The Real Cost of Financial Transactions: A Quick Comparison

Often times just defining the difference between payment solutions can best identify which one to use when you are looking for the best option. Below is a quick comparison between the different methods of moving money and how virtual cards fit into the mix.

Defining the Alphabet Soup

ACH is an acronym for Automatic Clearing House, while EFT means Electronic Funds Transfer. Both the ACH and EFT refer to a simplified method of money transfer from one account to another or from one place to another. Another, related method is starting to quickly gain steam in the market, called virtual cards, which offer additional benefits. Over traditional check writing, all three methods are very quick and have revolutionized the banking sector. We will also compare this method as well.

Comparing the Players

 

Paper Checks

ACH

EFT

Virtual Cards

When is it best used? Moving of funds between an individual, bank or corporation via paper Funds transfer between accounts & different banking institutions via electronic method. Link between the point of origin of a transaction & point of termination via electronic method. Transferring money from account to account, moving funds between providers via electronic method.
Best used for (examples) General consumer to consumer, consumer to business payments. Electronic transfers, direct deposits, & debit card payments & electronic payments. Certain tax transactions & B2B payments. Also used by banks when funds are withdrawn or pulled from accts: paying bills or buying goods with credit / debit card Workers comp, disability, annuities, property claims, instant-issue prepaid cards.

Automobile, liability, & catastrophe claims. Provider payments for electronic payments to healthcare & repair service providers.

Cost per transaction

$1.68

$.10 to $.20

$0.17

$0.00

Implementation Cost & Complexity Minimal setup, but manual logging required for each transaction. Time consuming & substantial costs involved due to different standards between banks & admin cost. Varies depending on vendor, but can be a % of transaction or set fee. No systems integration or costs required. Includes payment choice via fax or email
Enrollment Cost

None

Yes

Yes, bank account also required

None

Fraud Potential High. Risk of lost, stolen, or damaged checks. Minimal. Authorizations required for processing Minimal. Authorizations required for processing Minimal. One-time use card with short expiration date, cannot be overcharged.
Other potential costs

Voided checks, stop payments, checking cashing fees

Stop Payments

Stop Payments

None

Time for transaction to process 5-7 days via mail, plus bank processing time Immediate once relationship is established Immediate once relationship is established Immediate, no time delay for check clearance, funds available upon settlement
EOB or other accompanying paperwork included in transaction Possible, with manual printing of documentation, envelope stuffing required. No, requires matching of document to transaction No, requires matching of document to transaction Yes, includes payer’s details & Explanation of Payment advice (EOB)
Acceptance Rates High, 90% Low, 10.00%   High, 75% among healthcare providers, accepted in 48 states

Wrapping up the comparison

Based on current costs, privacy issues and speed of transactions, you can see that over time electronic methods of financial transaction are the lower cost and faster way to go. What will be questioned over that period is which method will be adopted to make those transactions. Although ECH and EFT transactions are becoming more standard for large businesses, based on the data, virtual cards are gaining speed rapidly due to their cost effective means of moving money and their ease of implementation for smaller businesses and those wishing to avoid IT related complications.

What do you use today and what keeps you from moving in the direction of these trends?

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