Electronic payments in the form of ACH transactions are on the rise, and it is easier than ever for political campaigns to accept electronic checks via phone, Web, or fax

By Matt Whitaker
Smart Payment Solutions, Inc.
www.smartpaymentsolutions.com
Mwhitaker@smartpaymentsolutions.com
703-516-4282

A potential donor encounters an online donation form. What payment choices are there? Usually two — pay now or pay later. Pay now leads to a credit card donation, which will cost your campaign a minimum of 2-4% of the donation in credit card fees. Pay later implies that your donor will mail you a check, possibly after submitting FEC required information online. In this case, several days to several weeks later the campaign may receive a check, process it, deposit it in the bank, and wait another week for the funds to clear. Or, the well-intentioned donor could neglect to ever mail a check, out of forgetfulness or a change of mind. Of course, this is the worst case possible for the campaign.

Finally, there is another choice that will help all donors "pay now", no matter how they choose to donate. Electronic payments in the form of ACH transactions are on the rise, and it is easier than ever for political campaigns to accept electronic checks via phone, Web, or fax. You can even scan paper checks received by mail and convert them to electronic payments, saving the trip to the bank and gaining quicker access to the cash.

Confused? Don’t be, because you probably benefit from ACH transactions already. When cable, utility, or mortgage companies offer you the option to have your bank account debited automatically each month, they are using an ACH transaction. Or, if your employer offers you direct deposit of your paycheck, they are using an ACH transaction to deposit the money into your bank account.

An ACH transaction moves funds from one bank account directly to another. The Federal Reserve set up the ACH network in the early 1970’s when it believed that the volume of paper checks would soon overwhelm the existing computer systems. For the most part, the ACH network has been used by financial institutions and large companies that could afford to invest in expensive technology. Transactions have increased dramatically in recent years, as the governing board, the National Automated Clearinghouse Association (NACHA) has developed rules flexible enough to accommodate Web and telephone initiated transactions. According to NACHA, in 2001, total volume of transactions was up by 16.2%, approaching 8 billion annual transactions. The volume increase from 1999 to 2000 was 12.4%. Much of the transaction growth has come from new industries which are adopting ACH transactions for their huge benefits.

What’s different now? In the last seven or eight years, many technology companies have come on the scene to deliver ACH capabilities to smaller companies and organizations. Whereas many banks that offer the services require several months of implementation time and minimum monthly transactions in the thousands, smaller processing companies, called Third Party Processors in industry-speak, are nimble and can serve companies collecting or writing a few hundred or even a few dozen checks per month.

These developments are great news for political campaigns. From the donors’ perspective, electronic checks are a welcome option. Many donors prefer to give by check, and there are still 70 million US consumers without the use of a credit card. These donors can now enter an electronic check online, or phone in a donation by check. Campaign fundraising efforts can benefit tremendously. For web or phone campaigns, you can significantly increase your fulfillment rates on pledges as you can capture an electronic check immediately and receive the cash in your account within two to three days. Also, you can virtually eliminate the use of pledge cards. An email campaign can achieve a new level of success, as an email can contain a link directly to an electronic check donation form. And, unlike credit cards, the ACH network allows you to make payments as well as take payments, so while your campaign staff is knocking on doors in a faraway state, you can assure them that their pay or expense checks will be deposited into their bank accounts safely and timely.

Now the really good news. The cost of ACH transactions is low compared with the cost of other payment options. While pricing varies widely in the industry, ACH transactions are usually priced per transaction with a price usually well under a dollar per transaction, and more typically in the thirty to fifty cent range. Credit card fees are based on a percentage of the purchase, so for large dollar-value donations the savings can be dramatic. Paper checks have large hidden costs, including processing time, trips to the bank, loss of float while waiting for checks to arrive and clear, and high fees on returned items. ACH transactions will usually save your staff both time and effort, all while gaining you quicker access to cash.

When choosing a provider, look carefully at the technology as well as the costs. Many providers can have you up and running within a few days. Make sure a service provider can do everything you require, including issue credits (making payments) as well as debits (taking payments.) The best solutions will allow you to enter payments directly, such as when a donor phones in a donation. They will also allow you to upload a batch file. For example, if you have an advanced website, you can capture your own FEC-required donor data along with the payment information and upload that from your system into your processor’s system. Ask also about the capacity of their systems. You don’t want the system to crash when you are expecting large donations to clear. And ask about their holding period. Most companies will "hold" your cash in a clearing account for a few days to net out returned checks. In most cases you will still receive your cash quicker than with a paper check.

Your staff and your donors will appreciate the benefits of ACH transactions, and your campaign will benefit by seeing larger net returns from donations as you reach more donors and reduce credit card fees. Even though they never expected to say it, many campaign fundraisers will soon be telling potential donors to put away their checkbooks as they say farewell to the paper check.

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