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How is ACH different than a credit card?

Credit cards are authorized/approved in real time, by the customer's issuing bank. ACH payments are not approved until later, and take longer to process.

Credit cards utilize a Credit Card Network (such as Visa, MasterCard, Discover, Amex) to verify whether a cardholder is within their credit limit. Learn about the  authorization and capture process here. When a merchant initializes a credit card sale, the network approves or declines the transaction in real-time. Assuming the sale is approved, the funds are guaranteed to the merchant. The customer's  issuing bank has decided, in real-time, that this sale was approved based on all of the information present at the time of the transaction. As such, barring a dispute, the merchant is entitled to those funds - even if the customer goes bankrupt, the issuing bank is responsible for paying those funds to the merchant. Essentially, from a merchant perspective, if you get an "approved" response from a credit card, you're set to assume you'll get paid for this sale. (Barring a potential chargeback!)
 

ACH processing, on the other hand, is an electronic fund transfer between two financial institutions. When a merchant initializes a ACH transaction they are merely making a request for the funds to be transferred. An ACH transaction can take a few days to fully process and can be rejected by one of the financial institutions for a number of reasons, for example the account debited has insufficient funds. Naturally - this is riskier for some merchants. Retail merchants need real-time authorizations to combat fraud. So, ACH payments are typically much better for the following merchant types:

  • Recurring payments for insurance, mortgages, car payments, bills, utilities, etc.

  • B2B payments between trusted vendors

  • Healthcare / gym / spa payments

  • Monthly memberships or digital goods

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