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Explained: What is Guaranteed ACH?

March 14, 2024
Morgan Shearer

The payments landscape is changing every day. Even relatively new-to-consumer concepts like digital ACH payments are being differentiated based on the provider.

With a solution that’s new to many, there’s a risk of misinformation by some ACH payment processors. 

This post explains a commonly misused term—" guaranteed ACH "—to help protect your business from misrepresented details about ACH payments. 

First, what are ACH Payments?

An ACH debit payment is a direct payment or transfer of electronic funds between two bank accounts across the Automated Clearing House (ACH network). These account-to-account (A2A) transactions remove the need for cash or credit/debit cards, improve cash flow, and offer customers an easy and secure way to pay.

To start making ACH payments, customers simply link their bank via secure login, then the money is pushed into the merchant account. Learn more about real-time payments.

This seamless payment process is used across industries, like retail, online gaming, cannabis, and more, as a viable debit and credit card payment alternative

What does “guaranteed ACH” mean? 

Guaranteed ACH payment methods are offered by some providers as a protection against ACH returns (chargebacks for bank transfers), essentially “guaranteeing” a customer’s ACH payment.

Guaranteed ACH processing is said to protect business payments from being returned due to insufficient funds or closed accounts. However, there are common misconceptions regarding the efficacy of guaranteed ACH payments and what they truly cover. 

To more clearly understand the nature of guaranteed payments, let’s break them down. 


The risks of chargebacks

Chargebacks exist as a form of consumer protection. They allow card-paying customers to dispute a charge and have their money returned for reasons like:

  • Unauthorized transactions: Cardholder notices charges they didn't approve.
  • Product or service not received: Customer pays for a product or service that is never delivered.
  • Product or service not as described: Customer’s goods or services are significantly different from what was described at the time of purchase.
  • Duplicate charges: Customer’s bank is billed multiple times for the same transaction due to processing errors. Examples include recurring payments like utility bill payments.
  • Technical issues: Technical problems such as errors in the transaction process, incorrect billing, or issues with authorization can also lead to chargebacks. This might happen if there's a glitch in the payment processing system that causes incorrect charges.
  • Clerical errors: Mistakes made during the billing process, such as incorrect amounts being charged or transactions being billed to the wrong accounts, can also result in chargebacks.

Note: The most common reason for chargebacks is “friendly fraud,” which happens when a consumer initiates a chargeback for illegitimate reasons. 

Generally, the average chargeback ratio across industries is 0.60%, but many verticals face a much larger chargeback risk. These riskier industries include:

  • Gaming: Chargebacks are incredibly common in the sports gaming industry because players are more likely to file disputes to recoup their losses. We call this buyer’s remorse and it’s the most common type of dispute in daily fantasy sports. There is a 28% chance a player will dispute again if they can do so the first time. 
  • Cannabis: Payments in cannabis operate in a gray area where many processors are miscoding or enabling card payments that are against the rules. For this reason, it’s easier for a consumer to dispute these charges. 
  • Subscriptions: The subscription sector is notably susceptible to chargebacks and friendly fraud when account holders forget to or fail to recognize a recurring charge.  


ACH returns 

An ACH return is similar to, but not the same as, a chargeback. It’s an electronic payment transaction that's sent back to the original sender by the recipient's bank. This happens for a number of reasons, like: 

  • Insufficient funds
  • Account closed
  • Stop payment
  • Buyer’s remorse

In highly-regulated industries like Daily Fantasy Sports, the most common ACH return code is R10 (which is buyer’s remorse). In technical terms, an R10 ACH return code tells you that the receiver has not sanctioned the originator to debit the ACH account. 


Guaranteed ACH doesn’t protect against buyer’s remorse

Guaranteed ACH payment options only protect against non-sufficient funds or closed accounts, not buyer’s remorse.

For large and small businesses operating in industries like Daily Fantasy Sports, this means close to 40% of your ACH returns aren’t protected by “guaranteed” ACH. 


Guaranteed ACH brings down acceptance rates 

Guaranteed ACH transfer providers implement additional verification steps and criteria to fulfill their “guarantee,” but this filters out legitimate transactions and deters potential customers.

In fact, guaranteed ACH payments have an average acceptance rate of only 60-70%.

Low acceptance rates = less transactions and lower earned revenue. 


For most businesses, guaranteed ACH is a bad deal

While the concept of guaranteed ACH appears beneficial, that’s actually not the case for most businesses.

Here’s the reality: The impact of lower approval rates usually outweighs the benefits offered by protecting against insufficient funds or closed account ACH returns. 


This is especially true for industries like online gaming, where a much larger share of returns are related to buyer’s remorse and, therefore, not covered by guaranteed ACH. 


Aeropay ACH outperforms guaranteed ACH

Aeropay’s unique approach to account-to-account payments ensures businesses get the highest top-line revenue possible. 

Instead of simply “guaranteeing” certain ACH transactions, Aeropay takes a balanced approach to mitigate returns and maximize acceptance rates.  

See why business owners across the country choose Aeropay for gaming, cannabis, and retail account-to-account payment processing solutions. Book a demo today to get started.

Author

Morgan Shearer

Enterprise Account Director
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