The purpose of this article is to familiarize the key merchant services industry players with ACH transaction processing as an advanced feature to be considered during payment gateway selection. If this is the first time you are reading “Payment Gateways II” series, please, start with the Introduction as it will improve your understanding of the current post.
Although credit cards constitute a major payment medium today, ACH payments are also an option, and in some business segments (such as residential rental payments) they are the predominant form of payment.
From the standpoint of payment gateway selection, two factors should be considered when it comes to ACH transaction processing. The first one is the availability of ACH processing API (ideally it would be exactly the same API as the one used for processing of credit cards). The second one is the availability of blacklists (lists of accounts that were previously processed and came back as irrecoverable ACH returns).
These two aspects are covered in the following sections of the article.
Using the unified API for credit card and ACH transaction processing
Although credit card transactions are usually handled by processors and ACH are processed by banks, in today’s market environment there are more and more payment gateways that offer a unified interface for processing transactions of both types. By integrating with such payment gateway, a merchant immediately gets the ability to process both credit\debit card and ACH transactions without any additional integration efforts. This method is preferred to the one where two separate integrations are required.
The difference between credit card and ACH transaction processing is that approvals/declines of credit card transactions become available shortly after transaction’s submission, while declined ACH transactions come back much later in the form of ACH returns. To prevent problems induced by the fact that ACH transactions do not get approved or declined at once, blacklists are introduced, and some gateways provide blacklist features.
Account blacklist concept
If a merchant processes a transaction and it comes back as a hard, unrecoverable decline (for example, “card stolen/lost” or “account inactive”), and thus merchant knows for certain, that the account is closed never to be active again, there is no point in ever trying to charge (recycle) this card again. (More information on decline recycling can be found here).
A blacklist is a list of such “never-to-be-active” accounts. So, when a transaction comes in, it is verified against the blacklist. If the account is on the list, the transaction is not processed, and the submitter is not charged a processing fee for it.
The blacklist feature is especially relevant to those who perform recurrent billing (for example, a health club, collecting monthly recurring dues).
Blacklists and ACH transaction processing
The concept of blacklist of “never-to-be-active” accounts is especially critical for ACH transactions, because, as mentioned above, in contrast to credit card transactions, during ACH transaction processing the response does not arrive right away – it can take up to 60 days for an ACH return to arrive. To optimize ACH transaction processing, every ACH transaction should be checked against a blacklist before it is submitted to the bank. So, for businesses that utilize ACH processing blacklist feature is definitely important.
To illustrate the practical benefits of ACH transaction processing support, let us consider a health club example.
If a business needs to process credit card and ACH transactions, it should go with a payment gateway offering a solution for both processing options, and preferably with the one, who offers a unified transaction processing API for both transaction types. Support for an ACH blacklist is always a plus.
Our next post will cover support for recurring billing and tokenization as advanced payment gateway features.