Having had the chance to develop an API for e-checks, test it, and see its performance, I decided to write an article sharing my experience with others.
All of us at the company were really excited at the idea of e-checks: lower transaction fees than credit cards, no chargebacks, and virtually everyone in North America should have a bank account, which will for sure increase our potential buyers.
The first few days after integrating the e-check as a payment option, the whole thing worked like a charm, lots of e-checks transactions, and you know, it’s always a 1% saving. We even started pushing e-checks on our website by adding things like “Best Option”, and moving it to the top of the payment methods. The thing is it was really the best option for us (or so we thought), but not for the client, as the money will be debited from his/her account faster (as opposed to waiting for the bill in case of a credit card payment).
5 days later (which is the standard amount of days for e-checks to clear) after the launch we started to see the problems. It was recurring, it was huge, and it was returned checks: a lot and a lot of returned checks. The causes of returned checks ranged mainly from fraud, to insufficient funds, or to just the person calling the bank and stopping the payment. Fraud, in case you don’t know, is a huge issue for e-checks, you only have to have the account # and the routing # in order to debit a bank account (that’s how most internet scams work), and both are written clearly on any physical check. Thus fraud was a really major issue. Insufficient funds was another big issue, as most of the people using e-checks were to a certain extent, and I hate to say it, poor, so they often had their account balance hovering around the $0 level. Finally, some people, when having a second chance if they really want to purchase or not, choose the latter, thus, they call the bank and ask them to stop the payment. What was more annoying than having the returned checks (and having to pay a fee for those returned checks) was the fact that the transactions went through as OK from our side, while, in fact, they were a failure, so we had to go through a manual procedure to cancel those transactions (on the other hand, successful credit card transactions are almost certain to remain successful, unless in case of a chargeback). Add to all that, in most cases, the product was already delivered to the client, so we also had to follow up with him/her, where you usually get the answering machine, and you’d be lucky if you hear back. 1 month later, we decided to remove e-checks as a method of payment as we realized that it was a huge time waster, and honestly, we didn’t see a change in our volume of transactions.
The conclusion is that e-checks are not really mature as a payment option and thus, in my opinion, it is not recommended to have them. Unless you have a lot of resources in your billing department to handle those returned checks and your profit margin is really high (and also you think it will increase the sales, which is a hype), then go ahead, otherwise, just stick to credit cards (in my experience, chargebacks were about 1/10 the amount of returned checks). After all, why would anyone want to pay with his/her bank account on the web instead of a credit card, where he/she is much more protected?