ACH payments are a form of direct deposit that allows money to move between bank accounts without the need for physical checks or paperwork. Instead of relying on credit card networks and payment processors, ACH transfers occur directly between banks through an automated clearing house.
Various types of ACH transactions can be identified by three-letter codes, with the most common ones being:
PPD (prearranged payment and deposits): Often used for pre-authorized recurring billings.
TEL (telephone-initiated entry): Also known as check-by-phone.
WEB (web-initiated entry): Widely utilized in eCommerce transactions.
Many individuals use the ACH system unknowingly, receiving paychecks via direct deposit and making bill payments by providing their bank account information. Additionally, ACH payments form the backbone of popular peer-to-peer payment apps like Venmo and CashApp.
While ACH payments offer advantages over credit card payments, such as lower fees and no expiration date, they also come with certain risks. ACH transfers have fewer anti-fraud measures compared to credit cards, and they only require account and routing numbers, making them vulnerable to potential scams. For secure ACH transactions, customers should only use trusted merchants.
Furthermore, ACH payments are relatively slow, and there’s no guarantee of payment receipt. If a customer lacks sufficient funds in their account, the transfer may be rejected days after the initial purchase, leading to potential issues and inconveniences.
Written by Andrii Vovk