ACH vs Credit Card

September 2, 2021

ACH vs Credit Card

One of the most important decisions a small business owner must make is how they are going to accept payments. You have two main options - credit card or ACH payment. The decision you make will depend on your needs and goals for your business. Let's look at some of the key differences between these two methods of accepting payments so you can decide which one fits best with what you need.  

ACH vs Credit Card Payments: What's The Difference? 

ACH transactions are a request for funds, whereas credit card transactions allow individuals to borrow money.  

While ACH payments bear some similarities to credit card payments, there are some key differences between the two payment options. This article looks at the key differences between ACH forms of payment and credit card payment methods. 

ACH is a generic term that encompasses various forms of transferring funds electronically (electronic payment) between two financial institutions, such as checks, e-checks, and recurring payments taken directly and electronically from checking or savings accounts. 

A Credit card transaction is just that; the transaction is made through the credit network of the issuing card. Credit cards are revolving debt instruments that enable individuals to use borrowed money to make customer purchases or form of payment, even when they have non-sufficient funds. However, there is a credit limit on each credit card. 

Payment Processing with ACH Payments 

Among other payment methods, the ACH form of payment has the biggest security difference--and is often a cost efficient and cheaper method--than the transfer of money by other means. This is because the ACH Electronic Network that this transaction passes through is completely automated and for the transaction to be processed, all the banking information must undergo electronic check, be completely verified and authorized, and they need to abide by the operating rules and compliance steps. 

ACH processing payments with a third-party payment processing (TPPP) is virtually free, usually $0.29. This is far more affordable and cost effective when compared to the average price for a wire transfer (around $30 for bank wire transfers) and the average price using credit card networks. With the common type of same day ACH transactions, the turnaround time can be 1-2 business days. 

ACH payment processing can also be integrated into a payment processor, payment gateway, or digital wallet services. A payment gateway can allow secure payment transactions as well as the security of a trusted third-party payment processor.  

ACH billing is easy to set up. ACH billing allows for the automatic transfer of funds to pay a bill, deposit into a savings account, or deposit into a retirement account. 

Payment Processing with Credit Card 

Small businesses (and many others) often use credit card processing. It follows that you can use a credit card regardless of who you shop with or where you are located. 

International payments with card cards are quite fantastic. Processing international transactions is a hassle for consumers who are on the go. Credit cards can get around this and make sure their customers never run into these issues. 

A credit card payment enables an individual to use a credit card to pay for something when their checking account does not have sufficient funds available. People tend to view the interest that credit card charges as a fee for the service of allowing that transaction to happen. Also, the interest fee for the funds, as well as the money you owe your credit card provider because they extended you the money. 

Which Is Safer: ACH or Credit Card? 

The biggest security difference between an ACH payment and a credit card transaction is the guarantee of payment. While an ACH transaction is guaranteed to go through once the process is completed, it will take days before the transaction is approved. An ACH transaction is only a request. 

On the other hand, credit card limits are verified by the credit card network (such as Visa and Mastercard). Once this is approved (which is a very quick process), the “guaranteed funds” option allows the money to be released. 

Other security risks arise when you pay with ACH (as opposed to credit cards). As ACH banking information is harder to acquire, you are more protected against fraudulent charges. 

ACH fraud does exist, but it happens rarely. This lengthy authorization process is responsible for this problem. A rejection is issued with a return code if the request is invalid, or the banking information is incorrect. 

Many people are harmed in one way or another when credit card fraud occurs because it not only affects the credit card holder and the lender but others too. Most credit card companies will have their purchases protected under a “credit card purchase protection agreement.” 

In addition to having security for both customers and businesses, this security is usually paid for by fees and high interest rates. As a result of this deal, credit card companies can put effort into defending against compromised credit cards, revolving credit card funds, and issuing new credit cards. 

Differences (Dispute Policies) Between ACH Payments and Credit Cards 

Dispute Policies for ACH Payments 

There are two ACH return types in ACH payment disputes: ACH disputes and ACH chargebacks. 

The problem with calling an “issue” or “chargeback” something that uses a third-party arbiter is that these are assumed to be adversarial processes. Still, the opposite is true. 

ACH payment processing is automated (hence the term the Automated Clearing House). So, if the transaction fails but is still made, the payment will be refunded. 

Mediation did not occur in any capacity. In contrast, the receiving bank, known as the RDFI (Receiving Depository Financial Institutions), will examine the ACH transfer and judge whether something is wrong with the entry. 

Dispute Policies for Credit Cards 

Dispute policies for credit cards might reflect a payment that was posted to a credit card account and the payment was not authorized by the account holder (or some other suspicious activity), a return that was to be issued but never posted, or the removal of a pending payment. 

Often, a credit card company will evaluate some of the following things: 

  • The merchant’s name 
  • The date 
  • The location of the purchase 
  • Whether or not the user has shopped with the merchant before 

You will be asked to consider these options during the dispute. Sometimes, a user will forget that other people are also allowed to access the account. In the event of having two or more authorizers, a consumer must contact each person and settle with the secondary authorizer via credit card. 

Customers have forgotten about starting a free trial before being charged because they have started to use the service or product they have not tried yet. 

For a typical investigation, it takes weeks to investigate a credit card dispute. Incentives to pay promptly, so interest does not accrue, are provided to cardholders. If the credit card issuer discovers the fraud, it will issue a refund to the consumer. 

Credit cardholders are also encouraged to keep records, with details like times, dates, conversation topics, and emails sent and received. The cardholder will be able to keep better records of their transaction, and the company will benefit by being able to carry out the investigation. 

Is ACH Same as Debit Card? 

An ACH debit transaction is also different from a debit card transaction, although these, too, are similar. Like ACH, a debit card functions like a check, withdrawing funds immediately from the payer’s account and transferring them to the payee. 

However, a debit card transaction relies on a PIN (Personal Identification Number) or signature to authorize a transaction, whereas an ACH debit transaction requires a user’s account and routing number or online banking credentials to authorize. In addition, a debit card transaction relies on an entirely different network. 

Rather than connect two banks directly through a clearinghouse, as an ACH debit transaction does, a debit card transaction relies on connections with the card networks and payment processors that in turn communicate with the banks. 

As a result, accepting payments via debit card is more expensive for merchants than accepting payments via ACH debit, because all the players involved in the process charge interchange and other fees.  

A debit card transaction can cost around 1 percent of the transaction amount plus a flat transaction fee, depending on merchants’ contracts with their card networks and processors. ACH debit transactions, on the other hand, are free. 

ACH transactions are a request for funds, whereas credit card transactions allow individuals to borrow money. The key difference between these two payment methods is the type of instrument involved in each transaction. Credit cards are borrowed funds that can be used at any time and paid back with interest over an agreed-upon period. In contrast, when you make an ACH transfer, you are requesting money from your account - this means there is no chance for debt or interest charges. 

BNG Payments is payment processing made easy. Whatever your processing needs, we make it easy for merchants to accept credit and debit cards, mobile payments, e-commerce, and more. Contact us to find out more about what BNG Payments can do for your business.

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