A Guide To Electronic Payments And Their Differences: EFT, ACH Payments, And Wire Transfers

April 14, 2021

The business world utilizes electronic payments more than any other payment option. According to research, “In 2019, digital and mobile wallets accounted for 41.8 percent of global e-commerce payment transactions. This share is set to increase to 52.2 percent in 2023, making digital wallets the most popular online payment method worldwide. Credit cards were ranked second with a 24.2 percent market share in 2019.” Statista Research Department, Nov 27, 2020

As a small business owner, you will see more demand for it as time goes by, and being well-versed in today's electronic methods of payment will greatly add to your profit and customer experience. For the uninitiated, there are multiple forms of electronic payments and each method has benefits a business owner could use to their advantage. You may have heard about EFT, ACH, and wire transfers, but what are they exactly? And which is best for your business?

In this article, we cover each method of payment so you know what to expect. Whether you are a consumer-to-business company (B2C), a business-to-business company (B2B), or handle low or even high-dollar business, these options can offer different benefits that boost your growth.

EFT vs. ACH vs. wire transfers: the key differences

The main types of electronic payments outside of credit cards are as follows: EFT, ACH, and wire transfers. Each of these methods has a few differences that will lead to a different outcome for the business using them. So take a moment and let’s go over each of them so you have a firm idea of how they work and would impact your business.

What are EFT Transfers and payments?

An Electronic Funds Transfer (EFT) is an umbrella term for electronic payments for Canadian audiences. A check processing solution used primarily in Canada. It consists of a vetted network of banks that process at speeds compatible with credit cards.

How payments are completed via EFT

During a sale, electronic payments are made between a business and customer's financial institutions with the aid of a Merchant Service Provider or a Third Party Payment Processor (TPPP). The funds are approved and completed using internal payment networks. Common examples of these financial networks are Visa and Mastercard.

Merchant Service Providers

Now as a business, the person who facilitates electronic payments for you is a Merchant Service Provider - also referred to as an Independent Sales Organization (ISO) - is a company that links you, the merchant, to your bank to receive your customer's payment. To use a Merchant Service Provider, you will need a business bank account to receive these funds.

Your Merchant Service Provider uses payment gateways within your in-store terminals or e-commerce website to collect the payment information, encrypt it, and forward it to the customer's card issuer for approval. The approval is then sent back to fulfill the purchase to your bank.

BNG Payments, for example, is a Merchant Service Provider, working in collaboration with payment processors for a full range of payment options, such as B2B payments, cross-border payments, and international payments.

Third-Party Payment Processors

A Third-Party Payment Processor (TPPP), also known as a Money Transmitter, is an entity that handles payment processing with many of the same benefits of a Merchant Service Provider, but it works exclusively on your website for online orders. Since it handles the fund receiving, you aren't required to have a business bank account. You simply accept the funds into any account you like when withdrawing from the processor.

In this case, your check-out page is hosted and managed by the outside service - not you or your Merchant Service Provider. All sensitive data and payment details stay with the provider who also assumes all security responsibilities. Some examples of TPPPs are PayPal and Google Checkout.

Cost of Merchant Service Provider vs. third-party payment processor: which is right for you?

Benefits come down to what works best for your business structure, the number of payment options you want to provide (a brick-and-mortar store would benefit from more payment options than an e-commerce store allows), and how much control you want over customers data.

With either option you choose, a reliable vendor provides cost assurance and cost guarantees so you know exactly what you are paying for services.

What are ACH transfers and payments?

An Automated Clearing House Network (ACH) is a subset of electronic payments that differ from other methods like credit cards and wire transfers.

An ACH is a direct deposit or withdrawal of funds related to your bank account. It is used often by accounts payable departments to create paychecks or in paying debits like auto payments, credit card payments, utility payments, tax refunds, and mortgage payments. Just like the name indicates, these payments are "automated," moving back and forth from your account by getting your initial authorization. The institution initiates recurring payments on set dates. In the case of withdrawals, they typically happen monthly. An ACH is often termed as a direct deposit, direct pay, and autopay.

An ACH is an ideal solution for reliable payments to avoid late fees while providing prompt and regular paychecks. It provides payments in batches – set times during a day. It used to be that batches were limited to a single batch per day, but today's batch processing vendors initiate payment movements three times a day.

The standard timeframe for payment completion is three to four business days, though today's ACHs are eligible for same-day processing and executed by 5 p.m. at the receiving bank. This may sound like a wire transfer, but because it works differently it has different guarantees. During a purchase, there could be an issue that requires canceling the funds, and if you are in a business of fast cash movements to vendors after sales, this can create a mess for you financially.

How are ACH payments different from credit card payments?

ACH payments are direct bank-to-bank transfers of a person's existing funds with the aid of an MSP or TPPP. Credit cards function similarly but are a line of credit. The card provider, with the help of an underlying bank institution, loans you funds and you pay the provider back, with a bill due every month.

Due to these being loans, the providers attach an APR and require a minimum payment to pay off any funds used. A credit card is a bit different from a standard loan in that it provides an ongoing line of credit after your loan payment transfers that are then renewed automatically once you pay it off.

Unless you pay your credit card bill in full each month, you are charged interest on unpaid amounts. And if you use them for a cash advance, the APR is accumulated daily from the time of the withdrawal (which can add up.) An ACH payment can help you pay off that monthly bill on time to avoid interest.

The cost of ACH payments

Regarding processing fees, a wire transfer costs from $10 to $30 per transaction, whereas ACH payments are significantly lower. Pricing depends on the method and amount sent - as low as $0.10 and up to around $2.50.

Money sent as wire transfers

Wire transfers also called "bank wires" or "money by wire," are money transfer services that send electronic funds which are guaranteed upon arrival. They are sent instantly, rather than as batches at set times.

If you receive a bank wire transfer, your customer's bank has already removed funds from his or her account and the bank has electronically forwarded immediately approved funds to your bank, which then routes it to your account.

Without any delays, these electronic money transfers can be received anywhere a banking or a credit union is, making them ideal for international money transfers; however, the urgent funds come at a cost. Each transfer ranges between $15 and $30, depending on the bank.

With a high dollar amount allowance of around $100,000, these transfers work well as business-to-business transfers, large financial transactions, mortgage payments, or as a fast way to send large sums of money to friends and family, even in the form of international transfers.

The advantages and disadvantages of ACH payments vs wire transfer speed

Both ACH and bank wires can arrive the same day, but wire transfers offer faster payments. They have higher transaction speeds of just a few hours, even for international transfers.

Guaranteed funds

Wire funds are withdrawn from the sender's bank account before the wiring process begins, which means the funds are guaranteed upon transmission, but it also can't be reversed, which is why wire fraud can be particularly damaging. Unless you are sure of who is receiving your funds, you can be facing significant risk.

With an ACH payment, the funds aren't guaranteed before the transaction, and this gives you some wiggle room during the transaction process. Funds can be returned to you as well. (Certain standards apply.) But when receiving funds from a customer, a wire transfer gives you the most assurance.

With a wire transfer, you can send and receive large sums of money, such as $100,000. Whereas, ACH typically has a limit of around $25,000.

Which is best for your business: ACH payments or wire transfers?

Knowing which payment practices are best for you depends on your overall business needs and the costs for those services compared to their benefits, but this article gives you a good general understanding of which you should apply most frequently.

When analyzing pricing, keep in mind the following:

· Cost assurance, so you know exactly what you pay for.
· Cost guarantees
· The lowest costs vs. services offered
· Closing costs for contracts
· Cost of Transfers / Transaction Fees

Have more questions on which electronic payment is best for your business? Reach out to our team and we’ll be happy to guide you to the right payment processing solution for your business.


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