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Key takeaways
- EFT is the umbrella term for digital payment methods, while ACH is a specific type of EFT that operates through a U.S.-based network.
- ACH processes transactions in batches with one- to three-day settlement, while other EFT types like wire transfers offer same-day processing at higher costs.
- Choose between ACH and other EFT methods based on your priorities for settlement speed, transaction costs, volume requirements and geographic reach.
Understanding the relationship between Automatic Clearing House (ACH) and Electronic Funds Transfer (EFT) payment methods is crucial for optimizing your business’s financial operations. While related, these terms represent different concepts—ACH is actually a type of EFT—with important distinctions in processing time, cost and functionality.
Knowing when to use each method can significantly impact your payment efficiency and bottom line.
Our team can help you navigate the right payment types and systems for your business.
What are EFT payments?
EFT is an umbrella term for any digital method of moving money between accounts, either within the same bank or across different banks. ACH transactions are one type of EFT; others include wire transfers, credit card payments and real-time payments (RTP). EFTs use a variety of payment networks and systems.
What are ACH payments?
The term ACH stands for Automated Clearing House, a U.S.-based network that processes batched electronic payments between bank accounts. ACH transactions are a type of EFT used for direct deposits as well as other payment types, such as electronic checks (eChecks) and peer-to-peer payments.
ACH transactions are facilitated by an operator—either the Federal Reserve or The Clearing House. The governing body that manages and promotes the ACH network is called Nacha.
Key differences in payment processing
Here are some of the main distinctions between ACH payments and other EFT types:
| Feature | ACH | Other EFT Types |
|---|---|---|
| Processing method | Batch processing | Individual (wires); varied (others) |
| Settlement speed | 1-3 days; same-day available | Minutes to hours (wires); immediate (some RTPs) |
| Cost | Lower; little or no fee | Higher; $15-50 (wires) or more for other types |
| Geographic reach | Most commonly U.S., international use limited | Domestic and international |
| Volume capacity | Low value, high volume | Low volume, high value (wires), variable (card and RTP) |
Which payment type to choose for your business
You can choose among several payment and processing types, depending on your specific needs:
- Traditional ACH transfers: These are ideal for regular, recurring payments such as payroll and utility bills. ACH payments offer a cost-effective solution with predictable processing times.
- Wire transfers: Wires are useful for urgent, high-value transactions that require quick completion. While more expensive, wire transfers provide speed and security for critical payments.
- Card transactions: Credit and debit card payments may be preferable for your business or your customers when immediate payment is needed, convenience is a priority or the transaction involves online shopping or in-store purchases. You can choose from various point-of-sale systems, mobile readers and online gateways to accept card payments.
Options for international and cross-border payments
Special care should be taken when choosing a payment type for international and cross-border payments.
International ACH payments
While ACH payments can be made internationally (a practice known as International ACH Transfers or Global ACH), this payment option involves unique drawbacks as well as advantages when compared with international wires.
An IAT facilitates international payments by involving a foreign bank in the transaction, either to send or receive money. They are often less expensive than international wire transfers. However, international ACH transfers can come with potentially unexpected fees. Not all banks support them and they can take significantly longer than domestic ACH transfers. Additionally, ACH payments to international recipients can only be delivered in local currency, making them potentially subject to currency exchange fees and international regulations and controls. IAT is a good option for low-value, non-urgent cross-border payments.
International wires
International wires are often preferred over IAT payments for faster processing times, U.S. currency support, ability to handle large sums and broader international acceptance than international ACH payments. However, cross-border wires are likely to incur processing fees charged by each bank in the transmission chain (known as “lifting fees”). International wires are ideal for high-dollar and critical payments.
We’re here to help
J.P. Morgan is committed to developing and offering end-to-end payables and receivables solutions to help support your needs and objectives.
To learn more, please contact your J.P. Morgan representative or visit our treasury solutions page.
JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/commercial-banking/legal-disclaimer for disclosures and disclaimers related to this content.
