businesswoman process ACH payment using mobile phone

Why ACH Is More Profitable For Cash Transfer Methods

June 21st, 2022

Businesses and individuals constantly look for better ways to send and receive money online. One popular and convenient way to achieve this is with ACH payments.

People have relied on checks for many years, but they were slow to process and added an overwhelming amount of paperwork. Recently, they were replaced by faster, safer and more convenient digital payment platforms.

For the first time since 2018, the number of ACH transactions passed the number of check payments and has increased since. ACH (Automated Clearing House) is a money transfer method that coordinates electronic payments using the account and routing numbers between bank accounts. The process is faster than other electronic payments as it transfers in batches.

As more and more businesses and merchant marketplaces adopt ACH payment processing, learn why it’s one of the most profitable spaces within the entire payment processing industry.

The Growth of ACH Payments

Ideally, ACH is suitable for batched, automated, recurring payments and more recently large payments in the business-to-business marketplace.

The federal government regulates all ACH payment transactions, while the National Automated Clearing House Association (NACHA) manages and facilitates the ACH network. NACHA also has a strict guide rule with preventive measures that helps avoid any ACH fraud and errors.

According to NACHA, the adoption of the ACH Network in 2020 grew to 26.8 billion, an increase of 8.2% from the 2019 figure. The growth rate has been the highest since 2007, with an additional 2 billion payments added in 2020.

The growth results in 2020 mark the sixth year in a row in which ACH payment volume increased by over a billion, and the eighth consecutive year with a payment value increase of over $1 trillion. Similarly, we experienced a 157% increase in payment processing volume year-over-year at the close of 2021, and saw a 46% residual payout increase to our reseller partners.

Equally important, ACH payments have a low cost compared to credit card fees. ACH transactions come at an expense, like all payment processing, but will only be a fraction of what your merchants usually pay credit card companies, which leaves most ISOs little to no room for their own fee growth.

Basis points are only one piece of an equation that can get quite complicated. Credit card basis points are often low, but even more often they end up coming with added merchant fees that barely benefit an ISO and always benefit the card companies. In total, the spread does not land in the favor of a reseller looking to make a good profit.

Most credit card accounts provide an ISO about 5 basis points. However, ACH transactions provide between 50-60 basis points. That’s a 1,000% improvement!

That’s money being left on the table, and money that can be made easily.

Industries Adopting ACH Quickly

The key industries adopting ACH as their primary payment methods include manufacturing, wholesale, insurance, accounting, real estate, construction and healthcare. With this growth, use case and impact, the future is bright for ACH. It will make more financial sense for your business to switch your merchant clients over to ACH payments. Most of the time, merchants are already plugged into one of our gateway partners and can get ACH payments turned on virtually with the flip of a switch.

The majority of our wholesale B2B merchants are processing millions of dollars in accounts receivable monthly, and are comfortably priced at 40bps. These merchants also enjoy lower-cost value compared to other electronic transaction options available, and driving value for our ISO partners.

How ACH Money Transfer Differ From Credit Cards

The truth is that several electronic payment methods exist today. Some will make more sense, while others will not work. While ACH and credit card payments have similarities, they also differ in some cases, especially in the fees involved. If you are unclear if ACH is the right option, consider its cost benefits over the most common credit card payments.

Close up of a woman's hand paying bill with credit card in a cafe
Credit card payment

Most people rely on credit cards due to their fast processing speeds. However, these speeds come with significant fees tied to them. A typical credit card payment will incur various fees, some of which may be hidden. As the payment process begins from customer to merchant, fees will get eaten up by credit card companies. By the time the payment reaches the merchant, you will have earned 2-4% less money after all the processing fees are collected.

ACH Processing is Cheaper Than Credit Cards

This may not seem like much, but for large transactions, the cost may add up with a more sizable loss. For example, a business may end up paying $40 for a $1000 transaction. On the other hand, ACH fees are much lower than these credit fees. Providers usually have a flat rate or a nominal fee, which is just a few nickels or dimes for every transaction you make. This is true even for large transactions.

Equally important, all credit card transactions are offered by private entities even though the Federal Trade Commission (FTC) is still responsible for overseeing the process. These credit card companies, payment processes and banks will take a percentage from the payments to process every transaction through their service. MasterCard and Visa will charge fees while the issuing banks charge interchange fees.

After that, the companies offering a point-of-sale terminal will charge it fees. Merchants face more fees if the customer has a card issued by a different company from the connected account. These fees will definitely eat away your profit margin as those fees are piling up for your merchant. The solution to eliminating them is ACH.

For any business transactions involving large sums of money like hundreds of thousands of dollars, it would be best to use ACH payments. It will offer high saving opportunities over the percentage fees for using credit cards. Also, for businesses that provide recurring payments or payments in installments, using ACH offers an automated and business-initiated payment option.

How VCI Is Helping ISOs Grow Residual ACH Payouts

VeriCheck has been dedicated to continually to evolving and helping our partners grow their profits. Through our ACHWorks solution and bank sponsorship by Commercial Bank of California, we can holistically support ISO partners more than ever.

Beyond helping our ISO partners move into new market places and earn higher residuals, our new ACHWorks brings expertise to the table to help ISOs who want to expand into high-risk marketplaces such as:

  • Same Day ACH
  • Consumer Lending
  • Buy Now Pay Later (BNPL)
  • Commercial Funding
  • Rent to Own (RTO)
  • Merchant Cash Advance

Ready to get started? Contact us today to join our tailored program to become an ISO partner, we’ll help you get the deal done and get your merchants on-boarded quickly.