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How Does eCheck Processing Work?


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Paying with cash and written checks isn’t as common as it used to be. Thanks to technology, many people are now making the majority of their payments digitally using eCheck processing.

These types of checks offer a newer method of transferring money from one bank account to another. When you owe money to another person or business, you can send an eCheck. You start the process online with your financial institution, and you enter all of the same information you would if you were writing a paper check. Then, the funds transfer from your bank account to the payee’s. The concept is similar to a paper check, but the person you pay receives the funds faster. eCheck processing removes the logistic delays of getting a paper check to the other person and waiting for them to deposit it. Also, the digital process of moving money from one account to another is quick.

People use eChecks because they’re easy, fast and secure. There’s no chance of an eCheck getting lost in the mail or lost in processing. That can be especially convenient (and good for peace of mind and security) when you’re making or receiving a large payment. If you’re thinking about using eChecks to transfer money, learn more about how they work — and how they can help you — to get started.

There are so many ways to make payments these days, and that’s one big reason why it’s important to understand the differences between eChecks and other common payment methods. There are cashier’s checks, debit cards and credit cards are some of the most common forms of payment, but eChecks are becoming increasingly common.

Electronic funds transfers (EFTs) and eChecks are both electronic, but other forms of payment also qualify as EFTs. Forms for automatic credit card payments may be similar to eChecks, but the back-end processing for these two forms of payment is very different. You can pay another person with an eCheck, but you generally can’t pay another person with a credit card (unless you make them the recipient of a balance transfer.)

With a cashier’s check, you give the bank the funds, and the bank guarantees the check. Some banks allow you to send out online cashier’s checks, but this is still an in-person process at many banks. You’ll always set up and send out eChecks online — the whole money-transferring process is digital with an eCheck — and banks don’t guarantee these funds. 

Wire transfers are another way of moving money from one account to another. However, the money shows up in the receiver’s account faster. eChecks take longer to receive because they process through clearinghouses in batches rather than as individual transactions.  

How eCheck Processing Works

You can start an eCheck by filling out an online form. Usually, this form is on the website or app of the financial institution you bank with. Large payees, like the IRS or utility companies, may also have forms on their websites that allow you to set up eChecks for one-time or recurring payments. On the form, you identify the amount of the check, the account to withdraw the funds from, the person or business who will receive the funds, and the date you want to make the payment.

Some institutions may require you to provide an eSignature to process an eCheck. Often, this isn’t necessary because you’ll already be logged on to your unique account to write the eCheck. Before writing the eCheck, you may need to re-enter your password, enter your PIN or complete another form of two-factor authentication.

There are key differences between eChecks and paper checks. Automated clearing houses (ACH) are funds-transfer systems that process eChecks in large batches of transactions between banks. If Bank A customers pay Bank B customers $1 million total via many eChecks in a single day, the money goes to the ACH first. A $1 million debt is then subtracted from Bank A’s account, and Bank B’s account earns a $1 million credit. On an individual level, customers see their personal transactions in their bank accounts.

When you deposit a paper check, you usually have immediate access to the money. If you’re the recipient of an eCheck, you have to wait for the money to process through the ACH before you can use it. Timing for receiving eCheck funds is far more predictable because ACHs run on set schedules. Although eChecks take a few business days to process, businesses often give customers immediate credit for making a payment while the eCheck is processing.

Is It Safe to Use eChecks?

Security features protect you when you write or receive an eCheck. eCheck systems have a feature called duplicate detection. Often, scammers empty bank accounts by taking money in several small increments rather than taking a large amount of money at once. Duplicate detection sends you an alert if multiple eChecks to the same payee process from your account in a short amount of time. This feature also protects you if you accidentally process the same payment twice.

Encryption features also protect eCheck transactions. This means they scramble the digital data about the transactions that’s transmitted online so hackers can’t read it. Banks and clearinghouses have the technology to decode the transaction information, but it won’t make sense to anyone else who intercepts it. Account numbers and other personal information are safe with eChecks. Paper checks, on the other hand, are easily readable to anyone who gets ahold of them.

There’s also a unique digital signature for each eCheck. This has nothing to do with signing a document. Rather, it’s similar to a digital fingerprint that makes each transaction unique. No one can change the amount of an eCheck or try to process it again. Thanks to these security features, eChecks are a secure form of payment. They’re less vulnerable to the types of loss and fraud that can happen with regular paper checks.

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