An electronic check, also known as an e-check, is a device by which someone owed money may debit the bank account of the payer without actually having a physical check in hand. This can create a convenience for both the payer and receiver, depending on the situation. An electronic check can also cut down on the time it takes to process a payment.
Though for some it may be confusing to think about how electronic check processing works, it is actually a very simple process. There are three very important pieces of information on a check whenever any check is drafted. The first is the routing number, which shows the bank where the account is located. The second is the account number itself, which indicates the account the funds are to be drawn from. The third piece of information is the amount. While there are other pieces of information on a check, such as the date, name and address of the account holder, these are non-critical pieces of information.
Once authorization has been obtained to process an electronic check payment, those three pieces of critical information are taken and processed. The receiver's bank will then usually contact the payer's bank with the appropriate information, at which time the payer's bank will honor the transaction, as long as it believes there is no fraud being perpetrated and sufficient funds exist in the account. Once completed, the receiver may store the account and routing number for future reference or delete the information.
Electronic checks are becoming very popular, especially as consumers, introduced to expedited payments through debit card transactions, have become more aware of technology when making simple business transactions. It is popular for receivers simply because they get their money substantially quicker than they would by traditional means. In the past, a payer would have to mail a personal check, which would then travel to a processing center. Once there, it would be deposited for payment and credited. Then, it would likely travel back to the payer's bank, before payment would be made to the receiver's bank. This process could take a week or longer.
Retailers are also increasingly turning to the electronic check as a way to provide customers another payment option. In the past, retailers have always taken a risk when accepting a check. In some cases, that risk was determined to be too great and the retailer stopped accepting personal checks at all. Now, with electronic check processing, the retailer may be able to discover instantly if sufficient funds are in the account to cover a transaction.
However, the electronic check method also has some criticisms. Consumers can no longer "float" checks. This involves writing a check on an account which, at the time, does not have sufficient funds but is expected to by the time the check clears. Further, some are worried electronic checks can increase the potential for fraud. In reality, an electronic check gives the receiver no more information than a traditional check would, and may, in some cases, even give him less.