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Expert opinion

The renaissance of the Automated Clearing House in the US

Tuesday 26 September 2017 | 10:03 AM CET

Alexandre Gonthier from PayWithMyBank talks about the death and re-birth of ACH as a payment solution for billers and merchants

In the US, paper checks were the dominant alternative form of payment to cash until the emergence of the consumer Internet services. Billers and merchants, who formerly received all payments via check or ACH, its electronic version, have learned that accepting a card payment for a USD 200 wireless bill or even a USD 2,000 rent bill is the price of doing business in the digital age.

The paradox is that ACH is the most ubiquitous and lowest-cost payments network in the US; all bank accounts are ACH-enabled, including savings accounts, and ACH transactions cost USD 0.01 to process. This is compelling in comparison with cards, which cost billers and merchants 2% of their hard-earned revenue to accept.

But ACH, as it exists today, is not well suited for online transactions:

  • The user experience requires you to find your checkbook, accurately transcribe your account and routing numbers into a web or mobile form, perhaps validate “two small deposits,” and often wait several days before the merchant or biller fulfills the order. Not convenient to say the least.

  • For merchants, the USD 0.01 per transaction to process via ACH is a myth. ACH was not built for the needs of online merchants. Up to this point there was no means to validate in real time that the user owned the account, the account was valid, in good standing, and with sufficient funds for a given transaction. To overcome these deficiencies, retailers were forced to wait 2-3 days for funds to settle before shipping, build expensive and inconclusive risk models, or purchase a guarantee from an ACH processor. Any of which negated the cost benefit of ACH.

As a result, ACH has limited adoption in ecommerce and is losing ground to cards with billers. However, new innovative payments companies are now tackling the deficiencies of ACH to make it convenient for consumers and extremely cost-effective for billers and merchants.

ACH inflection point

The US market has noticed the success of European online banking e-payments pioneers Sofort, Trustly and iDEAL. These companies have solved the ACH payment challenges by enabling consumers to pay by signing into online banking from a merchant’s website or app. Following in their footsteps, online banking e-payments service providers are now emerging in the US with PayWithMyBank, Chase Pay, and Amex Express Checkout leading the way. In adjacent spaces, the same user experience is being used by popular financial apps, such as Venmo, Wealthfront, and Betterment. Millennials are leading adoption, as with most everything else on the Internet.

PayWithMyBank usage data at a large ecommerce merchant confirms the age correlation:

Younger generations expect to be able to manage the entirety of their lives with their mobile devices. Eliminating forms works for them.

Gorillas fighting over pennies

Amazon and Walmart continue their battle for dominance in a war of efficiency in which, all else being equal, consumers choose the lowest price. The cost of payments is not lost on them. This summer Amazon launched a 2% cash rewards program for ACH-funded payments:

Image: Amazon.com screenshot, August 2017

Meanwhile, Walmart purchased Jet.com, which offers discounts for least-cost payment methods:

Image: Jet.com screenshot, November 2016

By steering customers away from debit and credit cards to ACH, Amazon and Walmart dramatically reduce their payment acceptance costs. This then allows them to invest the savings in consumer rewards programs not offered by other retailers. This rewards marketing strategy, based on the cost arbitrage between ACH and cards, enables Amazon and Walmart to grow faster than the rest of the market. This is how strategic ACH can be to US e-commerce.

Consumers also expect convenience though. So, now that a convenient user experience combined with ACH settlement is available in the US, as it is in Europe with Sofort, Trustly and iDEAL, the mass adoption of the ubiquitous, low-cost ACH payments network in e-commerce is around the corner. As soon as an Amazon, Walmart, AT&T, or Comcast offers an ACH-based online banking e-payments option, the rest of the US market will follow.

About Alexandre Gonthier

Alex is a founder and entrepreneur, having built several successful digital payments companies: Alex was CEO and co-founder of iPIN/Valista (acquired by Aepona and ultimately Intel), a digital payments platform for the likes of AT&T, Verizon, AOL, GM, Wells Fargo and Visa; CTO of Paymo, which merged with BOKU to become the global leader in carrier billing payments, fueling customers including Apple, Facebook, Google, Microsoft and Sony; and CEO and Director of digital ticketing platforms Trinity Mobile and Ticketscript (recently acquired by Eventbrite); Alex was also an investor at private equity and venture capital firms 3i and Wellington Partners.

About PayWithMyBank

PayWithMyBank is an online banking e-payments service in the US which allows you to pay or get paid using your bank ID and password. No account to create. No card, bank account or shipping information to enter. PayWithMyBank establishes a secure connection to your bank from the site or app you are on, without ever storing or sharing your bank credentials.

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