Payment facilitators have changed the landscape for businesses. Merchants can use payment facilitation to reduce fees for transactions and simplify the onboarding of clients.
What Is Payment Facilitation?
A payment facilitator is company that operates a service or a platform and offers payment processing to its clients. Rather than having to separately set up an account with a merchant acquirer, businesses contract with a payment facilitator and uses the facilitator’s infrastructure to handle payments.
The traditional method of setting up merchant accounts with an acquirer is often complex and can be time-consuming. By comparison, payment facilitators simplify the merchant account enrollment process and allow merchants to get up and running more quickly.
Using a payment facilitator (PayFac) can help businesses launch and scale rapidly. Businesses can choose to set themselves up as payment facilitators and offer sub-merchant accounts to their customers.
What Are ACH Payments?
ACH payments are electronic fund transfers made bank-to-bank in the U.S. These electronic payments are processed through the Automated Clearing House (ACH) Network rather than card networks, such as those provided by Visa or Mastercard.
Nacha, the organization that governs the ACH Network, reports that nearly 27 billion payments were made using ACH in 2020, accounting for nearly $62 trillion.
There are two types of ACH payments:
- ACH credits
- ACH debits
ACH credits occur when funds are delivered into an account. ACH debits occur when funds are transferred out of an account. Employees may be most familiar with ACH credits as direct deposit, where paychecks are automatically deposited into employee checking or savings accounts.
How ACH Payments Work
ACH payments are made electronically. This requires specific information, including:
- The name of the financial institution receiving the funds
- The type of account (banking or checking)
- The bank’s ABA routing number
- The recipient’s account number
This information allows payments to be initiated and routed to the proper accounts. The same information is needed to set up automated payments, such as pre-authorized withdrawals from a customer account for bill paying.
How ACH Payments Are Different From Credit Card Payments
The biggest difference between ACH payments and credit card payments is related to the guarantee of payment. An ACH transaction, upon initiation, is a request for payment.
It can take a few days for the payment to be approved and the transaction to be funded. If the funds are not available, the transaction will be denied. Some payment facilitators offer same-day verification and funding, although this may incur additional fees.
With a credit card, the card issuer verifies that the purchase is within the customer’s acceptable limits. Once approval occurs, the funds are released within a one to two days.
ACH fraud can occur, but it’s exceptionally rare. The Federal Reserve reported that ACH payments had the lowest fraud rate, by value, among the payment types, remaining flat at 0.08 basis points in 2012 and 2015
5 Reasons Payment Facilitators Should Offer ACH Payments
There are several benefits for payment facilitators offering ACH payments. The biggest one is money savings versus credit cards.
1. Lower Costs
A credit card processor handles transactions and sends payments to merchants, charging the merchant between 1.5% and 3.5% on average, depending on the type of credit card used.
Fees charged for ACH transactions are much lower than credit card fees. Fees for ACH transfers are typically in the 0.5% to 1.5% range, though flat fees can be as low as 20 to 30 cents per transaction in some cases. Some providers also charge monthly fees or batch fees that can reduce costs even further depending on volume and transaction amounts.
ACH is particularly appealing as an option for SaaS companies or online merchants. Without ACH, customers will use credit cards for payments, which leads to higher rates. Offering ACH can significantly lower fees for transactions.
2. Better for High-Value Items
The larger the purchase amount, the more fees that will be assessed with credit cards. With reduced fees using ACH, there can be significant savings for high-value items or high-volume transactions.
3. Better for B2B Sales
Companies are used to doing electronic transfers to pay bills, so offering ACH means businesses are more likely to pay promptly. Setting up automated payments for recurring revenue is easy.
4. Lower Fees for Chargebacks
Global chargebacks are expected to reach $615 million in 2021, according to Mastercard. With high fees on chargebacks for credit cards, the amount of money lost to chargebacks is staggering. Some businesses are seeing chargebacks above the acceptable limits set by card processors. For example, Visa and Mastercard set the chargeback threshold at 1%.
Credit card chargeback fees already range from $20 to $60, but if a business has too many chargebacks or is flagged as high-risk, fees can be much higher. By comparison, a typical ACH chargeback ranges from $5 to $25.
5. Also a Payout Option
ACH Payments has lower fees, are great for high value products or services, and increase payment acceptance for B2B payments. But there is another benefit to ACH Payments. Payment Facilitators can use ACH to send disbursements to their merchants. Unlike credit-cards, which are used only to accept payments, ACH can be used to send money out. As a Payment Facilitator, integrating ACH Payments as a higher Return On Investment (ROI) as it solves for both payments out to your merchants, and payments in from their customers.
Learn More About ACH Payments
If you’d like to learn more about setting up ACH payments or payment facilitation, contact Amaryllis Payment Solutions today.