ACH Transaction vs. Credit Transaction: Which is Better?

For many consumers, giving up their credit cards would be like giving up their clothes: they couldn’t go anywhere, or do anything. But there are also consumers who don’t slide the plastic and seem to do fine. According to a recent study by TransUnion—one of the nation’s top three credit reporting agencies—over 70 million Americans are without a general credit account. For merchants, this means a sizeable chunk of their revenue could come from—you guessed it—check payment. Instead of charging their purchases, many Americans choose to debit them via ACH payment. But does that mean credit transactions are out and ACH is in?

According to experts, the answer is no; credit offers too much buying power to relinquish its hold. But for people whose credit scores tanked during the recent recession, check payment offers a different kind of power: the power to live within one’s means. To business merchants, frugal consumerism can sound apocalyptic, but it shouldn’t. Instead of downgrading their lifestyle, most consumers wish to keep consuming, but with less risk, which involves safer payment methods such as ACH debit. For many consumers, the advantages of ACH debit over credit payment are:

It encourages responsible spending. The exciting thing about credit is also its downfall: it lets you buy a luxury car when your income says you should make a more frugal choice. Over time, consumers realize that the novelty of a purchase doesn’t last as long as its debt, which makes living within one’s means seem appealing after all.

It eliminates interest payments. For many consumers, the interest on their credit balance gradually makes its principal untouchable. Instead of prolonging a trend that could end in bankruptcy, some people decide to pay off their credit cards and cut them up.

It helps improve credit scores. There are several keys to a good credit score, and avoiding bad debt is one of them. For some people, having good debt requires eliminating the avenues to bad debt, one of which is credit payment.

How do ACH transactions benefit businesses?

The benefits of ACH payment for businesses correlate with its benefits for consumers. For most businesses, the advantages of ACH debit over credit payment are:

It lowers transaction fees. ACH transaction fees are usually lower than credit transaction fees and Paypal fees. From a revenue standpoint, ACH debit is technically more desirable than these forms of payment.

It lets customers pay by check. In the past 20 years, many merchants stopped accepting checks due to security issues. But an ACH payment eliminates the security concerns with paper checks. Almost 90% of Americans have a checking account. An ACH payment lets merchants accommodate this segment.

It offers fast payment dispersal. An ACH transaction disperses funds to a merchant’s processing account within 24 hours, a dramatic improvement over the traditional check payment process.

At AVP Solutions, we know the value of pairing customer payment preferences with the right merchant accounts. To learn more about how an ACH account could benefit your business and its customers, contact us today.

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