Why ACH Makes Sense for Digital Wallets

Automated Clearing House (ACH) transactions are quick and secure payment methods that can allow direct bank payments or debits for online payments. By accepting ACH transfers as a verified payment method, your company can service more customer groups and rely less on the costly fees while saving some of the time it takes to process payments through your financial institution. 

Here’s what you need to know about accepting ACH transfers and digital wallets as valid payment methods and why it’s a good idea that you do.

What are Digital Wallets?

A digital wallet is a piece of software that securely stores payment cards and bank account information so that payments can be made online for a variety of payment types. A digital wallet will store the payment and access information for credit cards, debit cards, bank accounts, digital currencies (such as cryptocurrencies), or other digital wallets enabling easy payment. 

Digital wallets are typically used in conjunction with mobile payment systems. Popular examples of digital wallets are PayPal, Amazon, and Google Pay. Other digital wallets include Venmo, Cashme, Apple Pay, Android Pay, and banking wallets with American Express or Bank of America. Clearly not all digital wallets act the same, but in essence, a digital wallet is taking any currency and fitting it for online payment processing. This means that you can pay by “cash” or debit transaction, credit transaction, or with cryptocurrencies.

In 2020, nearly everyone interacts with a digital wallet in one form or another. In 2018, it was reported that nearly $2 trillion dollars were exchanged through digital wallets. Trends also suggest that companies should adopt digital wallet payments as a regular payment method, whether online or in a physical store. 

Types of Digital Wallets 

For reference, there are several different types of digital wallets and it’s important that we differentiate between them. For example, a digital wallet is typically a wallet that is accessible on a single mobile device. It only stores your information in the digital wallet and you do not have to load funds into any accounts to make purchases. Technically a digital wallet cannot make payments. 

Mobile wallets are digital wallets that allow you to make mobile payments with your mobile device. Payment information (such as credit card and debit card numbers) is loaded into a digital wallet app and the mobile device can be “tapped” to pay with Near Field Communication (NFC) technology. Apple Pay is an example of a mobile wallet. While it may be linked with your Apple ID, you can only pay with Apple Pay when using an Apple device. If paying through your bank account, a mobile wallet will request an ACH debit from your bank account and the transaction will be processed immediately, at that time.

This contrasts with an e-Wallet, which can be accessed from a website anywhere you can access the internet (with login credentials). For debit or ACH transactions, an e-Wallet will require that users pull money out of their bank account and put it into an escrow account in order to use it. PayPal is an example of an e-Wallet. 

Cryptocurrencies also have their own types of digital wallets since their payment method details are vastly different compared to those of a credit card. Because cryptocurrency isn’t storing physical cash (or digital cash), a cryptocurrency wallet is a record and address book for your addresses, private keys, and public keys. Crypto wallets can exist either online, on a hard drive, or on a computer. 

Within these methods of digital storage, each wallet is classified as a type: closed, semi-closed, or open. To put it simply, a closed wallet will limit transactions with a single company. A semi-closed wallet will allow you to make transactions to anyone within the semi-closed wallet network. And, open wallets allow you to purchase with any merchant who accepts cards, with the ability to withdraw cash.

Pros and Cons of ACH for Digital Wallets

Depending on the type of digital wallet you have, it would be smart to implement ACH transactions and the acceptance of digital wallets in your business transactions. If you are not using digital wallets in your business transactions, you should implement one soon. 

One caveat to this is that the ACH network is notoriously slow. So, to counteract this delay, should ACH be built within digital wallets? Let’s check out the pros and cons.

Cons of the ACH Network

The ACH Network is a network in the U.S. that provides the process by which a request of funds from one bank account goes through the Federal Reserve and The Automated Clearing House (ACH) and into another bank account. Traditionally, these processes can take a while, and while an ACH nearly guarantees that a payment is made, it may take too long for those funds to get into your account.

Additionally, since the ACH network is operated by commercial banks, it is fee-based. So every time an ACH transaction goes through, the powers that be must be given their fee. While regulatory oversight is not always a bad thing, some oversight might hamper the types of options that are most desirable to some people. Without a doubt, paying this transaction fee for every transaction costs your company money.

Pros of the ACH Network

As mentioned, ACH transactions nearly guarantee that a payment is made, which is one of the biggest pros of the network. By allowing these transactions, you can minimize the time to get paid, avoid battling with third-parties and creditors, and skip the associated fees of credit cards.  

Another huge benefit of ACH is that ACH transactions can be implemented as a process into an Application Programming Interface (API). Since NACHA enabled same-day processing of almost all ACH payments and APIs can make a payment request instantly, then ACH APIs can eliminate this lag. 

Furthermore, APIs can bypass the banking network and drastically reduce the fees associated with ACH payments. Add this capability to the burgeoning smart contracts technology and it is clear that ACH APIs can open up fintech for SMBs and everyday banking transactions.

Reasons to Implement and Support ACH for Digital Wallets

ACH transactions are more affordable and time-efficient compared to credit transactions. And with the growing rise of digital, mobile, and e-Wallets, then it makes good sense to implement ACH debit transactions in digital wallets. 

As fintech grows, more and more platforms are offering choices when it comes to payments. Online and digital payments are becoming quite normal, and more companies are adapting to this change. By supporting ACH for digital wallets, then you are supporting the millions of users who prefer this payment method. This also reduces the cost of transactions on the users’ end to relieve those hindered by mounting credit card debt.

Digital wallets are slowly becoming mainstream. However, since not all businesses have the support for converting to digital payment methods, some companies either miss out on a purchase or are contributing to the role of payment processing by third-parties like financial institutions. 

By supporting and/or implementing ACH for digital wallets, as either an engineer, developer, business owner, or consumer, then you are providing a compelling argument for digital wallets to be accepted more broadly.

How to Implement ACH for Digital Wallets

One way to implement ACH for digital wallets is through the digital wallet API offered by Sila. Through our developer console (aka, the sandbox), you can develop your own ACH API and move money faster.

Our API opens up doors for:

  • Greater financial freedom,
  • Fewer costs associated with bank transactions (such as direct deposit and wire transfers),
  • Secure, transaction oversight through blockchain verification,
  • Virtually fee-free international transfers,
  • Removing the need for paper checks,
  • And complete customizability for your company’s needs.

By implementing ACH as a payment option and accepting digital wallets, then your company can grow alongside a versatile and online market.