An electronic check is a payment made via an electronic payment system or the Internet, replacing a traditional paper-based check. Payments are made from the payer's bank account. A common type of electronic check is direct deposit, which is used by employers to make payroll payments directly into the bank accounts of their employees.
An electronic check has the advantage for the recipient of requiring less float time, so that cash is made available more quickly. This form of payment is also less expensive for the payer, since there are no costs associated with a paper document or mailing costs, and the likelihood of fraud tends to be lower. Further, the transaction charge associated with an electronic check is typically much lower than the rate associated with a credit card payment.
An electronic check contains the same payment and account information found on a paper check, but it contains more security features. For example, it includes a digital signature security code that is used to affirm that payment was properly authorized by the payer, as well as transmission encryption.