What are e-checks? Find out the differences between paper and e-check

‘Your check is ready!’—words that were music to the ears of most of us in business or service. Used even a few years ago, that piece of paper felt like a trophy in our hands. It meant so much to so many. Cut to the present. Under the influence of digital technology, the paper check has fallen out of favour. Our preferences have shifted to more efficient digital options, and some of us feel denied the pleasure of receiving a check in hand.

The COVID-19 pandemic has accelerated the cause of paperless transactions. Of the various digital payment choices, today we take up e-checks and examine their pros and cons against the good old paper check.

While convenience, cost-saving and speed of transactions are significant advantages to electronic checks, the banking system has not exited paper payments altogether. The number of paper check transactions worldwide, however, is reducing fast.

What are the differences between a paper check and an e-check?

A check is a banking method of drawing money from the payer’s account and transferring it to the recipient’s account. A paper check is an authorised standard instrument with specific information printed on it. In addition, the issuer needs to fill in the recipient's name, amount payable, and date and validate the check by signing it.

E-check—Does the name throw you off? Has someone offered to pay you via electronic check, and being unsure of what it is, you refused? Don't worry, you have plenty of company in this bewilderment. Let us now find out precisely what an e-check is.

An electronic check, or an e-check, is simply a digital payment equivalent of a paper check. In both cases, the money is drawn directly from the customer’s (payer) account and credited to the payee’s account. E-checks use digital signatures, and digital certificates or passwords authenticate the subsequent transaction process. E-checks, however, are not to be confused with paper checks deposited digitally into a bank account using a check scanning app.

Beyond the similarity in concept, there are several operational differences between the two.

In the case of e-checks, the user must register with an authorised third-party account server (usually an app-based programme) to avail the facility. The details (amount, payee’s name and bank) need to be provided in the online form and payment permission sent to the bank electronically via an OTP-based approval system.

At the registered merchant point, such as a store, you have to provide your e-check details in a specific online form, including the authorisation code. The delivery (of an e-check) happens either by direct transmission using telephone lines (similar to credit cards) or via the internet.

Banks clear payments through the existing Automated Clearing House (ACH) in the same way as with paper checks. Typically the process consists of:

An Originator—the recipient of the electronic check;
The Originating Depository (OD) or the originator's bank aggregates all payments (e-checks with that bank branch) from various customers and sends them in batches to an ACH operator.
The ACH operator verifies the payment request and, based on authorisation, clears the fund request and credits the business bank (originator's bank)
The customer's bank, on receipt of the fund request (from the ACH operator), verifies the customer's account balance and debits the e-check amount while crediting the business bank account (recipient).
The processing, however, takes place only during banking hours, similar to the paper check clearing process.

In the case of paper checks, the payer writes the check, signs and hands it to the payee, who deposits it in their bank account. The bank then clears the check through an ACH and credits the amount in the beneficiary’s account.

E-check vs Paper check

Here is a comparison of the features:

Feature	Paper checks	E-checks
Structure	Issuer-specific piece of paper (in booklet form) of pre-determined dimensions containing issuer and user information	An app-based digitally stored information
Method of payment	Recipient's name and exact amount to be filled in (on check leaf) by the user; signature is the proof of authorisation of the payment; payees on physical receipt of the instrument deposit in their bank account along with the required form	You fill in a digital form with payee details and pass on to your payee digitally
Convenience	Risk of misplacement or theft; you need to keep the check book handy and carry along for making payments	Your e-checks can be in your phone and therefore no chance of losing the check book (you may lose your phone though!)
Safety	Thefts, loss in transit may result in confidential information falling into wrong hands	E-checks are secure and without any risk of loss in transit; multi-layered safety procedures are followed
Process Time	Takes a relatively long time; pre-clearance transit time (courier/post) is quite long wherever exists; depositing involves visiting the bank, filling out a form	Process is more straightforward, you pass on the check instantly; the clearing time however, is more or less same as paper checks
Cost	Printing, handling and transit costs involved	No printing and other costs; one-time cost of technology; low user charges (less than 1%)

Final word

Paper checks are down but certainly not out. There are still plenty of payments exchanging hands by this mode.

Some seniors prefer using paper checks primarily because of familiarity (with paper checks) and antipathy to technology. Many of them (seniors) are not comfortable with passwords, OTPs and digital signatures.

More importantly, a sizeable percentage of the population of India lives in areas with poor or no internet connection and unreliable phone service. Electronic checks/digital modes will not be effective in such situations. Then there is another group, albeit small, the paper check-aficionados. Paper and e-checks will co-exist, leaving the choice to you—the customer!

Also Read:

1) What is the KFC franchise cost in India?
2) What is the cost of setting up a McDonald's franchise in India?
3) Latest Digital Marketing Practices For Your Business In 2021
4) How to Turn Your Jewellery Hobby into a Thriving Business?

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FAQs

Q. What kind of payments are possible with e-checks?

Ans. From high-value purchases to the monthly rent that you settle through a paper check, all expenses can be paid by electronic checks.

Some large retail establishments prefer e-checks over credit cards since the processing charges are lower. However, you have to enrol with a safe and secure e-check service provider and ensure that your payee is registered for such payment.

Q. Is an e-check a safe payment option?

Ans. Electronic check is a digital method of payment. The security of your money depends on two things–

The type of cyber security measures your service provider uses, and
How cautious you are with protecting your password, account number and authorisation code.

Please remember that your data is at potential risk in the digital world every time you share it online. Internal security (of your apparatus) and system measures protect your data.

Q. In the case of paper checks, I can stop payment in case of an emergency. What happens for e-checks?

Ans. Stopping a check payment is a specific once-in-a-while need and not a standard requirement. However, you must inform your bank to initiate the process before the instrument is cleared for payment (within two days of deposit).You can stop payment of e-checks too, but as the processing time at the receiver bank is less—action may be required within a day.