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Could ACH be a viable payment network for in-person retail purchases?


Answer by PJ Gupta:

I think the key in your question is the word "viable". As Gus (and Dion) point out ACH is already an available option.

It is not a widely used or available option though, either physical POS (point of sale) or online ecommerce. The reasons have more to do with convenience than ( not real but perceived) sense of security or liability.

For a payment system to be "ubiquitous" it needs to be:

1) Safe/Secure
2) Widely acceptable  at Merchants as well easily available to Consumers
3) As easy to use as other alternatives if not easier i.e. Convenience
4) Is either real-time settlement or some form of guaranteed settlement if not real-time

ACH is as safe as other prominent alternatives i.e. VISA/MC Credit/Debit cards, infact percentage of total fraud in ACH system is much less than VISA/MC system. Also the Consumer is indemnified from fraud in both cases. However there is a *perception* of risk sometimes for the Consumer in that the process for re-claiming fraud money from a financial institution using ACH is less widely known than calling the 800 number on the back of VISA/MC (I address this in more detail as a comment to Dion's answer). This may/may-not be a deterrent depending on how its marketed to the end Consumer.

ACH is easy available to Consumers, all you need is your routing and account number. Its generally not as widely available as VISA/MC system in the offline world and in the online world its really sparse (few ecommerce sites allow you to pay with Routing number and Account number )

The problem with ACH in-person payments from the Consumer side is the 3rd issue: Convenience. Its simply easier to swipe a credit/debit card than to key in the routing number and account number (either on a POS terminal i.e. card-present situation or online i.e. Card-not-present situation). And so Consumers don't care much for it

The 4th issue is a problem that Merchants face i.e. since settlement in ACH is batch mode i.e. 48 business hours or 2 working days the merchant does not know until 2-3 days whether the transaction has cleared. In terms of Paypal et. al. taking the risk of 2-3 days settlement, yes it is a risk they take, but they i.e. Paypal speficially has policies in place where the Merchant may not get paid in certain cases i.e. risk mitigation. Also for goods that can wait to be shipped 2-3 days and services that can be provided after 2-3 days or the term is longer than 2-3 days (e.g. gym memberships, rent payments etc. ) there is really no risk (or atleast no different than VISA/MC )

For the online world (i.e. Card-not-present) transactions it is possible to solve issue #3 i.e. make ACH as or more convenient than VISA/MC. Imagine if one could tie the routing and account number to a password (or some such token) that one can remember.

Issue #4 i.e. guaranteed settlement can also be solved for both the card-present and card-not-present world. The traditional approach involves running ACH info against "habitual" offenders i.e. same as check cashing. You can get guaranteed ACH from multiple companies including FDC for 2.5-4% total cost, but this eliminates the ACH price advantage. The more current way to do guaranteed ACH could be using online banking access for account and balance verification. This will not completely solve the "guarantee" or hold issue but could go a long way in making ACH *almost* guaranteed and reducing if not eliminating the risk of 2-3 day settlement.

Could ACH be a viable payment network for in-person retail purchases?


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