What Is an Electronic Check (E-Check)?
An electronic check, or e-check, is a form of payment made via the Internet, or another data network, designed to perform the same function as a conventional paper check. Since the check is in an electronic format, it can be processed in fewer steps.
Additionally, it has more security features than standard paper checks including authentication, public key cryptography, digital signatures, and encryption, among others.
Key Takeaways
- An electronic check is a form of payment made via the internet that is designed to perform the same function as a conventional paper check.
- One of the more frequently used versions of the electronic check is the direct deposit system offered by many employers.
- Generally, the costs associated with issuing an electronic check are notably lower than those associated with paper checks.
- An electronic check has more security features than standard paper checks.
How an Electronic Check (E-Check) Works
An electronic check is part of the larger electronic banking field and part of a subset of transactions referred to as electronic fund transfers (EFTs). This includes not only electronic checks but also other computerized banking functions such as ATM withdrawals and deposits, debit card transactions, and remote check depositing features. The transactions require the use of various computer and networking technologies to gain access to the relevant account data to perform the requested actions.
Electronic checks were developed in response to the transactions that arose in the world of electronic commerce. Electronic checks can be used to make a payment for any transaction that a paper check can cover and are governed by the same laws that apply to paper checks. This was the first form of Internet-based payment used by the U.S. Treasury for making large online payments.
Benefits of Electronic Checks
Generally, the costs associated with issuing an electronic check are notably lower than those associated with paper checks. Not only is there no requirement for a physical paper check, which costs money to produce, but also electronic checks do not require physical postage in cases of payments being made to entities outside the direct reach of the entity issuing the funds.
It is estimated that printing and issuing a paper check will cost your business anywhere between $4 and $20. However, the average fee per eCheck transaction ranges from $0.30 to $1.50.
Further, there are multiple levels of authentication to help ensure funds are routed properly.
Electronic checks also come with a lower risk of the associated funds being stolen, as there is no tangible item to intercept.
Direct Deposit System
One of the more frequently used versions of the electronic check is the direct deposit system offered by many employers. It is an electronic method of sending an employee’s wages directly into the employee’s bank account. Additionally, taxpayers who are owed a refund on federal tax returns can elect to receive a directly deposited electronic check from the Internal Revenue Service (IRS) instead of having a physical paper check sent through the mail.
Can Anyone Send an E-Check?
Yes, but you must first sign up for an e-check service. This can be done through your bank or a payment processor such as Square, Stripe, or PayPal. Then you'll need to provide the payment details and authorize the payment.
Can You Send an E-Check Instantly?
E-checks are sent online instantly, but processing them tends to take longer than other online payments done through apps because they are transferred using the automated clearing house (ACH) network. E-checks can take several business days to clear.
Is It Safe to Pay With E-Checks?
Although e-checks are as vulnerable as any other online bank transaction, they can be considered safer than traditional paper checks, which are riskier because they are tangible, physical documents—which can be stolen and forged.
The Bottom Line
E-checks are considered the digital version of traditional paper checks. E-checks are facilitated by the Automated Clearing House (ACH) network, an electronic network used by U.S. financial institutions. Funds are electronically withdrawn from the payer’s checking account, transferred over the ACH network, and deposited into the recipient's checking account.
E-Checks are a safer alternative than paper checks, and also faster to clear and cheaper to issue.
FAQs
What Is an eCheck? An eCheck, or electronic check, is a digital version of a traditional paper check. WIth an eCheck, money is electronically withdrawn from the payer's checking account, transferred over the ACH network, and deposited into the payee's checking account.
What is an eCheck and how does it work? ›
eCheck is a digital version of a paper check, also known as an electronic check, online check, internet check and direct debit. eChecks use the Automated Clearing House (ACH) to direct debit from a customer's checking account into a merchant's business bank account with the help of a payment processor.
How does electronic check in work? ›
Key Takeaways. An eCheck, also known as an electronic check, is essentially the digital version of a paper check. eChecks work by electronically withdrawing money from the payer's account, transmitting it through the ACH network, and depositing it into the payee's account.
What is the meaning of electronic Cheque? ›
E-cheques are cheques that are written and processed electronically. This means that the funds are transferred from the payer's account to the payee's account through an electronic network instead of a physical cheque. These cheques are also known as “digital cheques” or “electronic cheques”.
How do I pay someone with an eCheck? ›
How to send an eCheck - you will first need to sign up for an eCheck service, either through your bank or a payment processor, then provide payment details and finally authorise the payment. A digital form of the paper check, eChecks offer a fast, easy way to send and receive payments using online banking networks.
What is a drawback of using an eCheck? ›
One of the biggest drawbacks of an eCheck payment is that they can be subject to processing delays and errors. Because eChecks are processed through the ACH network, they must follow strict processing timelines and procedures.
How long does it take for an eCheck to go through? ›
Unlike a paper check, people paying by eCheck will generally have a good idea of when their money will leave their account–within three to five business days. Funds are typically verified in your account 24 to 48 hours after authorizing the payment.
What banks accept eChecks? ›
Nationwide Banks
- Bank of America. BMO Bank. Chase Bank. ...
- Fifth Third Bank. PNC Bank. Regions Bank. ...
- Truist Bank. US Bank.
- American Momentum Bank. Bank OZK. Bank of Tampa. ...
- Cathay Bank. Centennial Bank. Citizens Business Bank. ...
- East West Bank. First Bank. ...
- Hanco*ck Whitney Bank. National Bank of Arizona. ...
- Pacific Premier Bank. SMBC ManuBank.
While rates can vary depending on the type of eCheck merchant account you have, the average fee ranges from $0.30 to $1.50 per eCheck transaction. For large purchases, electronic check payments are much more economical than credit cards for sellers.
What is the difference between ACH and eCheck? ›
ACH payments work within the ACH network and are electronic payments that are composed of direct deposits and direct payments. An eCheck, or electronic check, is a type of ACH payment that works by transferring money from the payer's bank account to the payee's checking account.
If you're wondering how to deposit an eCheck in person, simply follow these steps:
- Print your eCheck.
- Sign your eCheck.
- Visit your bank branch.
- Fill out a deposit slip (if required)
- Hand the eCheck over to the cashier designated for processing.
How to accept eCheck payments
- Set up an ACH merchant account. Only work with reputable ACH transaction providers that encrypt customer data. ...
- Get customer authorization. ...
- Enter payment details. ...
- Run eCheck payment processing with the support of your ACH provider.
eChecks and ACH (Automated Clearing House) payments are standard methods of transfer between banks. An eCheck works much like a traditional check but in a digital form. ACH payments, however, can be made with or without a check and involve processing through the ACH network using the customer's bank account details.
How does the eCheck work? ›
An eCheck is a straightforward online payment. In the United States, it works using the national automated clearing house (ACH network). To pay by eCheck, money is withdrawn from the payer's checking account and deposited directly into the payee's checking account.
Is paying by eCheck safe? ›
eChecks streamline the traditional verification and authentication process required for paper checks, making customer payments more straightforward and quicker. Like paper checks, eChecks use rigorous security measures employed by banks for other transactions, ensuring payments are safe and secure.
How can I cash an eCheck instantly? ›
eChecks are often deposited straight into your bank account. Choose the option to deposit a check after logging into your mobile banking app or online banking portal. Enter the essential data, including the amount and any other information your bank may ask, by following the on-screen instructions.
How do I deposit an eCheck? ›
If you're wondering how to deposit an eCheck in person, simply follow these steps:
- Print your eCheck.
- Sign your eCheck.
- Visit your bank branch.
- Fill out a deposit slip (if required)
- Hand the eCheck over to the cashier designated for processing.
There are a few key features where eChecks and Digital Checks really show their differences. eChecks are delivered via the ACH network as ACH files, and require the input of Account and Routing Numbers. Digital Checks are digital representations of paper checks and can be settled using the “Check21” process.
Is it safer to pay by eCheck or credit card? ›
The electronic nature of eChecks means that they can be processed more quickly and with fewer errors. Additionally, eChecks do not require physical handling, which reduces the risk of forgery and fraud. This makes them safer and more reliable for businesses and consumers.
