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?