Payment Rails in the U.S.

The main difference between RTP, ACH and card payment rails is that RTP provides instant payment within seconds, moving funds between accounts and finishing with a settlement, whereas ACH make take up hours or days.

The whole RTP process, including the settlement, completes the transfer just moments after its initiation. This is the real value for RTP rails, with 24/7 availability, regardless of the time of day or day of week.

ACH transfers take between a few hours to four business days to process, which can limit the ways you can move your organization’s funds. Card rails are not always an option for large transactions and involve more third parties outside of the transaction.

Another important aspect to consider is that RTP is built using modern concepts of technological architecture, leaning on the API economy, enabling this as a tech product. It can be a robust and extensive new rail to process payments faster and safer.

There are two main aspects of the adoption of modern architecture for payments. One is the application programming interface (API) approach. The use of APIs is the most widespread and technical arrangement in existence today and remains the standard for Open Architectures like Open Banking and Open Payments. This brings a fundamental change to the product’s architecture and the way the product owners, marketing areas and customers interact with it. Companies that understand this change will be able to recognize the real benefits that stem from the API economy.

Another aspect of a payment rail’s adoption to consider is the technological architecture that an API can provide. APIs introduce numerous variations such as the way developers code the final product and the different ways to consume and expose data using APIs. These variables and the surrounding characteristics, aside from the business features, such as authentication, security and encryptions, make API-based Open Architectures popular.

ACH is commonly used for direct deposit payroll systems within organizations, which may contribute to its popularity. Fintech agencies may use ACH for the following benefits:

• ACH has a high acceptance rate among institutions, which means it’s likely that your partners, clients and vendors will agree to this type of payment rail.
• With only a small transaction fee, it’s the most cost-effective rail in the U.S. market.
• Banks often guarantee ACH transactions, protecting users against liability in the case of fraud.

With fast-paced markets and consumers that favor quick and seamless services, Fintech companies may use RTP for the following benefits:

• RTP rails offer immediate settlement of payments, which protects users from late fees and allows for a more efficient transaction.
• Instant payments allow for more flexibility, enabling last-minute deals and arrangements.
• You can manage cash flow and account balances with absolute certainty with RTP payments, as the instant payment settlements provide you with real-time account balances.

Developed by the Federal Reserve, FedNow is a new instant payment rail that was launched in the U.S market in July 2023. This is an RTP rail that allows users to facilitate transactions at any time.

The main difference between this rail and other RTPs is its ownership. While its implementation isn’t required for banks, the Federal Reserve controls this rail. Other RTPs are owned by banking corporations.

Consumers and non-financial institutions won’t have direct access to FedNow. A similar implementation in other countries, such as Brazil with PIX, proves FedNow’s ability to transform the market.

FedNow will have a lower transaction cost than other RTPs and a lower maximum payment amount. Since it's an instant payment, it shares the RTP quality of being irrevocable, which differs from ACH.

Fintech companies, like traditional financial institutions, require a complete understanding of these systems, as they allow for the digital transfer of funds through multiple accounts. This is because the payment rails an organization uses can affect client relationships, fund availability and flexibility in processing payments.

To understand which payment rail is right for your company, reflect on customer needs and prioritize flexible and quick payment arrangements. Other aspects you should consider include cost, availability and speed. Recognizing this combination of needs and applicable products will help you find the best service for your company.

FedNow’s release is sure to make an impact on the U.S. market, so it’s best for financial institutions to prepare for its implementation right away. If you want more insight on instant payments and how to adapt to this evolving market, get in touch with us and learn how GFT can prepare you for FedNow and the advances in instant payment methods.