Digital Banking: Chime and Plaid are Leveraging ACH Payment Methods to Help Businesses Streamline Operations

Digital Banking: Chime and Plaid are Leveraging ACH Payment Methods to Help Businesses Streamline Operations

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Digital bank Chime notes that if you’ve ever tried to schedule an automatic bill payment from your bank account or received a direct deposit, then you may appreciate how convenient these transactions might be. We may be able to avoid many late fees if we settle transactions in this manner.

Chime explains that these transactions are handled via the ACH network, which offers a method of completing payments electronically.

Chime notes that an ACH transfer is an electronic or digital movement of money from one bank account to another. In an ACH payment, you have one individual or entity that’s sending a payment and another that receives it. This payment is handled via the Automated Clearing House (ACH) Network, Chime explained.

When handling these types of payments, there are certain details required such as where the funds are coming from and where they’re being sent.

As noted by Chime, the following info is needed:

  • Bank acct no. and routing info for the individual or business sending the payment
  • Bank acct no. and routing info for the individual or business that will receive the payment
  • Name on the account and name of the bank
  • Amount to be sent

Chime’s blog points out that if any piece of information mentioned above is not provided, then an ACH transaction can’t be completed.

Chime also mentions that an ACH transfer can be performed via debit and credit. The digital bank further notes that an ACH debit transaction involves the withdrawal of funds from a bank account. An ACH credit transaction takes place when funds are deposited into a bank account.

In these types of transactions, you have the person or business sending the money. You also have the person or business receiving funds. Both the sender and the recipient’s banks are also involved and the ACH operator that handles electronic debits and credits also ensures the transaction is successful, Chime’s blog post added.

Chime also mentioned that if you’re initiating an ACH payment, then the direction the funds are moving determines if it’s a debit or credit. Some examples of ACH credit and ACH debit transactions are as follows:

ACH Credit:

  • Employer-originated direct deposit payments
  • Direct deposit payments for tax refunds or stimulus checks
  • Direct deposit payments of government benefits
  • Payments received by businesses for goods or services

ACH Debit:

  • Automated bill payments scheduled from a checking account
  • Transfers of money between accounts you own at different banks
  • Electronic payments made to businesses for goods or services

Chime’s blog post further explained that ACH payments can sometimes be referred to as “push” or “pull” transactions (depending on which way the funds are moving).

Personal finance specialist Rebecca Lake, the blog post’s author, writes:

“[ACH] works in reverse when you’re receiving a payment. So, if you set up direct deposit with your employer, you’d receive an ACH credit or push transaction once the money hits your account. Your employer would pull the money from its bank account to pay you, resulting in a ACH debit.”

She adds:

“In general, ACH payments are convenient and simple to process. (It’s a lot simpler to schedule an ACH payment than write a paper check!) And, since they’re electronic with a digital paper trail, they’re also easy to track.”

Fintech Plaid reveals that in 2019, there were around 23 billion ACH transactions transferring more than $51 trillion. Same-day ACH transactions “more than doubled in 2018, and the value of those payments increased 83% this past year.”

Plaid pointed out that ACH expansion has “outpaced economic and population growth.” However, most consumers don’t actually realize they are leveraging the network—or even know what it is, Plaid notes.

Plaid adds that ACH powers things such as paychecks sent through direct deposit, recurring bill payments, and peer-to-peer exchanges including PayPal and Venmo.

Plaid helps onboard users for ACH payment by “eliminating microdeposits, which can shorten your onboarding process by several days.” Many ACH processors take a flat fee per transaction instead of a “percentage fee” often charged by payment card networks, Plaid noted

Plaid also revealed that 72% of employees say that “being paid by ACH deposit helps them control their finances.”

Meanwhile, Chime’s blog post notes that “most likely, you use ACH payments far more than you think.” The blog adds that an easy way to begin taking advantage of the benefits of ACH payments is to set up direct deposit for your paycheck, tax refund or even stimulus checks.

You may go ahead and enroll in direct deposit with Chime and potentially get paid up to two days early.

Notably, Chime has held discussions with various banks regarding its plans to conduct a stock market flotation, which may value the company at over $30 billion. This could happen by the end of this year, according to Reuters which cited sources familiar with the matter.

Chime’s management claims that their average customers spent 33% more during 2020 via the digital banking platform than in 2019.

Chime CEO Chris Britt says people “don’t really want to touch ATMs anymore.” He added that people “don’t want to handle cash as much as they used to” and they are “getting more and more comfortable with paying for things through apps, managing their accounts through apps.”

Chime has also managed to gain customers by providing US consumers with early access to their stimulus checks. Britt claims that this is part of an “obsession” to support clients during these unprecedented times.

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