ACH vs. Credit Card: Which One Is Best and How to Choose

Both ACH and credit card payment methods are popular in the US. ACH and credit card transactions include recurring payments, which is a major advantage for those who need to make payments every week or month. You can use either of these options if you need to make fast, easy payments and receive payments quickly, but you may want to choose one method over the other for several reasons.

However, before making and receiving those payments, you must find an intermediary to manage these transactions. Enter Podium Payments. Podium has introduced this feature as a way for small businesses to accept all major payment options. Transactions take place via text, which saves time. The process includes advanced fraud protection and automatic reconciliation. Podium makes it possible for small business owners to transform their phones into card readers that accept all forms of electronic payment, including ACH and credit card processing.

What is ACH?

ACH (automated clearing house) transactions refer to payments made between banks in the US. Payments move via the ACH network. The NACHA (National Automated Clearing House Association) oversees and manages all payments.

ACH payments offer an alternative to credit card payments and come in two forms: ACH credit and ACH debit. The debit option is the ideal payment method for recurring charges.

What is a Credit Card Transaction?

A credit card transaction happens at the point of sale. The POS system sends a payment request to the customer’s bank, which either approves or declines the request. This response is then sent to the issuing bank, after which the transferred funds get paid into the merchant’s bank account.

ACH Pros and Cons

Consider all the pros and cons of ACH transactions before choosing between ACH and credit card payments.

Benefits of ACH

The benefits of ACH transactions include the following:

1. Lower Transaction Fees

ACH payments generally cost less than credit card transactions. You will pay up to 1.5% in ACH processing fees compared to credit card fees of up to 3.5%.

2. Security and Fraud Protection

ACH payments are more secure than card payments. A clearinghouse must clear all ACH transactions, and they typically have uncompromising regulations. All account numbers stay confidential, and ACH transfers go directly from one bank to the next. You can reverse the transaction if you accidentally make an ACH payment into the wrong account.

3. Automatic and Scheduled Payments

You have a large measure of control over ACH transactions because you can authorize them manually or arrange automatic, scheduled payments.

4. Efficient for Large Transactions

ACH payment processing is cost-effective for large transactions. Instead of paying hundreds of dollars in credit card fees, you pay a fraction of the amount when using ACH.

Drawbacks of ACH

ACH is available in the US only. This means ACH payments can only occur between US bank accounts. Other disadvantages of ACH payment methods include the following:

1. Processing Time

As efficient as ACH transacting is when it comes to lower fees and automation, payments take much longer to process compared to credit card transactions. It can take more than three business days for an ACH payment to be processed.

2. Non-immediate Confirmation

There is no immediate confirmation of an ACH payment. If you’re waiting for an ACH payment, you will likely only receive notification from your bank on the third day of processing. If the payment fails, your bank must notify the ACH network by the second day. But you may not know about the declined payment for days afterward.

3. Limited Consumer Protections

With ACH payments, you won’t enjoy the expanded consumer protection that credit card transactions provide. You only have 60 days from the date of an ACH payment to dispute it. If you’re dealing with an unauthorized transaction, you will need to prove that you didn’t authorize the payment. This is not easy to do with recurring payments. A merchant may also refuse to return funds, leaving you with fewer options.

4. Payment Rejection Risk

There is a higher risk of payment rejection with ACH payments. The causes of payment rejection include human error, inactive accounts, fraud, and stop payments.

Credit Card Pros and Cons

Like ACH transactions, credit card payments come with their own set of pros and cons.

Benefits of Credit Card

Credit card payments are guaranteed, which means merchants will receive the funds if approved. Other benefits of credit card transactions include:

1. Instant Transactions

While the money will only reflect in a merchant’s account 1-3 days after transferring the funds, the transaction is instant for customers.

2. Robust Consumer Protections

Consumer protection includes low or zero liability for card fraud, real-time fraud monitoring, and secure online transactions. Chargeback processes and arbitration also apply to credit card payments.

3. Rewards and Benefits

Credit cards often come with welcome rewards and benefits. These include points or miles earned on daily purchases. Some credit card companies offer cash back at a fixed percentage, while others offer bonus cashback. Other benefits include travel rewards like airport VIP lounge access.

4. Convenient and Widely Accepted

Credit cards are the more convenient payment option. They are widely accepted and used, which means businesses can offer their services to more customers.

Drawbacks of Credit Card

Unfortunately, credit card transactions also have some drawbacks.

1. Higher Transaction Fees

Credit card payments attract high fees. This may include interchange, assessment, and payment processor fees. Some monthly credit card fees are as high as $20.

2. Chargeback Risk

Credit card transactions come with a chargeback risk. Chargebacks mean disputes, and this can be time-consuming and stressful. Moreover, you will be responsible for paying the money if you lose the dispute. Chargebacks can also lead to unnecessary fees for merchants and damage their reputation.

3. Credit Card Debt Accumulation

Credit cards are synonymous with high interest rates. If you only pay the minimum installment on your credit card each month, you will only cover the interest and your credit card debt will soar.

4. Merchant Account Setup

The application process for merchants is often time-consuming and complex. Monthly transaction fees can cut into a new business’ profits, and there are a lot of regulations to adhere to. There is also the risk of fraud and identity theft to consider.

ACH vs Credit Card: Which is Best?

ACH payments cover an incredible range of transactions. Business payments, subscriptions, tuition costs, membership fees, and automatic transactions should all be processed using ACH. Automatic recharge CC vs. ACH means high fees vs. low fees and convenience vs. the risk of overspending.

ACH has the upper hand over credit cards in this regard, and the overall cost savings more than make up for the longer processing time. Other reasons for choosing ACH over credit cards include:

1. Predictable Cash Flow

ACH transacting offers a predictable cash flow, in part because of the low fees and because of reduced reliance on manual payments.

2. More Suitable For Recurring Payments

ACH offers more automated payment options to customers requiring recurring payment schedules.

3. Enhanced Security and Fewer Disputes

Direct bank transfers and multi-factor authentication form part of ACH transactions and this offers enhanced security. It also reduces the likelihood of disputes.

4. Reduced Risk of Credit Card Fraud

Is ACH safer than credit card payments? It may very well be. No card information can get into the wrong hands, and there are no intermediaries like payment processors. Fraudsters often target payment processors, increasing the risk of fraudulent transactions.

At this point, you may wonder: Can you make an ACH payment with a credit card? The answer is no. There are no so-called ACH credit card payment options. ACH transactions bypass credit card networks, using bank account details and routing numbers instead.

Improve Payment Processing With Podium

It doesn’t matter which payment option you prefer. You can improve either payment process with Podium. Podium’s all-in-one payment processing solution isn’t just about facilitating transactions. It is about making text-to-pay transactions as effortless as possible and accepting online payment via Podium’s secure portal or your website. It allows you to track sales, follow up with past-due accounts, and audit all communications.

You can swipe cards with Podium’s mobile card reader or point-of-sale system. Podium Payments is so much more than just a payment processor. You can use it to grow your business and achieve your goals.

ACH vs Credit Card FAQs

Q: Are credit cards considered ACH?

A: No, credit card payments are not ACH transactions. ACH payments move the money between bank accounts. Credit cards involve a credit line and credit company network.

Q: What is the difference between ACH and credit card?

A: The main difference between ACH and credit cards is fund guarantee. Credit cards guarantee funds because the network verifies the buyer’s credit limit to approve the transaction. ACH transfers don’t guarantee payment, so the transaction may be rejected for several reasons, including insufficient funds.

Q: Is a credit card safer than ACH?

A: Credit cards offer dispute processes and chargebacks, while ACH transactions don’t contain card details that can be stolen. Ultimately, the safer option depends on personal preference, your specific requirements, and the security measures of the payment platform.