Why Card Payments Outperform ACH—Every Time
For busy CFOs seeking to add supplier payment options, ACH — or Automated Clearing House (ACH) process — offers the ability to manage bank-to-bank payments in a cheap and reliable manner. ACH, in fact, can initially appear preferable to credit and virtual credit card options due to these factors, leading organizations to bypass credit card options in favor of ACH.
However, an objective comparison of the benefits and drawbacks of ACH and credit cards reveals that cards are a superior option in most cases both for businesses and consumers. Caleb Avery, the CFO and Founder of Tilled, a Payment Facilitator as a Service company, recently joined Finexio CEO and Founder Ernest Rolfson on his podcast, “B2B Cashflow Conversations” and noted, “there’s a disconnect between the timing of the transaction and the timing of the actual movement of the money, which is one of the big issues with ACH today.”
For consumers, “getting their rewards or cash back by paying with a card” is a major benefit. For businesses, receiving a guarantee that the good or services will be paid for is a distinct advantage, he continued. Both consumers and businesses benefit from the ability to transact business instantly.
Rolfson agreed that a two-or-three-day time frame for ACH transaction settlement is too long, carrying the same disadvantages as paper checks. Both ACH and checks lack visibility in terms of whether the funds promised will be available as promised.
“Would you really want someone to send you a piece of paper and you don’t know whether there are good funds behind it or not?” Rolfson continues. “You’re not willing to pay a fee to make sure you’re getting your money?”
The time lag in authorization, approval and movement of funds create an unacceptable risk for businesses. Even if the money is in the bank account of the consumer or organization purchasing goods or services, the time lag means the money might not remain in that account, creating potential for an unfulfilled payment.
Rolfson, who was an executive at MasterCard prior to founding Finexio, firmly believes in the advantages of credit card payments.
“Cards are convenient for the buyer and seller, big time,” said Rolfson. He continued on, saying most people don’t realize how inconvenient and impractical ACH really is. “There is a reason why it is super cheap, like 10 or 15 cents. Why isn’t there 100 percent adoption? Why are there still 12 billion B2B checks? Why are there trillions of consumer checks? Because no likes ACH.”
Avery agrees that while there are barriers to improving ACH, he is “hopeful that real-time payments and some other faster money movement methods that are becoming more and more mainstream” will not only create a better version of ACH but encourage widespread adoption of ACH. Real-time payments, also known as RTP, are payments that can be initiated and settled rapidly at any time of the day, throughout the year.
Rolfson is skeptical that real-time payments will happen within or outside of ACH anytime soon. Furthermore, as Avery admits, these solutions “can’t necessarily solve ACH’s fundamental flaws.”
“The last time I checked, banks continue to move at a glacial pace, so the idea that real-time payments will suddenly come and kill everything else is unlikely,” Rolfson said. “Banks make money by sitting on your money and collecting on that float. With zero interest rates, how much money could banks charge for real-time payments to offset that? You can’t charge enough to make up for it. And people aren’t going to be willing to pay ten times more.”
In the end, both Avery and Rolfson agree that major improvement in ACH will be difficult to implement, which leaves cards as the most secure, convenient and efficient method for B2B transactions for the foreseeable future.
Related Content: Another benefit of cards? They’re the most secure B2B payment method available today. Read our recent post, “Is Your B2B Payment Method Safe or Putting You at Risk?” to learn more.