ACH vs Wire Transfer, What’s the Difference?
In today’s digital world, there are several ways to send money electronically. Two of the most renowned and popular options are ACH transfers and wire transfers. Both of these methods are safe and secure payment options for transferring funds from bank to bank; so, what’s the difference between ACH and wire transfers?
What is a Wire Transfer?
One of the oldest and fastest ways to send money is through a wire transfer. Some wire transfers can take a couple of days, but most often, it only takes a few minutes. One of the differences between ACH and wire transfers is that wire transfers are direct bank-to-bank transactions which allow someone to move money from his or her account directly to another’s—they are organized as an agreement between banks with established guidelines.
When a wire transfer takes place, each account owner and each bank account are verified—this means there are no chargebacks accompanying wire transfers. And because wire transfers are handled individually by each bank, they are fast, secure, and typically take place in real time.
Another difference between wire transfers and ACH is when receiving wire transfers, more effort must be made by the financial institution, so many banks and credit unions will charge fees for receiving wire transfers. Even then, the fee required to obtain a transfer is usually less than the fee for sending a transfer, but all wire transfer fees will vary depending on the bank or financial institution used.
A significant difference between wire transfers and ACH is that wire transfers are versatile in that they do not necessarily have to take place from bank account to bank account. For example, the Western Union and MoneyGram provide wire transfers, and when you use these providers, you can send a cash wire transfer without an associated bank. To do so, you simply take your money to the approved counter, pay the fees, and then the sender and the recipient verify the transfer. Wire transfers from providers like this can take as little as ten minutes.
What is Automated Clearing House (ACH) Payment Processing?
Transactions completed via an automated clearing house (aka ACH payment processing) is not the same as a wire transfer, though they share some similar characteristics. Traditional banking systems have employed the ACH method for several decades—ACH transactions are often the payment type utilized when using your debit card or pay bills online.
When you want to transfer funds electronically, all the information related to the transfer is included in a batch—this batch is then sent to the clearing house. The clearing house, rather than the bank, handles and processes the transaction accordingly. This means the bank will receive all their ACH transactions in a completed batch, which allows them to handle all the personal dealings as a single transaction. This method of transfer streamlines and simplifies the process—it is entirely automated and is a big difference between wire transfers and ACH transfer.
With that, the batch method has pros and cons. While transferring, money using ACH payment processing can be more convenient and less pricey than wire transfers, they can take longer. Also, if you are depositing a physical check at your bank, your funds will often not be available until the next ACH batch has been run. Keep this in mind when making check deposits and arranging for automatic bill pay; if your check hasn’t cleared in time, you may not have the necessary funds to make a payment.
Wire Transfers vs. ACH Transfer
As far as fees are concerned, the difference between ACH and wire transfer is that wire transfers are typically more expensive than ACH transactions, because it requires an individual bank-to-bank process, whereas ACH requires minimal bank involvement. This efficiency of processing means that ACH transactions only come with a small fee or no fee at all. That being said, if you want a guarantee on the time of arrival of your money, it would be prudent to pay the extra fee for a wire transfer.
Wire transfers are considered to be more secure than ACH because you usually can review all information before the money is sent. Besides, the chance of fraud via wire transfer is lower because the bank must verify both the identities of the sender and receiver. In general, wire transfers between banks are considered reasonably safe and secure.
Dangers of Cash Wire Transfers vs ACH
Any risks arising from wire transfers are correlated to cash transfers, usually conducted through the Western Union or MoneyGram. While cash wire transfers are an incredibly convenient way to send cash quickly, it has its issues. The main problem is that there is no way to verify the sender or the recipient, and a false identity could be used to collect the sent money. This person could disappear with the money, with almost no trace of their fraud.
Another issue is that if you purchase something and pay for it using a cash wire transfer, you will have no recourse against the seller if the item is damaged, or worse, not sent at all. A credit card provides some protection against this as do ACH transactions—each has fraud liability laws connected with them. However, if you send a cash wire transfer, you do not receive the same protection.
Who Uses ACH Payment Processing
Another difference between ACH transfer and wire transfers is that merchants of almost any industries can benefit from ACH payment processing. Retailers find ACH payments convenient because they are a secure and efficient way to accept and transmit checks electronically. ACH processing is efficient because merchants no longer have to visit the bank to deposit funds manually; instead, their e-checks are immediately verified and transmitted directly to their bank via a secure ACH network.
ACH payment processing allows customers to make online payments and transactions from their bank accounts quickly. Unlike traditional checks, there is no waiting period for funds to clear—money is instantly transferred from one bank account directly to the merchant’s account. ACH processing can also be used for recurring payments, the only information needed is a customer’s routing and checking account numbers.
Enterprise Level Businesses
ACH payment processing is constructive for large enterprises with a large number of employees on their payroll. This is because ACH processing allows the company to make direct deposits—a secure, efficient, and simple way to pay employees’ salaries. Direct deposit also removes the chance of human error—there is no danger of lost or damaged paper checks. An entire administration and payroll procedure can be restructured and streamlined with the application of ACH payment processing.
Charity and Non-Profit Organizations
An additional difference between wire transfers and ACH, is that ACH is highly beneficial for non-profit organizations because it shortens the donation receival time. By utilizing ACH payments, non-profits can offer a secure and easy payment option on their website, which will allow donors to contribute from their checking accounts directly. This can help a non-profit organization surge their supporter size and increase the volume of donations.
The difference between wire transfers and ACH can be clearly identified when it comes to recurring billings. For those companies whose revenue streams are made through recurring payments and subscriptions, ACH processing is especially useful. Customers tend to shirk from complex and complicated payment procedures, such as writing a monthly or weekly check and mailing it off to a merchant on time, every time. Merchants, on the other hand, also don’t prefer paper checks as it can lead to hindrances like delayed payments and reduction in customer retention. Using ACH processing for recurring payments allows merchants to offer expedience and convenience for their clients.
ACH Transfer vs Wire Transfer on Business Level
A huge difference between wire transfers and ACH payment processing offer companies is the ability to redirect superfluous manpower to more important functions. Because ACH transactions are automated, the number of staff needed for processing and handling is drastically reduced, freeing those employees for other, more critical roles in the company. With these added human resources at no added cost, a company can then redirect its workforce and its focus on growing the business by adding additional services, products, or designs.
Companies also benefit by the reduction of transactions costs associated with ACH payment processing. Changing transaction processes from employee-based to automated reduces, and can even eliminate, processing and handling fees. This, in turn, can increase overall revenues, which improve annual corporate returns, reduce customer cost, and can thereby increase customer retention.
ACH payment processing is also very secure—automation reduces the amount of time personal information is exposed for each transaction. Paper checks, on the other hand, are physical objects, handled at several points during the transaction—each of these points are an opportunity for a data breach.
Another benefit that ACH processing holds for companies is its environmentally friendly nature. Eliminating the paper waste that is generated by thousands of checks, paper statements, notices and more, can help a company accomplish a more rounded approach to corporate social responsibility, which can attract new customers and encourage customer loyalty.
ACH Transfer vs Wire Transfers on Consumer Level
Research completed in 2015 on consumer preferences showed that both the security and speed of digital transactions would influence a consumer’s willingness to use automated systems. For the consumer, ACH payment processing offers both of these.
An important difference between wire transfers and ACH transfer is the customer’s critical data security assurance associated with ACH payment processing. The top concern for consumers is the that they do not suffer financial or privacy losses, which is why the entire financial system—including the transaction itself—have safeguards installed to protect against human error or intentional fraud. This is how digital processing diminishes vulnerability—maintaining a secure line and checkpoint for all personal and financial data.
Other benefits for consumers include the transaction speed of an ACH payment. Higher levels of satisfaction were reported by consumers who used electronic transfer. The capacity of ACH payments allows quicker access to one’s money; with paper checks, one must wait for the funds to clear. This is why a study on consumers’ preferred benefits showed that the nearly instantaneous deposit of ACH-transferred funds into the payee’s account ranked high.
The study also indicated that the speed of a deduction from one’s account was seen as just as valuable as the rate of receiving payment. The majority of respondents stated they were more likely to use the automated payment deduction option to pay bills regularly.
An additional difference between ACH transfer and wire transfers is the improved customer notification offered by ACH service—both the initiation of the transaction and the actual departure of funds are recorded and communicated.
Wire Transfer vs ACH payments – Bottom Line
All in all, wire transfers are fast, convenient, and perfect for people who need money moved quickly, and don’t mind spending more to do it. Wire transfers are a great way to transfer money from one financial institution to another and can help people in a pinch who need to send or receive cash quickly. Because of that, wire transfers are expensive. ACH payment processing offers a cost-effective alternative when sending and receiving money. For companies, it allows them to offer more payment options, which allows more opportunity for sales and revenue. Besides, the rates associated with ACH payment processing are lower than traditional credit card fees, which simplifies the entire payment process for both payer and payee.