Since the early 2000s, digital payment methods have gradually become the norm as the use of cash and paper checks continues to lag. The electronic check, or eCheck, is one of those newer digital payment methods. Electronic checks contain the same information as a traditional paper check, but they're handled digitally, so they're more efficient and boast more security features. You've likely used electronic checks when paying bills online, sending money to friends or receiving paychecks from your employer.
Here's a breakdown of what an eCheck is and how it works.
What Is an eCheck?
An eCheck is an electronic payment that can either be drawn from or deposited to your checking account. It's essentially a digital version of a paper check, so the transaction contains a checking account number, bank routing number and payment amount. But instead of writing out a check and handing it to the recipient, you handle the transaction using a browser or mobile app.
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You might use an eCheck to pay bills, send some types of peer-to-peer payments, receive a direct deposit from your employer and transfer money to another bank account you own.
In the U.S., eCheck funds move through the Automated Clearing House (ACH) network, which is a centralized payment system. About 80% of ACH network transactions settle within one banking day if you have sufficient funds in your account, and there are typically no fees to initiate an eCheck unless you request an expedited transfer.
Using an eCheck comes with security features too. First, you must provide authorization when initiating an electronic check with a new provider, making the payment method less vulnerable to fraud. Then, every digital payment that passes through the ACH network is encrypted, offering a layer of protection on both ends of the transaction. Electronic checks can also be reversed in some cases, such as if you sent a payment to the wrong account.
These features make eChecks a quick, inexpensive and secure way to send money.
How Do eChecks Differ From Other Payment Methods?
Electronic checks differ from other payment methods in several ways. Wire transfers, for example, move directly from one bank account to the recipient immediately, so they cost more to initiate. It's also not possible to reverse a wire payment.
Electronic checks also differ from credit card payments, which move through a private card network and can be vulnerable to some payment scams.
| eCheck | Credit card | Wire transfer | Money order | |
|---|---|---|---|---|
| Network | Automated Clearing House (ACH) | Private card network, such as American Express and Visa | Federal Reserve's Fedwire Funds Service | No network; it's a paper payment |
| Speed | Typically same day; could be up to two business days | Immediate | Can be immediate or same day | Varies (payer provides cash upfront and gives money order to recipient) |
| Cost | Usually free to initiate | Interchange fee of 2% to 4% of transaction (merchant pays the fee and may pass on to consumer) | Fees can vary, such as $20 to $75 | Varies; usually a few dollars |
| Limits | Up to $1 million per day, for businesses and consumers | Credit limit varies with each card issuer and cardholder | Varies by bank, but limits are typically high, such as $100,000 or more | Typically around $1,000 |
| Reversals | Can usually stop payment within the same day | Can dispute charges with your card issuer | Potentially irreversible | May be canceled if it has not been cashed |
| Typical uses | Paying routine bills, receiving direct deposit, transferring money between accounts using available funds | Making routine purchases or paying bills | Making a large, time-sensitive, one-time payment using available funds | Making a check payment when you don't have a checking account or don't want to share account details |
What Are the Benefits of Using an eCheck?
There are multiple benefits to using an eCheck over other forms of payments. Some of these upsides include:
- Low cost: Electronic checks are usually free to initiate, while other payment methods, such as wire transfers, may cost around $20 or more.
- Speed: It's possible to send same-day eChecks or have the funds clear within two business days, which may be quicker compared to paper checks and money orders.
- Security: When you initiate an ACH transaction as an eCheck, you must authorize payment. The transaction is also encrypted and may be reversible in some cases.
Downsides of Using eChecks
Some eChecks take longer to process, so you may have to wait a few days for funds to clear. And while eChecks come with several security features, scammers may attempt to trick you into sending them money.
How to Use an eCheck
The steps you'd take to use an eCheck depend on what you're trying to do. Here's a breakdown of the basic steps involved for the main eCheck options:
- Pay a bill: You'll typically log in to your account on the service provider's website, choose the "make a payment" option, and enter your account number and routing number. You may authorize a one-time debit or recurring payments.
- Send a peer-to-peer payment: After choosing a P2P service and creating an account, you may link it to your checking account. From here, you'll need the recipient's username or other information to send them a payment.
- Receive direct deposit: Depending on your employer's rules, you may need to sign a payroll authorization document or log in to an online account and set up your direct deposit there. Some banks can provide you with a prefilled direct deposit form with your routing number, account number and account type.
- Online bank transfer: The process may vary with each bank, but you can usually log in to your online bank account and find the ACH transfer option. If you're sending money to a person or business for the first time, you'll typically need to plug in the recipient's name, address, account number, routing number and account type. You may also need to verify your own identity for security purposes.
The Bottom Line
Electronic checks come with several benefits, including convenience, speed and security. Sending or receiving an eCheck requires you to first have a bank account.
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