Check 21 Payment Processing for High Risk Merchants

Check 21 is a fast, safe method of processing check payments.  With Check 21, transactions are cleared using bank-to-bank image exchange rather than through the ACH network.  Check 21 is an attractive alternative for high risk internet merchants to process electronic checks and avoid restrictive ACH rules regarding chargebacks and returns.

Check 21:  Secrets of Electronic Checks

Electronic checks account for up to 30% of internet payment transactions.  Yet, high risk merchants often have a difficult time complying with the NACHA regulations to keep revoked transactions (chargebacks) under 1%.

Any merchant that expects higher than 1% revoke rates is wise to consider Check 21 instead of ACH processing.  Merchants that prefer not to have to comply with NACHA regulations discover Check 21 electronic checks are an excellent alternative.

Merchants in high risk categories find Check 21 particularly beneficial technology for processing electronic checks.   Check 21 electronic checks accounts can be approved for industries that do not qualify for ACH processing accounts.  For example, online pharmacies and debt consolidation firms, among others, use Check 21.

Check 21 electronic checks processing permits a wide of transaction types to be sent electronically, expanding your target markets.  Check 21 processing includes transactions from institutions that do not participate in the ACH network such as credit unions, savings & loans, small banks, brokerages, and checks drawn on credit card accounts.

Check 21 Protects Merchants

Check 21 increase merchant processing options beyond the limited ACH network.  And Check 21 electronic checks offer added protections to merchants.  Check 21 electronic checks are not subject to the same rules as ACH transactions.

Check 21 transactions are governed by check laws, and the Uniform Commercial Code, not ACH regulations.  This reduces merchant risk from contingent liabilities.   For example, under NACHA rules, consumers have 60 days from the date they learn of a questionable transaction to dispute it.  With Check 21 electronic checks, consumers have only 40 days to dispute a transaction.

Check 21 transactions appear on the buyer’s bank statement in the same place as a paper check transactions.   Merchants can display purchase details on the bank statement.

This expanded descriptor makes is easier for buyers to remember what was purchased via Check 21 transactions and lowers the risk of chargebacks.   With ACH, transactions are displayed only as a line item on the buyer’s bank statement, leading to confusion about the purchase and resulting in higher chargebacks.

Check 21 Processing Saves Money

Businesses using Check 21 save money on payment processing fees.  Rates for Check 21 processing are less than fees for credit cards.

Check 21 electronic checks are s fast growing alternative payment option for internet and mail order / telephone order merchants.  With Check 21 technology, businesses can take advantage of electronic checks payment processing to power business growth, increase sales, reduce operating costs, and maintain a competitive edge.

For more information on how Check21 can help your business grow, contact info@nationalach.com

ACH and Echecks for Payday Lenders

Payment Processing for Lenders

Payday loan companies use ACH and Check 21 echecks services to process payments.  

There are 2 types of accounts established for payday loan companies.

First, ACH credits deposit the amount of the loan directly to the borrower’s bank account.  ACH credit accounts require “cleared funds” prior to deposits being made. Lenders send the money for the credits to the ACH processor. Funds are then deposited to the borrowers’ accounts.the credits.  

Secondly, ACH or echeck accounts are established. These authorize repayment of the loan via a direct debit from the borrower’s bank account. 

Lenders obtain authorization to access to a borrower’s bank account to verify that the borrower has a source of income and to debit payments from the account.

ACH and Echecks for Lenders

Payday lenders use ACH credits to direct deposit the money for the the loan into borrowers’ bank accounts.

Lenders use echecks to debit the amount of the loan repayment from the borrowers’ bank accounts. Most lenders use echecks based on Check 21 technology.  

ACH debits for repayment of loans is effective only for lenders that can keep returns under 15%.  And revokes under 0.5%.  These ratios are set by NACHA, the governing body of the ACH network.  

Some lenders use echecks for the first loan payment. First transactions carry the greatest risk for returns and revokes. For recurring payments, after the first transaction, the lenders then switch to ACH debits.  

Information on the Payday Loan Industry

Despite all the negative press about payday loans, and the restrictions by certain states against the payday loan industry, the loans are hugely popular.  More than 12 million Americans take out payday loans each year, according to the Pew Charitable Trusts’ Safe Small-Dollar Loans Research Project.   The average amount of a loan is $375.  The average borrower takes out 8 payday loans per year.

Surprisingly, most borrowers use loans for regular living expenses and not for emergency situations. Approximately 69% borrow to pay for recurring expenses, such as rent, mortgage, utilities, credit card payments or food.

Fees averaged $15 per $100 borrowed, which is equal to a 391% annual percentage rate. Generally rates are shown as fees rather than interest rates on payday loan websites and in the agreements between borrow and lenders.  Borrowers stayed in the loan cycle for about 212 days per year.

About 55%, borrowers are white, and 52% are female.  As would be expected, payday loan borrowers are classified as sub-prime since they are unable to borrow at more attractive rates.

About 75% of borrowers get loans from storefront payday lenders, including banks or companies that specialize in the payday loan market.  Online loan origination is steadily increasing, with approximately 25% of borrowers applying via websites.   Web originated loans are usually more expensive, average fees of $95 per $375 loan, compared to $55 fees for storefront loans.

The Consumer Financial Protection Bureau (CFPB) has the authority to regulate payday lenders at the federal level. Richard Cordray, the agency director, is making examination of payday lenders practices is a top priority.  The agency is also aware that major banks offer payday loans.  But, it’s not clear if these banks will be targeted for examination.

Conclusion

Payday lenders use ACH credits to direct deposit the money for loans into borrowers’ bank accounts.  For repayment of the loans, lenders use echecks or ACH debits to deduct the amount due from borrowers’ accounts.

Although the payday loan industry has been under scrutiny for the past few years, it’s not going away anytime soon. Millions of Americans rely on payday loans. Lenders are sure to continue to provide loans to satisfy the demands of the market.

Are you a lender seeking to establish payment processing accounts?

Contact info@nationalach.com today

High Risk Echeck & ACH Processors

Third Party Processors Facing More Scrutiny

High risk merchants are finding it more challenging to obtain ACH and Check 21 accounts.  Part of the reasons is explained in the FDIC Financial Institution Letter released on January 31, 2012.

This article discusses the reasons third party e check & ACH processors are facing more scrutiny by banks. Which translates into greater challenges for high risk merchants to acquire processing accounts.  

Relationship of Payment Processors with Banks

Third party ACH processors and e check processors are the customers of the banks. In exchange for being able to use the bank, the processors post reserves with the banks to cover potential liabilities of the customers that they bring to the bank for processing.

While the reserves provide some relief of the responsibility of the financial institutions, the banks are ultimately responsible if a processor does not have enough in reserves to cover losses from merchants in its portfolio.  Or, if a processor closes its doors and goes out of business. 

The risks the processor, and ultimately the banks, assume vary depending upon the types of merchants in the high risk portfolio.  Internet businesses and high risk merchants carry higher potential for contingent liabilities due to the greater statistical incidence of fraud and chargebacks for these industry types.

Payment processors and banks must have a way to ensure that merchants are legitimate.  A single “rouge” merchant in a portfolio puts the processor and bank at risk.  If consumers are injured by the activities of merchants, the processor and bank are on the hook for the actions of the merchant.

Closer Monitoring of High Risk Merchant Accounts

Banks are finding that it is difficult to be completely certain that third party processors are doing all the necessary due diligence on merchants for whom accounts are being established.  As a result, banks sponsoring ACH processors and e check processors are taking a closer look at processors for compliance with regulations to guard against potential fraud and/or money laundering.

The FDIC is putting the pressure on banks.  The banks are insisting that processors provide due diligence documents on every merchant that is processing ACH and e check transactions.  Processors must prove that merchants are not creating risk for fraud, are following with consumer protection regulations, and are in compliance with the Bank Secrecy Act and anti-money-laundering rules.

As the banks feel the heat from the FDIC, some are simply terminating payment processing agreements with third parties, particularly those who have high risk merchants within their portfolios.  For the remaining processors, banks are requiring much stricter compliance to mitigate potential risks.

The FDIC has advised that. “Financial institutions that fail to adequately manage these [third party] relationships may be viewed as facilitating a payment processor’s or merchant client’s fraudulent or unlawful activity and, thus, may be liable for such acts or practices.” 

FDIC Warnings to Banks

The banks will be held responsible for the merchants processing through its third party relationships.  This makes the banks liable for facilitating or aiding and abetting consumer unfairness or deception under Section 5 of the Federal Trade Commission Act.

The FDIC is warning banks to:

• Be alert for third party processors that solicit business relationships with troubled financial institutions in need of capital.  Some processors try to purchase stock in the banks.  Others offer to put up large deposits in reserve.
• Be alert to consumer complaints about payment processors and their clients by watching online complaint websites and blogs and monitoring consumer advocacy sites.
• Monitor increases in returns and revoked transactions.  These could indicate that a merchant is involved in unfair or deceptive practices
• Determine if there are any investigations or legal actions against a processor or merchants that are sending transactions through the processor.
• If banks discover fraudulent or improper activities, act quickly to put a stop to processing, including possibly terminating the processors ability to send transactions through the bank.

Conclusion

With the increased degree of scrutiny of banks by government agencies, the numbers of financial institutions that opt to offer accounts to third party processors are bound to decrease. The remaining banks will tighten underwriting requirements for merchants to make sure the banks are protected and the processor can continue operations.

High risk merchants can still acquire ACH and Check 21 accounts.  However, choices will narrow. And, as usual, supply and demand will rule the market.

Are you a high risk merchant that wants to increase sales and profits with ACH and e checks?

Contact info@NationalACH.com 

Accept Checks Online 7 Benefits

Electronic Checks for Ecommerce Merchants

Merchants that accept checks online reduce operating expenses, improve cash flow and streamlines business operation.    When an ecommerce merchant decides to accept checks online, the expectation is increase sales and enhanced profits.  Payment processing systems to which enable merchants to accept checks online are web-based, secure, and simple to operate.

Get These Advantages When You Accept Checks Online

• Speed Merchants that accept checks online get the benefit of fast payment processing.  When you accept checks online, those transactions are processed ahead of paper checks, clearing ahead of paper checks written days earlier.  As a result, merchants that accept checks online get settlement of cleared funds quicker than with paper checks.  When you accept checks online, you benefit from faster access to working capital.
• Predicable Revenues When you accept checks online, you can easily set up automated payment plans.   Customers simply enter the payment information, including the amount and duration of the payments one time and recurring payments can be authorized.  When you accept checks online, funds are automatically debited from the customer’s account as scheduled, providing predictable recurring payments and income.
• Increase Cash Flow Merchants that accept checks online help ensures that payments are fulfilled.  Automatic debits to the customer’s account take away payment-delaying tactics such as the “checks in the mail”.
• Convenience Merchant accept checks online because consumers expect the convenience of an alternative payment option.  For consumers, a merchant that accepts checks offers a time and money-saving method to make purchases.   Consumers are used to paying bills to merchants who accept checks online.  This habituated payment habit translates into consumers being comfortable making purchases from merchants that accept checks online.
• Multiple Payment/Order Channels When merchants accept checks online, the same account can be used to accept checks by phone, mail or fax.   By broadening customer payment options by offering to accept checks online and through other payment channels, companies generate more sales, increase revenues, and realize higher profits.
• Reduced Payment Processing Expense Merchants that accept checks online save money because payment processing fees are substantially lower than for card payments.   When merchants accept checks online, transaction processing costs are often 50-90% less than card processing fees.
• Lower Administrative Costs Saves Money When merchants accept checks online, a company can substantially decrease costs of preparing and mailing customer invoices.  Merchants that accept checks online reduce accounts receivable follow up; lower bank fees; bad debt; collection; and administrative expenses.

Accept Checks Online with ACH Payments or Check 21

Merchants that accept checks online can use either the ACH payments network or Check 21 technology.  The ACH payments network has been functioning for over 30 years and is used by many merchants who accept checks online such as property management, insurance, utilities, government entities, and some ecommerce retailers.

Check 21 technologies can be used either by merchants in higher risk categories who accept checks online or by standard risk merchant.  Merchants that accept checks online using Check 21 technology have fewer restrictions regarding returns and revokes than the ACH payments network.

The decision to use ACH payment or Check 21 as the technology to accept checks online is determined by the particular needs of each business.  Both options are reliable, proven solutions for merchants who want to accept checks online.

Conclusion

When you accept checks online you get more sales. The more way shoppers can buy from you, the more money you make.

More than 30% of internet sites offer echecks as a payment option on the checkout page. If you don’t accept checks online, you are losing sales to your competitors that do.

Interested in an echeck account to increase your sales & profits?

Contact info@nationalach.com today

Batch Processing for Echecks

Flat File Uploads 

Flat file uploads for Check 21 and ACH payments are also called bulk or batch processing.  Batch processing automates processing.   Uploading a bulk file is fast, easy, and less prone to errors than is manual entry.

There are many reasons a company chooses to upload a flat file.  For example, some companies want to review batches before uploading.  Other companies process high volumes of transactions and want to eliminate the labor and time involved in keying in transactions.

Some companies combine flat file bulk processing and electronic check processing through a virtual terminal.  For example, your accounts receivable department may submit batch files; your sales representatives may transmit keyed entries.

How Batch Files are Processed

Flat file integration transmits payments information along with the associated data files through a secure FTP server.  The server than transmits the information over the internet to the processor’s application program interface.  Several file formats can be used, with the most common being comma-delimited.

Once the ayments file is uploaded, a confirmation that the transactions were received is sent back.  All uploaded transactions can be viewed and managed through a secure website accessed by login and password. Customized files can easily be imported into internal software systems.

A wide variety of information is available on transactions including but not limited to:

• One-time and recurring Check 21 and ACH payments transactions
• 3rd party check verification
• ACH payments and Check 21 return files
• NACHA return files
• Invoice data and images for online bill payments
• Statement data and images for online bill payments
• Account balance inquiries

For more information, contact info@nationalach.com

Check 21 for High Risk Merchants

High Risk Processing with Check 21

Check 21 provides an excellent solution for high risk merchants who want to accept checks online or take a check by phone. 

Check 21 technology is particularly beneficial for companies that are unable to keep chargebacks under the 0.5% threshold required by NACHA for ACH payments.

Check 21 technology creates and processes electronic checks by the creation of virtual checks.  The virtual check is a legal substitute check which is then processed and cleared  through the US Federal Reserve.

Check 21 payment processing is easily integrated to a website through a an API.   At checkout, electronic checks are offered as an payment option.  Checks clear fast and your are rapidly notified of any returned transaction.

High risk merchants that benefit most from Check 21 electronic check processing are:

• Companies with a high percentage of overall returns
• Companies with higher rates of unauthorized returns
• Companies who want to more information about a transaction to appear on buyers’ bank statements

Are you a high risk merchants that wants to accept checks online?

Contact info@nationalach.com today