Nikita S @singareddynm investor @rre ventures (seed, A, B) 👩🏾‍💻 keeping tech weird on spaceship earth, serial experimenter 🤖 ex @oscarhealth @thegovlab stats @columbia Aug. 30, 2019 2 min read

Automated clearing house (ACH) network vs credit cards.

In 2017, $51.2T worth of transactions were processed via ACH compared to $6T over the Visa and Mastercard rails. Why is there a huge divide between customer (credit card) and merchant preference (ACH)?

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Some definitions: ACH enables bank-to-bank transfers in the U.S. If you’ve ever used Venmo or received an automatic deposit from an employer, then you've transacted via ACH.

Credit cards use a network like Visa/MasterCard to verify an identity and then approve a transaction.

Consumers much prefer credit cards to ACH options (48% vs 12%). Not only because they pay later but also for card rewards 🤑

But for consumers, cards decline ~15% of the time. Cards are also v expensive for merchants who forfeit ~2% of the purchase $ to interchange fees.

No wonder bodegas put a $10 minimum before you can use a credit card. (This has been annoying for me in the past. I always have to buy like 5 Kit Kat bars to meet the minimum).

ACH is way cheaper for businesses, with flat rates and percentages below 1%.

An example from Alto Pharmacy💊Transactions over $1000 represent a lot of their monthly revenue… with credit cards, Alto was giving up $50+ on each transaction. Switched to ACH, saving $20K+/month.

So the savings are huge for merchants. But ACH still SUCKS. If you talk to any SMB or startup - it takes forever to actually get any money. For individuals, payments are so slow that plenty can't pay rent on time and lose an apt because a check didn't clear fast enough.

Previously with ACH, to verify your bank account, you’d have to send micro deposits. I remember doing that with Venmo years ago (sending myself 5 cents) and it took 3 days.

There have been improvements. Services like Plaid let you verify accts in less than a minute.

With same day ACH, we’re seeing better account connectivity (for KYC), real-time balance checks, RTP data improvements.. but there’s more to be done to improve rails and drive adoption.

Been thinking a lot about this. I'd love to hear your predictions for credit cards vs ACH.

Most of my fintech knowledge comes from the case studies on Plaid plus WSJ, PYMNTS, Fintech Today, etc. Check them out: 

This also just came in the mail, gorgeous new CashApp card.

I need to get more things in blackest black. So slick.

The other thing that I egregiously forgot to mention (h/t
@jkwade) is that Visa and Mastercard obviously have huge merchant networks. Visa alone has 46+ million merchant locations, 15,900 financial institutions.

Right now, ACH consumer options like Square pale in comparison.

Fintech guru @mengxilu breaks it down further, showing push/pull payments and mechanistic clearing differences between:

Same Day ACH
Clearinghouse RTP
Visa Direct
MasterCard MoneySend

You can follow @singareddynm.


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