The advent of the internet has unlocked the banking and financial services industry to pay securely online. More and more lending agencies are adopting technology to collect and process payments.
How Customers Paid Before the Internet
How did individuals satisfy their monthly payment installments aka, EMIs before online payments gained popularity?
Step #1: The bank produces a physical bill (printed on paper) and mails it to its customers.
Step #2: The customer receives and reviews the bill. In case of any discrepancy, they call the bank executive or visit the nearest bank branch.
Step #3: After reviewing the bill, the customer enters their credit card number in the designated area. They signed it to mail it back to the bank.
Sometimes, the bank included an envelope and a stamp for the customer to mail the completed bill back to the bank. However, in other cases, the customer had to get an envelope and stamp to mail the bill back to the bank.
Step #4: The customer could also pay the bill through a paper check. They have to sign a new check and mail it back with the bill in such situations.
Step #5: The bank receives the check and bill back through the postal system. This often takes several business days to process the payment. Thankfully, now banks and their customers don’t need to deal with this cumbersome process. As a bank, lender, or financial institution, you can partner with reliable third-party payment processors to help your customers pay their mortgages securely online.
Methods to Pay Securely Online
Here are four simple methods that customers can now use to pay their bills online within seconds.
Auto Debit via Hosted Payment Portals
Auto debit, also called Recurring Payment, is one of the safest ways for customers to manage their bills to pay securely online. It does not require any manual intervention. Activate the auto-debit function for your bank account. Then your bills get automatically paid on the given due date without any manual input from you. Setting up this recurring payment feature takes the risk of non-payment or late payment opportunities off your mind.
- Pros: Payments are automatic and do not need any action from your end.
- Cons: The payment may fail and attract a penalty if you don’t have enough bank balance to cover the billed amount.
Online one time EMI Payment – Bank Transfer
You can disable the auto-debit function. Then, you pay your bills manually instead of recurring on the installment payment plan set up.
- Pros: You control when and how much billed amount to pay. You can either pay the minimum due or the total amount.
- Cons: You need to be mindful of your payment schedule. If for any reason, you forget to pay on/before the given due date, your bank will charge you a penalty.
ACH – Automated Clearing House
ACH stands for Automated Clearing House. It is one of the fastest-growing payment methods you can find online. It is also the only secure online payment method with several authorization layers to prevent fraudulent transactions and help with risk management. Here's how banks can start accepting ACH and credit card payments.
- Pros: Lower processing fees, excellent checking account validation tech, easier reversals, etc., are a few reasons why customers prefer using ACH as their primary mode of payment.
Learn more about the benefits of ACH payments.
- Cons: It is not as fast as credit card payments. However, Nacha, the government organization that maintains the ACH technology, regularly updates the tech infrastructure. This increases the network efficiency for customers to process their mortgage, commercial loans, fees, and other transactions securely online.
Credit cards are the preferred mode of payment for minor point-of-sale transactions. However, they are unsuitable for recurring payments and heavy transactions due to their high transfer fees.
- Pros: Credit cards offer fast and seamless payment. They also have immediate authorization in place for customers to only process securely online valid payments. Meaning, that if you are over-extending yourself above the set limit, the transaction will fail then and there.
- Cons: High transaction charges.
Additional Security on ACH Payments
As a bank, you can easily set up ACH solutions for your customers to help them with automated payments. You can use this guide to set up account verification for your customer’s checking account on a secure billing platform.
To start processing payments, you need to collect only a few essential account information points like the account numbers, bank routing numbers, authorization forms, etc. Once you have collected the correct data, you can enable automatic web debits to take recurring payments as agreed upon from your customers’ bank accounts.
You can rely on Nacha’s preferred third-party validation service vendors for completing the web debit account validation process.
The latest Nacha account validation rule went into effect on March 19, 2021. This rule fortified the overall ACH network further, and effectively prevented a major chunk of fraudulent transactions so that business owners could process payments securely online. The key benefits of validating your customers’ accounts include:
- Nacha Compliance
- Reduced Drop-Offs
- Reduced Risk and Fraud
Banks and businesses that collect payments using ACH solutions rely on their customers to fill in the correct information on the authorization forms. If the customer gives invalid account information for any reason, often due to wrong data entry), the bank is forced to reject the payment. So, this rule acts as an additional filter for data validation to process securely online.
This account validation process confirms that the accounts used to pay the bills are valid and open at the time of the transaction to allow banking clients to pay securely online. Without this validation in place, major banks and financial institutions processing thousands of ACH payments every day could lose millions of dollars in fraud.
In case of a failed payment, the lender may receive a return code when processing the ACH payment to process securely online.
If you want to set up ACH and credit card processing for your clients, you can contact us today.
Date originally published: January 25, 2022
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