Process Differences Between ACH Payments and Wire Transfers

Process Differences Between ACH Payments and Wire Transfers

ACH payments are a common way to send money in the United States. Part of their popularity is because sending an ACH payment is automated, ensuring that the transfer itself is more secure and reliable. However, many people still rely on wire transfers to move their money. Wire transfers remain a familiar payment option and allow for easy international payments. 

While similar, ACH payments and wire transfers each offer their advantages. Before you can decide which method is right for you, you need to fully understand the differences between the two processes. 

To help you make sense of ACH payments and wire transfers, this article will do the following: 

  • Identify key differences between ACH payments and wire transfers
  • ACH payment and wire transfer cost comparison
  • Speed comparison between ACH payments and wire transfers
  • And provide advice on how to choose between ACH payments and wire transfers for your business

Key Differences Between ACH Payments and Wire Transfers

An ACH payment transfer is a method for sending and receiving money electronically. ACH payments can be issued as an ACH debit or an ACH credit and require the routing number, account number, and banking information of each individual involved in the transaction. Once the request is put through, it is automatically checked and verified in the Automated Clearing House Network (or ACH Network).

While this process is similar to a wire transfer, there are key differences that distinguish the two. 

For example, a wire transfer, which is a money transfer from one bank account to another, has to be facilitated by humans. Once the request for wire transfer is made, someone still needs to be on the other side to verify that the account holder’s name is correct, to put in the payment request, and to complete the transaction. 

Therefore, the biggest difference between an ACH payment and a wire transfer is the acting middle man. Bank wires require that banks play a role in facilitating the transfer of funds, which could lead to wire transfer fraud. 

When sending an ACH payment, however, the money is verified automatically by the Clearing House, thus virtually eliminating ACH payment fraud. But, this automation does not mean that there are no other actors involved in the ACH payment process (or that technology can be used to malicious intercede with the payment process). 

These actors are called ACH Operators and they operate within the ACH Network. ACH Operators involved in the process include:

  • The bank account holder(s) sending and receiving the funds
  • The bank where the ACH payment was initiated (also known as the Originating Depository Financial Institution or ODFI)
  • The bank where the ACH payment was received (also known as the Receiving Depository Financial Institution or RDFI)
  • The Automated Clearing House (ACH)
  • The Federal Reserve
  • And the National Automated Clearing House Association (NACHA) where the rules and guidelines around ACH payments are established

There are a few other fundamental differences in payment processes. 

ACH payments are always sent in batches, as opposed to wire transfers which are sent individually or in small batches if there are a large number of wire transfers to process. 

Additionally, similar to check fraud, there is a higher chance of wire transfer fraud. Because there is some downtime in the processing of wire transfer debit from one account and the deposit into another, there is a greater opportunity for fraud to occur. 

ACH payments do not operate in this way. Instead, the RDFI might receive the payment request but they often wait up to 48 hours before completing the transaction. This time delay allows the automated checks at the Clearing House to confirm that the account holder’s information is correct and that there is enough money in the account. If this information is not confirmed, the RDFI is issued a return code and the transaction does not process. 

When completing same day ACH transactions, this delay is not necessary. Same day transactions fall under Know Your Customer (KYC) rules and they provide more reliable transactions. 

A wire transfer can take place across international borders and with foreign currency, something that the ACH payment process cannot facilitate without the use of an intuitive ACH API. Therefore, a wire transfer is very beneficial when sending money in a foreign currency. 

ACH Payment and Wire Transfer Cost Comparison

Another key difference between ACH payments and wire transfers is the cost of each. An ACH payment is one of the most affordable ways to send money electronically as it only costs around USD 0.29 to send. 

Most banks do not charge any fee with submitting an ACH debit, meaning the account owner never feels the weight of sending ACH transfers. If they do, that expense is minimal. ACH payment fees are often subsumed under bank account fees, but, depending on the frequency of ACH transfers sent and the size, associated fees are still largely inexpensive. 

On the other hand, a wire transfer often costs about USD 15 to send the money and for the receiver to receive it. Therefore, depending on the relationships between the two people involved in the transaction, the sender might end up paying for the receiver’s fee. This is far more expensive compared to the minimal fees of an ACH transfer

Speed Comparison Between ACH Payments and Wire Transfers

When sending money, you need to know when the money will leave the sender’s account and arrive in the recipient’s bank account. To gain this information, you must understand the differences in processing speeds between ACH payments and wire transfers. 

One benefit of sending a wire transfer is the speed. Because wire transfers require that the banks involved in the transaction help facilitate, move, and complete the transfer, a wire transfer can be completed far faster than the ACH payment. 

In general, a wire transfer only takes 24 hours for the entire transaction to be completed. This timeline may change slightly if that transfer is taking place over a weekend or a bank holiday. However, typically speaking, you can expect that a wire transfer will be completed by the next business day if requested during normal business hours. 

An ACH payment, on the other hand, is not guaranteed to reach the recipient within 24 hours. Instead, two types of ACH payments can be sent: a same day ACH transaction or a standard ACH transaction. 

A same day ACH transaction might sound like the bank payment request would be made and given to the recipient on that very same day. However, this is not always the case. Instead, a same day transaction is approved by NACHA to be sent during before two cut off times. 

As of right now, ODFIs can submit same day ACH payments through two clearing windows:

  • 10:30 AM ET, with settlement occurring at 1 PM
  • 2:45 PM ET, with settlement occurring at 5 PM

Also note that while settlement occurs at 1 PM, the recipient still might not receive the payment until the following day due to the bank’s processing timelines. 

Standard ACH payments do not process this quickly. Standard ACH payments will be processed the next business day and then abide by a 48 hour waiting period where the information will be verified or a return code sent by the Clearing House. Therefore, a standard ACH transfer will take anywhere from 3 to 4 business days for completion. 

How to Choose Between ACH Payments and Wire Transfers for Your Business

When deciding between ACH payments and wire transfer payment processing, there are a few things that you should consider: 

  • Is the recipient’s currency USD? If you are sending money and the recipient cannot receive USD, you will have to send an international wire transfer or use some type of ACH API that can convert the ACH payment for you. Depending on the ACH API used, the recipient may need to use the same ACH API, digital wallet, or payment gateway to receive the funds. 
  • When do they need the money? If the person needs the money right away and the only way that it can be sent is via bank transfer, a wire transfer might be the way to go. Transferring money via ACH API is usually the fastest way to move money, but all transfer times will depend on the bank, financial institution, and ACH API processing timelines.
  • Is this a one-time payment? If this is a one-time payment, you might want to consider whether or not you trust this person enough to share banking information. While a wire transfer is recommended in one-time payments, if the recipient has an ACH API, it can act as the middleman and protect your business banking details. 
  • Do you know this person? Whenever sending money to someone, you should try to collect as much information about them as you can. You will also want to put some safeguards in place to protect your business. 
  • Is this for payroll? When sending money to your employees, chances are you are developing, or have already developed, a relationship with this person. Therefore, sending their payroll income via direct deposit, or ACH billing, is the preferred method. 
  • What about EFT? An electronic funds transfer (or EFT) is a form of ACH payment that occurs between a business and client on a regular date each month. Allowing EFT instead of pay by credit card will make your clients happier because there is no need for credit card rates and transferring money to make a payment work. Instead, with EFT, clients need only to ensure that the money is in the allotted checking account. 
  • Is this a bill payment? It is much more likely that your bank will allow for a fund transfer to occur when paying a bill. This is because many major companies have been approved as part of that bank’s bill pay center. This is an ACH payment, and you would not want to use a wire transfer to pay a bill. 

When sending or receiving an electronic payment, you need to be sure that the money will arrive at the receiving bank, that the transfer process is reliable and secure, and that you won’t lose too much money to fees in the process. 

There are perks and fallbacks to sending money via ACH payment and wire transfer. Which wat you decide to send the money will depend on the currency that the receiver can receive, how fast it needs to be sent, and the cost of processing a wire transfer at your financial institution. 

In general, ACH payment is an extremely reliable way of sending money. ACH payments are only limited in sending money internationally from or to the U.S. However, an ACH API like the Sila API can help facilitate this transfer.