What is an eCheck and How Does it Work? [+FAQs]


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We have all had to put our personal information online at some point. Whether it be your address, credit card number, or what you want to buy, we are constantly giving out this type of information and not thinking twice about it. This has created a new problem for people who like to purchase things online: identity theft. There is an easy way around this issue, though; the eCheck!

The eCheck is a web-based electronic payment system that allows for transmission of funds from one bank account to another and doesn’t require any personal information such as name, address, or credit card number. Not only does the eCheck allow you to make purchases without fear of someone stealing your identity, but it also makes shopping quicker and easier than ever before!

Below we will discuss what an eCheck is, how they work, and how to get started using them should you decide to do so.

What is an eCheck?

An eCheck is a remote payment system that allows transfers between bank accounts via the internet. It’s popular with people who want to buy goods and services online without giving out their personal information such as phone number, name, address, and credit card number. An eCheck should not be confused with a starter check as there are differences.

How Does an eCheck Work? 

It is a direct electronic payment from one bank account to another. Instead of using a third party to process the payment, the eCheck is sent from your bank account directly to another. Your bank will debit the amount from your account and credits it to the companies account. Once the transaction has been made, a confirmation notice will typically be sent back to you.

Make sure you are aware of bank direct deposit times, so you know that you have a large enough balance to cover your purchase.

how to send an echeck

An eCheck is similar to writing a check, but the transaction will not be completed until it hits your bank account. An electronic payment will drop off what is sometimes called an “electronic check” that holds all of your information, including the routing number and the checking account number used for the transfer.

Once this reaches your bank, if there are no problems with your account, the transfer is complete.

Here is an example of how does an eCheck work when shopping online

The process of how an eCheck works is straightforward and reasonably simple. There are only a few steps that are different than using a credit card for online shopping. If you tried your debit card and had debit card declined errors, this process below is another option.

Add Items You Are Purchasing to Cart

Using the browser on your computer, you visit the website where you wish to shop and select what you want to buy. Then you add the items in your “Cart” for purchase, but instead of having a credit card number attached to what you’re buying, what you’ll be doing rather is what’s called “adding your account information.” This entails typing in the routing number and the checking account number of your bank into what looks like a standard shipping address box.

Merchant Verification of eCheck Payment

Once this is done, what happens next depends on what website you purchase from. If they have an actual shopping cart, you will see something pop up saying whether or not they can verify your eCheck payment. What this means is that their merchant processor checks with your bank to see how much money you have available in your account for purposes of making online purchases. If there isn’t enough, then the chances are good that none of the items in your shopping cart are going through.

Confirmation of Routing Number and Checking Account Number

However, what’s great about the eCheck (or what we’ll call “online ACH”) is that it protects your bank account and makes sure you aren’t overpaying. The process is similar to using a voided check for the transaction. If the website doesn’t have a shopping cart, then what will happen next is that you will be taken automatically to a page where your routing number and checking account number are confirmed as correct (this is what they check on).

Confirmation of Transaction Details

Now, what happens is that typically, there will be an option that says something like this: “This site accepts eChecks for payment.” All you need to do at this point is click the button below and what’s going to happen is that you will be taken to a page where all of your personal information, including name, address, phone number, and what it is that you’re buying are listed.

Payment Transmission

Finally, what happens next is that what you typed into the payment form gets transmitted to your bank via what’s called an “online entry.” What this means is that instead of checking what it is that you want to purchase against all of your personal information (this includes name, address, phone number, credit card number, etc.), what they do instead is match up how much money is in your account with what it cost them to sell you the product. What makes eCheck processing so powerful for merchants is that they can actually enter your account information once and then reuse it over and over again for each merchant they do business with.

Confirmation of eCheck Payment

This cuts down on what it costs to run a business, and what’s more, what takes place next is that what you purchased gets shipped to your door. If your bank approves the transaction, then what will happen next is that your money will get transferred into the company’s account, taking anywhere from 2-3 days.

Receive Your Goods

You can expect what you ordered to arrive at your home in the next couple of days. If what is listed on the website does not match what you’re receiving, then the chances are good it’s because something went wrong with the eCheck processing. At that point, it will be up to their customer service department to sort out what exactly happened.

Are eCheck Payments Safe?

When using an eCheck to make a purchase on the web, you must enter your bank’s user name and password.

are echeck payments safe

This allows for what is otherwise known as two-factor authentication making an eCheck safe. Your bank keeps track of what you buy and how much you spend.

What are the Advantages of Using eChecks?

Transactions Can’t Be Disputed

An advantage of using an eCheck for merchants is that most transactions cannot be disputed. Purchases made by credit card can be disputed within the first sixty days. This means that if something is purchased but not received or what was received was not what was expected, it can be returned, and the payment can be refunded.

eChecks are Secure Transactions

eChecks are more secure than using a credit card because what is required for verification includes your password and what is being purchased. This also includes what the item looks like, its price, where it’s shipping from, and how much it costs to ship. The merchant does not have access to your credit card number, giving you added security when ordering online.

No Credit Card Finance Charges

One advantage an eCheck has over a credit card is that you are not charged what is known as a finance charge. Many are unaware of how to find finance charge for credit cards, but it’s essential to understand how to determine overall interest. When using a credit card, the interest rate tends to be higher than what your bank may charge for an eCheck transfer. This can save thousands of dollars over time which would have been spent on interest if what is being purchased was put on a credit card instead of an eCheck.

You Can’t Exceed Available Balance for an eCheck

Other advantages include what is considered to be overpayment protection. If your bank says the balance doesn’t match what you expect, the eCheck offers double protection.

This means that if there is a difference between what your bank thinks the balance should be and what you expect it to be, they will make up the difference to protect you from overdrawing.

On top of this, transactions made with eChecks cannot exceed your available balance making it safe for any merchant.

eChecks Have Sufficient Protection

Another advantage of using eChecks is that they offer what is called sufficient protection. This means you can track what transactions are made and can be given receipts too. All of this includes the ability for the bank to stop a suspicious activity if there might be any. Many banks will even work with law enforcement in these cases, making it safe for both parties involved, including buyers.

What are the Dangers of Using eChecks?

Some Merchants Don’t Accept eChecks

Not all merchants accept eChecks. This means that it may not be possible and practical for every purchase made via the internet. If this becomes problematic, a form of internet payment should be used instead.

eChecks Can Fail to Work

There were reports of failed eChecks. It is highly recommended to contact the merchant before sending out an eCheck as they may not be willing to take it. Some disputes would need further investigation, which can slow down the process and give difficulty getting what was bought or paid for. This will then cause inconveniences on both ends, especially the customer who had sent the money with their credit card company.

Banks Might Charge for eCheck Transactions

Banks may charge a fee for eCheck transactions. If what you are buying is worth more than what your bank or credit card company will charge, sending your payment via an eCheck would be the practical choice.

An eCheck Requires Banking Information Before Payment Can Be Processed

Before payment can be made through an eCheck, it would require one to have banking information. This means that you will need to input your checking account details for the bank to send money properly. It is a part of a more secure payment system that has helped protect credit card information.

Do You Need a Separate eCheck Account to Use Them?

No, you do not need a separate eCheck account to use them. Having an online bank account is an advantage to online banking vs. traditional banking. As long as you have an online banking account through your bank, you can send and receive an eCheck.

What’s The Difference Between ETFs, ACH, and eCheck Transactions?

An eCheck is a web-based electronic payment system that allows for transmitting funds from one bank account to another. This differs from an Electronic Funds Transfer (or EFT) and transactions completed via an Automated Clearing House (ACH). An ETF uses a Point of Sale terminal, while ACH requires no such equipment on both ends.

ACH transactions are completed and initiated by what’s what is called a third party. This also involves more than two banks and what is considered real-time processing, which takes place within what’s called the Automated Clearing House (ACH). ACH transactions are different from what is considered eCheck or an Electronic Funds Transfer (EFT) as it has restrictions on how much money can be transferred at one time.

Can You Shop and Pay with eChecks Online?

Yes, you can shop with what is called eChecks online. This is what’s called a highly secure payment system for internet transactions that have allowed buyers to send money without giving out what is usually their details like name, address, and credit card number. However, some online stores will not accept an eCheck, so using another form of web payment would be more practical.

Using eChecks online for shopping has been what is called a modern method of internet payment.

Why Should You Use an eCheck Instead of a Credit Card for Online Shopping?

It would be best if you used an eCheck when making online purchases for several reasons.

  • First, unlike credit card information given to the merchant to bill you later, an eCheck provides for immediate money transfer from one account to another. This means that you are protected against fraud should the merchant not have what they are selling because these transactions are completed in real-time, just like wire transfers are today.
why should you use an echeck instead of a credit card for online shopping
  • Secondly, what’s also great about using eChecks is that it allows you to shop anonymously. That’s right since your name and credit card number aren’t part of the transaction, there isn’t any possibility that your identity will be compromised. It’s unlikely that someone will steal your financial information and run up huge debts on what would otherwise be legitimate purchases.

What is the eCheck Payment Processing Timeline?

The eCheck payment processing timeline begins when the request to “Authorize” is transmitted between your computer and the merchant you purchased from. This process says that you agree to pay for what you are buying, so what you are doing here is authorizing a transfer of funds from your account.

Next, the merchant will either capture this transaction or decline it. If they reject it, what happens depends on what kind of business they are running.

echeck payment processing timeline

For example, if they run an online auction site, then no money changes hands at this point. However, eBay or other auction sites may apply some penalty fees for declining auctions in certain situations.

If, however, they are making a sale via an ecommerce website, then the chances are good that they will capture the transaction. This means that at this point, what happens is that money changes hands, and what you buy gets sent to your door either through direct shipment or through a delivery service such as UPS or FedEx.

What are the Alternatives to eChecks?

The alternatives would include:

1. Credit Cards: Using a credit card is an option but what’s not great about it is that you will get your statement and see what you bought and how much it cost, taking away some of the “anonymity” that we were talking about earlier. Also, should anything go wrong, it may be harder to get your money back if you use a credit card. You would have to file a chargeback with Visa or MasterCard, whereas if you paid via eCheck, what happens here is that the merchant has to deal directly with your bank so their time in resolving issues can be dramatically reduced.

2. Money Orders: Although this might seem safe, what’s not good about them these days is that they are often counterfeited because there are machines that can copy what money orders look like. Stay up to date with money order scams, so you know what to look for.

Now, you could pay for what you are buying via a money order near me store, but have the merchant send your goods directly to your house.

3. Stores With Payment Plans: What’s nice about this is that you purchase what you are buying now and pay off what it will cost you in monthly installments or quarterly payments. There are multiple buy now pay later no credit check instant approval stores. Just make sure to read the fine print first because some of these arrangements do have hefty financing charges involved, so be aware of what these fees are before signing up.

4. Use Cash: You could also pay what you are buying with cash at any number of brick and mortar stores that take money. Be aware, though, what happens if what you are buying costs more than what you have on you at the point of sale. You can use instant online check cashing options to cover the difference if you have checks on hand.

What Services Are Available for eCheck Payments?

There are many services available when shopping online, including:

  • Wells Fargo
  • Discover
  • PayPal
  • MoneyGram
  • eFunds
  • ACCC Merchant Accounts
  • Bank of America
  • Chase Paymentech

What’s great about these services is the fact that they all offer “eCheck” payments. In other words, what you pay with here is not actual money but what’s called “electronic funds.” This means that what happens is the money itself stays in your account at your bank.

For example, if you have a Wells Fargo checking account, they charge no fees to use their eCheck payment service, so there are no extra charges for using what you have. The eCheck Wells Fargo system is widespread.

What About Fraudulent Use of eChecks?

It’s like you’re making a bank transfer, but instead of sending actual money, you’re sending information. What you’re doing here is giving “availability,” which means the cash has to be accessible for transfer.

eChecks can easily be used by scammers since all they need is a routing number and a checking account number. This means for consumers that there needs to be some protection in place, especially when making larger purchases online.

When Should I Use an eCheck Over Other Form of Payment?

You should use a payment method such as an eCheck when what you are doing is purchasing from someone who has no credit card terminal. This is what it will come down to since you are sending money directly to the other party involved. In other words, what you are doing is cutting out the Visa provisioning service and credit card processing center from the transaction.

Since there is no point of sale, credit card terminal, or merchant services involved, what you are doing here is just an electronic transfer of money. For consumers, this means that what you have with eChecks is convenient.

Conclusion

So what is an eCheck? Well, what this is is a fast, secure, and convenient way of transferring money. It’s what you call online banking at its core. Your checking account number works as both your routing number combined with the actual check information itself, including the date, what it what will be the amount of money that needs to go through, and everything else which goes into making up a proper bank payment.

Many consumers use eChecks for shopping online and what this means is that there is no credit card involved. Banks such as Wells Fargo, PayPal, and Discover offer eCheck payment services to consumers who want to shop online safely without having to worry about their personal information getting into the wrong hands.

You’re just sending digital money over an encrypted connection which makes what you have with eChecks the best way for you to make purchases online. It’s a good option when what you need or want can’t be purchased via a credit card terminal, including things like landline phones, electric bills, internet service fees, and TV, among other things.

BG Vance

For over 20 years, BG Vance has been a leader in public and personal financial management. He's developed and managed public budgets in excess of hundreds of millions of dollars. He is passionate about the FIRE movement and was featured in the Detroit News in 2001 about saving for retirement. Through the years, he's assisted families and individuals with getting their finances on track. He holds an MPA, is a licensed Realtor, and is currently working on a book about personal finance.

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