The state of electronic payments in the US
If you live in a country with an actual modern banking system (not the US!), this article will be utterly useless to you, and your country is to be congratulated on that fact! If you live in the US and are a freelancer who likes to take electronic payments, here’s some information about the current state of electronic payments in my business.
Much to the chagrin of…basically anyone in the US who accepts electronic payments…, the US has yet to adopt the IBAN system. The vast majority of US bank accounts still use the routing number, account number, and (for international transactions) SWIFT code system.
It’s a sad reality that checks remain a common payment option in the US. Why? My sense is that although checks are slow and insecure (hence the expression, “the check’s in the mail”), they are also fee-free, as compared to many electronic payment options in the US. Back in 2019, I tried to nudge most clients toward electronic payments. At that time, I made a key decision: any client can pay by credit card and I will absorb the commission. I do this because I strongly prefer electronic payments, and because I find that many clients will pay an electronic invoice almost immediately, versus taking some time to mail a check.
I also use electronic payments to pay my online course instructors, so I see this issue from the payer and the payee side, which is interesting.
Electronic payments I accept
I have my business bank accounts at Chase. For clients in the US, my preferred method is Zelle (essentially the same system as Chase Quick Pay). Zelle is free to Chase account holders (no fee to send or receive) and is pretty easy to use, especially once someone is set up as a payment contact in your Zelle settings. A downside of Zelle is that you can only link it to one set of accounts. I have business and personal accounts with Chase, so this can be annoying if I want to do some personal transactions and some business transactions through Zelle. However, overall, I like Zelle.
For clients outside the US, I’ve become a big fan of Wise (not an affiliate deal). Their fees are quite reasonable, even for relatively large amounts. I recently paid US $24 to send $4,000 to one of my online course instructors, which was less than the $30 my bank wanted to charge, and essentially half of one percent of the transaction. Wise also allows you to enter the exact amount you want the recipient to receive, so there are no surprises once you’ve transferred the money. One wish I have for Wise: I wish they’d set up a one-click payment system like PayPal’s PayPal.Me service (more on that below), where you can just send someone a link with a pre-set amount. So far Wise doesn’t have this feature. Two weird things I’ve encountered with Wise (I’m adding this to the original post after getting some questions from readers):
- Two of my direct clients have told me that they can’t use Wise, because it’s “not a bank.” Why that matters, I don’t know. Whether that’s true, I don’t know…but two clients have told me that their institutional rules prohibit them from using Wise for that reason.
- When I receive an international transfer via Wise into my US bank account, for whatever reason, it is processed as an ACH payment which is free to me, rather than as an international wire which costs me $15. Again, file under “I don’t know,” but in order for the international Wise transfer to be free to me, the client has to send it via their Wise account, which some clients don’t want to set up.
Some of my French university clients have an already established payment system that must go bank to bank; they cannot use Wise, because it’s an intermediary, not a bank. For that, I use Chase’s incoming foreign wire transfer system, and I was able to negotiate Chase down to $15 per transfer.
Lately, I’ve also started using Venmo to accept payments from individuals and to pay my online course instructors. At the outset, Venmo struck me as a bit fly-by-night, but they now require (or at least strongly recommend) that you enter the last four digits of the phone number of the person you’re sending to. This strikes me as an excellent step, because one major downside of peer-to-peer payment apps in the US is that they generally do not have the ability to rescind a payment, as explained in this NPR Planet Money episode about a reporter who accidentally sent her apartment security deposit to the wrong person. I’m pretty happy with Venmo and there is no commission for peer-to-peer transactions, but make sure to use the phone number verification feature, especially for large amounts.
The big elephant in my payment room is PayPal. If you want to accept credit cards, you’re going to get hit with pretty big commissions of at least 2.5%. You can look at services like Square or Stripe, but the commissions do not differ significantly. I like PayPal because people in the US know it and are receptive to it, and it has a lot of features. You can create invoices, Buy Now buttons, etc. and you can use their PayPal.Me service to create a one-click link that’s preset to a certain amount. I find that in particular my law firm clients, who have zero time for anything, almost always use this option when I offer it. The issue is that all of PayPal’s fees are percentage-based, not flat, so if you take a lot of payments over PayPal, the amount really adds up. Almost everyone who takes my online courses pays by credit card, so I paid several thousand dollars in PayPal commissions last year, but I honestly don’t see a way around it. I’ve stopped using PayPal to pay my online course instructors due to their high commissions and the availability of other options like Zelle and Venmo.
Finally, it’s always worth asking any client if they can just pay you by direct deposit, also called ACH. Undoubtedly they pay their own employees by ACH, and I have a couple of clients who I work for every month who have set this up for me.
Readers, any other thoughts on electronic payment options?
This is such an important (and painful!) topic. Thanks for bringing this up, Corinne.
One point of clarification, though—I don’t believe both parties need a Wise account for sending a Wise transfer. If the sender has a Wise account, they can send payments to the recipient’s regular bank account, and vice versa. I have been both the sender and the recipient on Wise, where the other party only had a traditional bank account.
Corinne McKay says
Thanks, Maria! Yes, you’re absolutely right and I’ll correct that. What I meant to say (now I’ll fix it) was that in order for clients to pay me by Wise, *they* have to have a Wise account which some don’t want to set up. Thanks for pointing that out!
Corinne, you said: “What I meant to say (now I’ll fix it) was that in order for clients to pay me by Wise, *they* have to have a Wise account which some don’t want to set up.”
This is not my experience. I receive all my payments in USD, EUR and GBP into my Wise accounts and the payers just hold regular bank accounts. They can transfer into my Wise accounts without any problems.
Most banks here in New Zealand have phased out cheques completely and no longer offer that option.
Corinne McKay says
Thanks, Diana! Actually the Wise thing is more complicated (of course, because it’s the US banking system). For whatever reason, when an international client sends me money using Wise, it comes into my account as an American ACH transfer which is free. Whereas if they do a bank to bank wire transfer, it costs me $15. That’s the issue; it’s only if they send from a Wise account that the transfer is free. That’s so great that NZ is past the point of paper checks!!
Michael Schubert says
This is a really comprehensive overview, thanks! Your opening thoughts align closely with my oft-delivered “Bank Rant,” which my wife now forbids me from rehashing. Another thing I “love” about our 19th-century banking system: Banks always treat routing no. + account no. as if it were some top-secret data … even though it’s printed at the bottom of every dead-tree check that they insist we keep circulating.
Corinne McKay says
“Bank Rant,” love it! And that it’s now a prohibited topic at home! And yes, ugh, on the “click through these 15 security steps to get your account and routing number.” I had never even thought about that but you’re right. Perhaps in the 20-30 years that you and I will, knock on wood, continue to work in this job, we’ll see some progress toward the IBAN system.
Susan StarlingSusan Starling says
Thanks for this, Corinne! Like Michael I go on regular “bank rants” myself – such as after returning to the U.S. after over two decades in Germany to find people astonishingly still using checks, like back in the dark ages. 🙂 One line of reasoning I hear is that people distrust ACH because they’re worried about others having their bank account number. I never understood this. Can anything worse happen than someone depositing money into your account without permission? Plus as Michael notes, the full bank info is printed at the bottom of every check. Very strange!
Fortunately my clients are all in Europe with only the odd exception, so I have them pay to my German bank account and then periodically make transfers to my U.S. business account using Wise, quickly and painlessly. I was thinking I could streamline this and have clients pay to my Wise euro account directly, though now I’m wondering if there would be an issue due to Wise apparently not being considered a “bank”, even though they issue a regular IBAN and offer a Belgian address if needed. They also say on their website “You can use Wise as the bank name. That’s because in the Eurozone we’re directly plugged into the same payment networks as the big banks. It’s what keeps our payments fast and low-cost.” But apparently some companies are making a distinction between Wise and banks – good to know!
Corinne McKay says
Thanks, Susan! Oh my gosh, I can’t imagine the shock and horror of re-entering the US banking system after decades in Germany. And I totally agree about the “people will steal all the money out of my account if they have my banking information” line of reasoning. Tons of people in the US think that, and if you really believe that, you should never write a check! That’s excellent that you’re able to transfer money to yourself, on your schedule; sounds like you have a good system worked out! And yes, unfortunately, I’ve had two clients now tell me that they can’t use Wise because “it’s not a bank.” The fun continues 🙂
Ah, the dreaded US banking system… I feel this so much. I accept payments via PayPal and Stripe from my US-based clients, as well as Venmo when necessary. Mine is one of the banks that charges a fee for receiving Zelle payments. I really like Stripe (you don’t have to manually transfer anything from your Stripe account to your bank like PayPal for example), and I have found that the fees are slightly less overall.
For paying contractors, it’s a bit all over the board. Most US-based translators we work with actually prefer checks because of the no-fee scenario you mentioned, but it’s cumbersome. And with the cruddier-by-the-day US mail system, two or three checks worth several thousands of dollars were lost in the mail this year, never to be found. So, on top of reissuing a new check for each of those, I had to pay stop-payment fees to the bank on the lost checks. FUN. I’ve decided that for 2022, I am going to move all of our US-based contractors over to ACH for a few reasons: some have already requested it, the mail system is increasingly unreliable, the checks I order are pretty expensive compared to the fee my payroll company charges per ACH payment, and ACH is just a *huge* time-saver.
Great post, Corinne!
Corinne McKay says
Thanks, Madalena! Oh my gosh yes, we have to add the joys of the US postal service into the mix! I hadn’t even thought of that with the stop-payment fees and that whole mess. Sounds like a good move to transition contractors to ACH this year!
Frieda Ruppaner-Lind says
Thank you all for this enlightening discussion. I went through several of these scenarios and frustrations not too long ago when I wanted to pay an editor. I ended up mailing him a paper check (with tracking number due to the sad state of the US postal system) and next time we’ll try Venmo. With Venmo you also have to distinguish between a private or business account and you should not mingle both.
Corinne McKay says
Ugh, so sorry you had to battle with this too, and ending up with a check is such a 1990 solution!!