ACH Processing and Debit Card Transactions

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ACH Processing and Debit.

Both pin and/or signature based debit cards are powerful and cost effective customer payment options for the merchant. They are also processing methods where merchants often find themselves not benefiting from the lower costs due to outdated tiered pricing models or processing methods that don't capitalize on the option.

A few glossary definitions.

ACH - Automated Clearing House - the electronic network , regulated by NACHA- The Electronic Payments Association - for financial transactions including debit and credit in the United States.  ACH processing uses include:

  • Debit Card Transactions
  • Business to Business (B2B) payments
  • E-commerce payments (internet)
  • As well as direct payroll deposit, tax and government payments, etc. 

PIN Debit (online) -  card is swiped at the point of sale and the customers PIN is entered and transmitted to process the transaction.  Requires a pinpad at the POS.

Signature Debit (offline) - run as a credit card at POS, or via internet, phone etc.    Does not require the pinpad and most businesses that accept credit cards can accept signature debit cards with the VISA or MasterCard logo on them. 

BOTH signature and pin based debit process at substantially lower costs (interchange rates) than credit cards - (remember debit is not credit given your customer by the card issuing bank but a direct debit from the customers checking account) - but not all merchant account providers offer the reduced rate available for these cards.

2008 Study of Consumer Payment Preferences by BAI (Bank Administration Institute) and Hitachi Consulting shows debit payments now account for 37% of in store purchases (up from 21% in 1999).   The study also shows -

  • Pin based debit is favored over signature.
  • Check use continues to decline as an in store payment preference from 18% in 1999 to just 8% in 2008.
  • Bill payments - the "last bastion" of paper based payments and the only remaining stronghold for checks is slowly but surely grinding to a halt, dropping from 55% of all bill payments in 2005 to 38% in 2008.  See our electronic invoicing product XBS PaySimple.

The message? 

Merchants should continue to embrace alternative electronic payment options for their customers.  Pin and signature based debit payment is the fastest growing electronic payment method in recent years and provides substantially lower processing costs than credit cards.  Make sure your merchant account provider has passed along the debit card savings, use terminals and staff to prompt for pin based debit if at all possible (lowest cost usually UNLESS your average sales ticket is typically low) and use the ACH system for recurring billing... or just Call XBS - we'll set you straight.


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