An electronic check, or eCheck, is an electronic version of a paper check. Instead of writing out a check and handing (or mailing) it to the recipient, you enter your banking information and the payment amount online and authorize a transfer of funds from your bank account to the payee’s bank account.
Electronic checks are a fast, safe, and convenient form of payment, but they do have a few downsides. Here’s what you need to know.
What Is an Electronic Check (eCheck)?
An electronic check, or eCheck, is an electronic money transfer designed to perform the same function as a traditional paper check. You can often use an eCheck to pay bills, shop on an online marketplace, or make other types of payments.
To issue an eCheck, you need to provide your bank account number, bank’s routing number, and payment amount, then authorize the transaction by accepting a website’s terms and conditions. The eCheck is then processed by the Automated Clearing House (ACH), a secure system that facilitates electronic payments and money transfers between banks. Once authorized, the funds leave your checking account and get deposited into the payee’s checking account.
Since an eCheck is in an electronic format, it can be processed in fewer days than a traditional paper check. Electronic checks also generally have more security features than standard checks, including authentication, digital signatures, and encryption.
How Does an eCheck Work?
The process of paying by eCheck involves three basic steps:
• Authorization: First, you need to fill out your eCheck through an online payment portal. You then click “Submit,” which authorizes the payee to withdraw the payment amount from your checking account. In some cases, you can provide your banking information and authorize an eCheck over the phone.
• Processing: The business’s payment processor receives the eCheck and sends a payment request to the ACH network. The ACH network confirms that the funds are available in your account.
• Settlement: Once the transaction is verified and approved by the ACH network, the funds are transferred from your account to the payee’s account.
How Long Does an eCheck Take to Clear?
The time it takes for an eCheck to clear can vary, but it generally takes between three to five business days. The reason for the delay is the ACH network processes payments in batches, not one by one. Once they start processing the eCheck, the network has to verify your bank information and perform security checks, which can take a few days.
Also keep in mind that eChecks aren’t processed on weekends and holidays. So if a you send an eCheck on a Friday, the payee may not receive the funds until the middle or end of the following week
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Advantages and Disadvantages of eChecks
EChecks have a number of advantages, but also a few drawbacks. Here are some things to keep in mind.
Advantages
• Cost-effective: Electronic checks are often more cost-effective than paper checks, since you don’t need to pay for paper checks or stamps. And unlike using a credit card (which may come with a surcharge), eChecks generally don’t trigger a processing fee.
• Convenience: Electronic checks eliminate the need for physical checks, reducing the time and effort required for writing, mailing, and processing paper checks. They can be easily initiated and authorized online or over the phone.
• Security: Electronic checks offer enhanced security features, such as encryption and authentication, to protect sensitive financial information. This reduces the risk of fraud and unauthorized transactions.
• Environmentally friendly: By reducing the need for paper checks, eChecks contribute to environmental sustainability by minimizing paper waste and the resources required for printing and mailing.
Disadvantages
• Clearing time: Electronic checks can take several days to clear, which may be longer than other electronic payment methods. This can be a drawback for those who require immediate access to funds.
• Possibility for errors: While eChecks reduce the risk of errors compared to paper checks, there is still a possibility of making a mistake in entering your bank account information or routing numbers. Such errors can delay the transaction process.
• Limited acceptance: Not all businesses or individuals accept eChecks as a form of payment. This can limit the usability of eChecks in certain situations.
• Potential for fraud: As with any electronic payment method, eCheck payment may be subject to fraud or unauthorized transactions. You want to be sure to share your bank account information only with trusted merchants.
What’s the Difference Between ACH and eChecks?
The terms ACH and eCheck are often used interchangeably, but they refer to different aspects of the electronic payment process.
ACH (Automated Clearing House): ACH is a network and system used for processing a wide range of electronic payments, including electronic checks. The network facilitates the transfer of funds between banks and ensures the secure processing of transactions.
Electronic check: An eCheck is a specific type of payment that is processed through the ACH network. It is an electronic version of a traditional check and involves the transfer of funds from one bank account to another.
In short, the ACH network is the infrastructure that enables various types of electronic payments, including eChecks. An eCheck is a type of transaction that utilizes the ACH network for processing.
Is Paying by eCheck Safe?
Yes, paying by eCheck is generally considered safe, thanks to several security measures that are in place. Most notably, eChecks use encryption to protect your sensitive financial information during transmission. This ensures that the data is secure and cannot be intercepted by unauthorized parties. Electronic checks also require timestamped digital signatures to help prevent fraud.
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The Takeaway
Electronic checks are essentially the digital version of traditional paper checks. These checks are facilitated by the Automated Clearing House (ACH) network, an electronic network used by U.S. financial institutions. Funds are electronically withdrawn from the payer’s checking account, transferred over the ACH network, and deposited into the recipient’s checking account.
Electronic checks are a safer alternative than paper checks, and also faster to clear and cheaper to issue. However, eChecks take longer to process than paying with a debit or credit card and they aren’t accepted everywhere.
FAQ
How do I pay with an eCheck?
The process of paying with an eCheck mirrors that of writing a traditional check, but in a digital format. If the business you’re paying accepts eChecks, you simply need to enter your bank account number, bank’s routing number, and the payment amount on a secure online payment portal. You then authorize and submit the eCheck.
Does it cost money to send an eCheck?
Not typically. Merchants generally have to pay a small processing fee for accepting eChecks but this cost is not usually passed on to the consumer.
Can you reverse an eCheck?
Yes, but you have to act quickly. To reverse an eCheck, you generally want to notify your bank as soon as you know you need the payment halted, ideally within the same day. Once the payment clears, your bank may not be able to reverse the process.
Photo credit: iStock/kazuma seki
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
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SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
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