Agile Payments Blog

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Is ACH a Requirement for Applications With a Recurring Payments Component?

Sep 10, 2019, 3:48:16 PM

Applications that have a subscription component can differ in many ways, but almost universally there is an advantage for the application to integrate to an ACH API for origination and management of recurring payments. requirement, maybe not. Advantage to integrate and offer, most certainly.

One of the common problems that subscription based applications encounter is rejected credit card transactions due to expired, lost, stolen or recently re-issued EMV credit cards. Credit card decline rates in the recurring SaaS space average ~15%, with some applications exceeding 20%. These declines result not only in lost revenues, but also create an enormous customer service burden in chasing down new credit card information.

Bank checking and savings accounts simply don't expire like credit cards do. They ACH APIalso are far less suspect to data theft. Bank accounts simply don't have the decline rates that credit cards do, especially in the recurring payments space. Moreover, declines that occur on the bank account side are far more likely to be declined for NSF reasons than being a closed account. NSF declines don't mean the transaction has hit a dead-end. NSF re-presentments can be programmatically resubmitted up to two times, ideally using strategic logic such as logical pay dates like a Friday or the first or fifteenth of the month. Makes sure your ACH API provider has this capability within their API. 

In addition to the benefit of fewer recurring declined transactions, the SaaS application should consider the revenue that can be saved due to reduced processing costs. Credit card processing costs amount to 2-3% of the recurring transaction amount. In a $75 recurring transaction this means a cost per transaction of between $1.50 and $2.25. So an SaaS with a monthly subscription base of 1,000 users will easily spend $18,000 in annual card processing costs. Assuming you are working with an ACH provider that prices you at a flat rate, that $18,000 can be reduced to $3,00 in annual processing costs, assuming 100% adoption.

Adoption rates vary by organization. In our 20 year experience, we have clients who have ACH adoption rates as high as 100%. While that not the norm, what I can say is that we do have hundreds of clients in the same business space, selling the same products or services, where the adoption rates vary significantly from 100% to single digits. The overwhelming reason for this is the given organization's focus towards increasing adoption. Yes, meeting customer needs certainly plays a role, but placing a focus on increasing adoption to ACH is a significant driver.

Applications that provide services to Canada should also consider what is the Canadian equivalent, Canadian EFT. Ideally, your ACH provider can allow you to work seamlessly via a single API to facilitate both U.S. ACH and Canadian EFT transactions.

Gene Krause
Written by Gene Krause

Gene has been consulting businesses of all sizes for 20 years and providing them with strategic payments and gateway integrations.

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