Demystifying the Relationship Between ACH, EFT and Electronic Checks
Understanding the similarities and differences between ACH, EFT and electronic checks is important for businesses utilizing digital payment methods. While these terms are often used interchangeably, each refers to a distinct yet related concept in the financial industry.
This article provides a comprehensive explanation of the relationship between ACH, EFT and e-checks, covering:
• What the ACH network is and how it works
• The definition of electronic funds transfer (EFT)
• What constitutes an electronic check (e-check)
• Similarities and overlaps between the terms
• Distinctions between ACH, EFT and e-checks
With this background, readers will gain a clear understanding of how these digital payment methods relate while retaining their own distinct functions and characteristics.
What is the ACH Network?
The Automated Clearing House or ACH is a nationwide batch electronic funds transfer system that financial institutions use to process large volumes of credit and debit transactions.
The ACH network facilitates a wide range of automated payment types including direct deposit, payroll, bill payments, account transfers and electronic checks (e-checks). Financial institutions rely on the ACH to process recurring transactions and one-time payments digitally.
Electronic Funds Transfer (EFT) Definition
An electronic funds transfer refers to any electronic payment instruction initiated by the payer to debit or credit a bank account.
EFT encompasses a wide variety of digital payment methods beyond ACH transactions, including wire transfers, automatic bill payments, ATM withdrawals and debit/credit card payments. Essentially, any transfer of funds that does not use actual cash or a paper check constitutes an EFT.
What is an Electronic Check?
An electronic check, or e-check, refers specifically to a digital version of a traditional paper check. E-checks utilize the ACH network and EFT infrastructure to transfer funds between bank accounts electronically instead of printing, signing and mailing a physical check.
Similarities and Differences
• ACH transactions, EFTs and e-checks all involve digital transfer of funds between bank accounts without physical cash or checks.
• The ACH network facilitates e-check processing and many other types of EFT transactions, but the ACH is not synonymous with all EFTs.
• While e-checks represent one type of EFT, not all EFTs are electronic checks. EFT is a broader category that includes numerous payment methods beyond e-checks.
• The ACH enables other EFTs in addition to e-checks, including direct deposit, bank transfers and recurring bill payments.
• Electronic checks rely on the underlying EFT infrastructure and ACH network but constitute their own distinct type of digital payment.
