for your merchants than is afforded via ACH on most items. This benefit is really significant for internet payment activity that occurs during the evening hours, which will be 48 hour availability for ACH transactions but next day availability for e-ValuCheck, an improvement of one day in funds availability for your merchants.
Confidentiality - With e-ValuCheck payments, the consumer receives a canceled paper check back in their month end statement with the rest of their paper checks. Should a proof of payment be required, then the consumer simply makes a copy of their cancelled check and presents it to the merchant. However, with an ACH payment the consumer receives a line item description of payment detail on their bank statement. Therefore, the consumer must copy their entire bank statement, with their account number, balance information, overdraft charges, full description of monthly activity, etc. and present this statement copy to the merchant. With concerns over identity theft, everyone should be concerned about sending a copy of their bank statement to anyone, let alone a merchant where they have no idea who will be seeing their statement or where that statement might end up.
Administrative Returns - The MICR line of a paper check was not intended to be an ACH origination document. Do to mergers and acquisitions within the banking industry, many paper checks have old ABA routing numbers which are translated at the Fed, at the clearing houses and within banks to see that these checks get posted to the correct bank account. However, this same translation software that assists the paper check in clearing from the correct bank account, is not available to the ACH world. This means that some percentage of the online one-time ACH payments will be returned to the merchant as "administrative return" items. These items would clear the proper consumer account as a paper check but not as an ACH transaction. Thus these return items must be manually handled by the merchant's customer service area and will create bad will among consumers who are embarrassed that a payment has been returned against their account. The manual adjustment and settlement of these items also creates additional costs for the merchant and significantly increases the pre item cost of the original ACH transactions.
Return Code Reasons - Paper checks have 8 return codes while ACH has 83 return code reasons. (We can supply you with these listings if you care to see them.) Herein lies the added complications of determining exactly why an ACH transaction was returned and how to properly dispose of these return items. Proper disposition can affect the probability of collection of the item and the additional processing costs to be incurred. Again, these additional processing costs will act to increase the upfront cost of all ACH transactions.
ACH Bank Capability - Every bank in the US accepts paper checks that will clear from their bank accounts; however, not every bank in the US can accept ACH charges to their accounts. Over 35% of all credit unions cannot accept ACH transactions, thus online ACH checks will be returned to the merchant for these institutions. Similarly, many small S&L institutions do not accept ACH transactions. The returned transactions from these institutions will require manual handling and corrective actions by the merchants to obtain payment. The added cost of this manual processing is significant and will increase the incremental cost of all ACH transactions considerably.
While many large banks offer ODFI ACH services, for prices which are often less than their costs only to obtain the merchant payment business, the receiving bank or RDFI receives no compensation for handling the receipt and posting of these ACH transactions. For this reason there is little economic incentive for many credit unions and S&Ls to spend the money necessary to upgrade their systems to obtain the capability to accept ACH transactions. At the past several meetings of NACHA's Electronic Check Council, the topic has been raised concerning the charging of interchange pricing for ACH transactions which would be passed through to the receiving bank and thus provide the economic incentive for all institutions to become ACH compliant. Of course, as you would expect, the major retailers who are running ACH check truncation pilots under NACHA's guidelines have met this proposal with staunch opposition. Interchange pricing for ACH transactions would put ACH on a similar pricing with credit cards and leave the paper check as the lone flat fee payment option available.
