Sunday, August 23, 2009


Just recently the desire by ecommerce merchants to accept electronic checks has been expressed a few times so I thought I would make a few comments. Merchants are often led to this interest by a rational desire to save money. However, for most ecommerce merchants, this is clearly the case where the lowest cost is not usually a valid enough reason. It is true that accepting electronic checks usually costs between $.25 and $.50 flat per item. Compare that to 2.25% + $.25 for a typical $20 or more transaction with a credit or debit card and the math looks very appealing. However, when you consider what you get for your ~$.375, it may not make sense. First of all, many consumers are leery of giving their checking account number/routing & transit number to a merchant, and rightly so. In the wrong hands, someone can access the consumer's demand deposit (DDA) account (sometimes referred to as their "current" account) and drain it, causing mortgage payments and other critical payments to bounce. While, in the case of true fraud, these problems can be reversed, they are very time consuming. Secondly, there is no way to verify if that account is valid and if it has funds in it in real time like there is with a credit/debit card. That means that the merchant needs to either sit on the order, if physical goods or permit access if a digital good, then wait 5-7 days and if the transaction is not funded, then reverse the order/shut off access.

There are a variety of alternatives that have been launched, are being piloted or are being planned that access the DDA account and offer some solutions to the aforementioned problems but they typically involve some enrollment step (see earlier blog post on this topic) which is the kiss of death for success or are priced much closer to regular credit/debit cards and therefore are not as compelling.

Welcome your feedback/questions!


credit card merchant processing plus said...

These are very valid points. I guess that it comes down to the ration of bad checks to good ones. I have found that I actually get very few bad checks if any, but it varies greatly depending on the business.

Michelle said...

So, there is no way to verify if the account # is even valid at the time of payment? I've been reading about the SCAN database, but it seems that only confirmed bad account #s are in there (deceased account holder, many NSFs, closed accounts, etc.).

There's really no way to confirm AT LEAST that the account is real and open??

Thanks so much for your help!

SKlebe said...

Correct, there isn't any way to know for sure if the account exists or has any money. There are a variety of negative and positive file providers, like SCAN, but nothing that is complete.