Electronic Check

An electronic check is a check sent digitally. It is an electronic payment method that can be accessed online or by phone. Similar to a normal check, the funds are withdrawn from the payer's account and transferred to the payee's bank account.

E-checks are convenient due to their ease and efficiency. They help streamline transactions and detect fraud and better suit a fast-paced, growing environment than a traditional way of banking. Additionally, they can be accessed from anywhere in the world without having to visit a bank. They also reduce paper waste.

An electronic check (e-check) is a digital version of a traditional paper check. While traditional checks use paper, e-checks use digital networks to make payments. In this digital process, money is withdrawn electronically from the payer's account and deposited electronically into the payee's account.

The payer initiates the e-check payment by providing their bank account information (account number and bank routing number) to the recipient (payee). This information is stored securely. The payee's bank or payment processor verifies the details for accuracy and validity. After verification, the payment is processed through the Automated Clearing House (ACH) network, transferring the specified amount from the payer's account to the payee's account.

Institutions that accept electronic check payments provide forms for customers to fill out the required details. Once the information is entered, the processing, including the transfer of money, is handled automatically. This eliminates the need for manual processing and physical documentation, and e-checks do not require physical storage.

E-checks cannot be misplaced like physical checks and have encryption and security measures in place. They use authentication methods such as digital signatures, multi-factor authentication, and other verification techniques to authorize account holders and prevent forgery. However, e-checks cannot guarantee 100% security as digital forms of payment are subject to attacks. The strength of security depends on the protection systems in place, which can vary between institutions involved in the transactions.

Let us look at a few examples to understand the concept better.

Example #1

Let's say Dan is a business owner of a small furniture company that needs to pay $50,000 to a supplier for raw materials. Dan logs into his online banking portal and selects the option to pay through an electronic check. He inputs the supplier's name, email address, and bank account details (including the account number and routing number) for electronic check verification. These details are required to ensure the electronic check is processed correctly. Once the information is verified, the payment is initiated. On the supplier's end, the funds are typically received within 3-5 business days after the electronic check clears.

Example #2

Clementine Jones, a customer of PNC Bank, faced a four-month ordeal after PNC issued electronic checks to Wells Fargo and Citi Cards. Despite receiving confirmation of the payments, Wells Fargo mistakenly cashed both checks, leaving Citi Cards unpaid and Jones out $1,778. Frustrated by the lack of resolution and the blame-shifting between the banks, Jones sought help from 2 Wants To Know. After multiple calls, visits, and intervention from the news team, Wells Fargo attempted to resolve the issue, but PNC initially remained unresponsive. Eventually, public and social media pressure prompted action, highlighting the challenges and frustrations customers can face with electronic check errors.

Some of the benefits of e-checks are given below.

#1 - Time associated 

E-checks do not need any paperwork, and working at the click of a button eliminates the need for too many people and processes involved in execution. Hence, they reduce the paperwork and processing time, making them efficient. 

#2 - Saves money

When paperwork is eliminated, the associated costs, including the cost of papers and stationery, are eliminated. Additionally, the cost of storing these is also saved. The transaction fees associated with online transfers are also less than the costs of card transactions.

#3 - Convenience

E-checks are convenient and easily accessible from one's home or anywhere in the world through the internet. The need to visit banks personally is reduced. Sometimes, specific processes can be automated, such as monthly payments to loans. These factors make it a convenient option.

#4 - Benefits for businesses 

Businesses benefit from an expanded customer base. Businesses can attract more customers through the variety of payment methods they offer. This can reduce the rate of cart abandonment, resulting in more sales and profit. 

Given below are some of the drawbacks of e-checks.

#1 - Security risks and frauds 

Online transactions are vulnerable to attacks from hackers. They try to steal the information and finances of people using them, so caution must be maintained at all times while accessing them. 

#2 - Technological issues 

Since everything has to happen over the internet, there is dependence on technology. Hence, the speed of electrical availability and the infrastructure to avail the services are all important, and disruption in any of the factors is undesirable.  

#3 - Grass root penetration 

Electronic checks are no doubt a widely accepted payment method. However, some people still prefer payment through cash or cards. There can be outlets that do not accept e-checks due to skepticism or unfamiliarity; this is an issue of acceptance. Additionally, there is a segment of people, the underprivileged, who need the opportunity to access these methods. This is also a disadvantage. 

The differences between both the concepts are given as follows.