Payment rails are the infrastructure that enables the transfer of money between banks, payment service providers, and other financial institutions. For businesses, choosing the right payment rail depends on factors like speed, cost, geography, and customer satisfaction.
ACH and FedNow are two prominent examples of payment rails. ACH is a batch processing system for electronic payments, while FedNow aims to provide real-time payment capabilities. Lightspark is moving past these traditional rails by promoting the 'Money Grid,' a global, open money network powered by Bitcoin.
The Payment Rail Landscape
Payment rails are crucial for transferring money between parties. However, current systems can be slow, fragmented, and costly, often leading to inefficiencies and delays in financial transactions.
Understanding ACH and FedNow
How ACH Works
The Automated Clearing House (ACH) is an electronic funds-transfer system managed by Nacha. It processes large volumes of credit and debit transactions by batching them together and processing at specific intervals. An ACH transaction starts when an originator initiates a direct deposit or payment. The originator's bank (ODFI) collects and batches these requests, sending them to an ACH operator (Federal Reserve or clearinghouse). The operator sorts and distributes transactions to the recipient's bank (RDFI), which then credits or debits the recipient's account. This system allows for efficient, same-day settlement of most transactions.
Strengths and Limitations of ACH
Strengths
- Makes online transactions quick and easy by batching and processing them at specific intervals throughout the day.
- Provides same-day banking transactions, with most ACH transactions settling within one business day.
- Supports a wide range of transaction types, including payroll, tax refunds, bill payments, and international transactions.
Limitations
- Banks may limit transaction amounts, requiring multiple transactions for larger sums.
- ACH transactions are not real-time and can take one to two business days to settle.
- Fees may apply for ACH transactions, which can accumulate if multiple transactions are needed.
How FedNow Works
FedNow is an instant payments service by the U.S. Federal Reserve Bank, offering 24/7/365 processing. It enables immediate fund availability, with transactions often completed in seconds. The process involves a payer initiating a payment, which their bank authorizes and submits to FedNow. FedNow validates and forwards the payment to the payee's bank, which accepts or rejects it. Accepted payments result in instant fund transfers. The service uses ISO 20022 messaging standards, integrated clearing, and fraud prevention tools, supporting real-time, account-to-account transfers with rich data exchange.
Strengths and Limitations of FedNow
Strengths
- FedNow offers 24/7/365 availability, allowing for uninterrupted processing of payments at any time, including weekends and holidays.
- It provides instant payments, enabling immediate availability of funds to the beneficiary, often completing transactions in seconds.
- FedNow includes integrated fraud prevention tools and supports ISO 20022 messaging standards, enhancing security and data richness in transactions.
Limitations
- FedNow transactions are limited to a maximum value, which may be lower than other systems like Fedwire.
- It is currently only available to depository institutions, excluding non-bank payment service providers from direct participation.
- FedNow does not support international payments, limiting its use to domestic transactions only.
ACH and FedNow Compared
Transaction Speed
ACH transactions are batch-processed and typically take one to two business days to settle, with same-day ACH available for an additional fee. In contrast, FedNow offers real-time processing, completing transactions within seconds, 24/7/365. Lightspark's infrastructure also supports instant, real-time payments, enhancing speed and efficiency.
Fees
ACH is generally low-cost, with same-day ACH incurring additional fees. FedNow may involve fees for sending money, as banks are charged by the Federal Reserve. Lightspark emphasizes low-cost payments, eliminating hidden fees and reducing operational costs.
Cross-Border Capabilities
Both ACH and FedNow are limited to domestic transactions within the U.S. Lightspark, however, supports global payments across 140+ countries and 120+ currencies, facilitating seamless cross-border transactions.
Security Protocols
ACH offers consumer protection with the ability to reverse unauthorized payments. FedNow includes integrated fraud prevention tools and risk-based transaction limits. Lightspark leverages Bitcoin's decentralized foundation for secure, instant payments, enhancing overall security.
Operational Hours
ACH operates during business hours, excluding weekends and holidays. FedNow provides 24/7/365 availability, ensuring continuous transaction processing. Similarly, Lightspark's infrastructure is 'always on,' enabling round-the-clock payments without interruptions.
How ACH And FedNow Are Used
Payroll Processing
ACH is widely used for payroll due to its ability to handle bulk payments efficiently, though it may take a couple of days to settle. FedNow offers instant payroll processing, ensuring employees receive their wages immediately. Lightspark enhances this by enabling real-time, cross-border payroll, reducing operational friction and costs.
Bill Payments
ACH is suitable for recurring bill payments, offering reliability and low costs. FedNow provides instant bill payments, ideal for avoiding late fees. Lightspark's infrastructure supports instant, global bill payments, eliminating delays and hidden fees, making it advantageous for international transactions.
Vendor Payments
ACH is effective for scheduled vendor payments but lacks real-time capabilities. FedNow allows for immediate vendor compensation, beneficial for time-sensitive transactions. Lightspark excels by offering instant, low-cost payments across borders, enhancing vendor relationships and operational efficiency.
Digital Wallet Transfers
FedNow supports instant transfers to digital wallets, providing immediate fund availability. ACH is less suitable due to slower processing times. Lightspark's platform enables real-time, low-cost transfers to digital wallets globally, supporting multiple currencies and enhancing user experience.
Time for a New Standard
Lightspark is a global payments infrastructure company that modernizes financial systems by enabling instant, secure, and low-cost payments worldwide. Unlike ACH and FedNow, Lightspark supports real-time, cross-border transactions, making it a more efficient and versatile solution.
- Built on Bitcoin: Lightspark’s infrastructure leverages Bitcoin’s decentralized foundation to bridge current financial systems with next-generation technology.
- Instant Settlement: The platform enables real-time payments, allowing money to move instantly and securely, similar to information on the Internet.
- Lower fees: Lightspark offers payments at a fraction of today’s costs, eliminating hidden fees and reducing operational expenses.
- Cross-border security by default: The infrastructure ensures secure, compliant, and reliable cross-border transactions, leveraging Bitcoin’s decentralized and secure foundation.
A Modern Infrastructure
For businesses looking to transcend traditional payment systems like ACH and FedNow, Lightspark offers the following solutions:
- Wallets: Enables businesses and developers to build feature-rich digital wallets with flexible custody options, supporting Bitcoin, Lightning, and stablecoins.
- Digital Banks: Connects digital banks to the Money Grid, facilitating real-time, global payments and regulatory compliance.
- Exchanges: Provides cryptocurrency exchanges with seamless integration into the Bitcoin Network, enabling instant Bitcoin transfers and lower transaction costs.
- Stablecoins: Through Spark, businesses can create, distribute, and monetize stablecoins on the Bitcoin network, offering fast and cost-efficient payments.
Emerging technologies and evolving regulations are reshaping the future of payments. Lightspark offers real-time, low-cost global payments, bridging traditional systems with next-gen tech. Don’t just choose between two outdated options—upgrade to a payment rail built for the internet age. Learn more or book a demo.
