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 (Automated Clearing House) and RTP (Real-Time Payments) are two common payment rails. ACH is known for its batch processing and lower costs, while RTP offers instant settlement. Lightspark aims to move past these traditional rails by introducing a new category of global payments infrastructure built on Bitcoin’s decentralized foundation.
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 RTP
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 in batches. An ACH transaction begins when an originator initiates a payment. The originator's bank (ODFI) collects and batches these requests, sending them at scheduled times. An ACH operator (Federal Reserve or clearinghouse) receives, sorts, and forwards the transactions to the recipient's bank (RDFI), which then credits or debits the recipient's account. The system uses batch processing technology, enabling efficient domestic and international transactions, with most settling within one business day and many eligible for same-day settlement.
Strengths and Limitations of ACH
Strengths
- ACH makes online transactions quick and easy by batching and processing them at specific intervals.
- It is cost-effective, with lower transaction fees compared to other payment methods like RTP.
- ACH is widely accessible, available at all US financial institutions, and supports both credit and debit transactions.
Limitations
- ACH transactions are slower, often taking one to two business days to settle.
- It does not operate on weekends, bank holidays, or outside business hours, which can delay payments.
- ACH payments are reversible, posing a risk to businesses due to potential returns and payment failures.
How RTP Works
RTP (Real-Time Payments) operates by transferring funds instantly between bank accounts in the U.S., managed by The Clearing House. It uses the ISO-20022 standard for messaging, allowing rich data to accompany each transaction. The process begins when the sender initiates a payment, which their bank sends to the RTP network. The Clearing House processes and routes the payment to the recipient's bank, which credits the recipient's account instantly. The entire transaction is completed in real time, 24/7/365, and all payments are final and irreversible, reducing the risk of payment failures.
Strengths and Limitations of RTP
Strengths
- RTP offers instantaneous transfers, ensuring funds are available immediately after the transaction.
- It operates 24/7/365, including weekends and holidays, providing continuous availability.
- RTP supports richer data attachment using the ISO-20022 standard, enhancing the context and information accompanying each payment.
Limitations
- RTP is currently supported by a limited number of banks, restricting its accessibility compared to ACH.
- All RTP payments are final and irreversible, which can be a drawback in cases of errors or fraud.
- RTP transactions generally incur higher fees than ACH, making it less cost-effective for high-volume or low-value transactions.
ACH and RTP Compared
Transaction Speed
ACH transactions typically take one to two business days to settle, with same-day ACH available for faster processing. In contrast, RTP offers real-time settlement, with funds available instantly, 24/7/365. Lightspark leverages the Lightning Network to provide instant, global money movement, enhancing transaction speed even further.
Fees
ACH transactions are generally more cost-effective, with fees ranging from $0.26 to $0.50 per transaction. RTP transactions, however, can cost from a few cents to two dollars, depending on the provider. Lightspark aims to reduce costs significantly, offering low-cost payments across borders.
Cross-Border Capabilities
Both ACH and RTP primarily focus on domestic transactions within the U.S., with no explicit support for cross-border payments. Lightspark, on the other hand, supports real-time, global money movement, enabling seamless international transactions.
Security Protocols
ACH payments are reversible, providing a layer of security for consumers but posing risks for businesses due to potential returns. RTP transactions are final and irreversible, reducing the risk of payment failures but increasing vulnerability to fraud. Lightspark emphasizes secure, instant transfers using Bitcoin’s decentralized foundation and the Lightning Network.
Operational Hours
ACH operates during business hours, excluding weekends and bank holidays, which can delay transactions. RTP, however, is available 24/7/365, ensuring continuous operation. Lightspark also offers 24/7 availability, ensuring that payments can be processed at any time, globally.
How ACH And RTP Are Used
Payroll Processing
ACH is ideal for payroll due to its cost-effectiveness and ability to handle large volumes of recurring payments. RTP can be used for instant payroll needs, such as emergency disbursements. Lightspark offers real-time, global payroll processing, ensuring employees receive payments instantly, regardless of location.
Supplier Payments
ACH is suitable for regular, predictable supplier payments, offering lower transaction fees. RTP is better for urgent supplier payments requiring immediate settlement. Lightspark enhances this by providing instant, low-cost cross-border payments, ensuring suppliers are paid promptly and efficiently.
Customer Refunds
ACH is effective for non-urgent customer refunds due to its lower costs. RTP is preferable for immediate refunds, enhancing customer satisfaction. Lightspark’s infrastructure allows for instant, transparent refunds globally, improving customer experience and trust.
Gig Economy Payouts
RTP is ideal for gig economy payouts, offering instant access to funds for workers. ACH can be used for scheduled, recurring payouts. Lightspark’s always-on, real-time payment capabilities ensure gig workers receive their earnings instantly, regardless of time or location.
Time for a New Standard
Lightspark is a global payments infrastructure company that modernizes financial systems by enabling instant, low-cost, and secure payments worldwide, leveraging Bitcoin’s decentralized foundation. Unlike ACH and RTP, Lightspark offers real-time, cross-border money movement without gatekeepers, delays, or hidden fees.
- Built on Bitcoin: Lightspark’s infrastructure is powered by Bitcoin’s open, decentralized foundation, bridging current financial systems with next-generation technology.
- Instant Settlement: The platform enables real-time, instant settlement of payments, ensuring money moves instantly and securely.
- Lower fees: Lightspark offers payments at a fraction of today’s costs, eliminating hidden fees and reducing transaction costs significantly.
- Cross-border security by default: The infrastructure provides seamless, low-cost, and reliable payments across borders, leveraging Bitcoin’s security and global reach.
A Modern Infrastructure
For businesses looking to transcend traditional payment rails like ACH and RTP, here’s what Lightspark has to offer:
- Wallets: Build feature-rich wallets with flexible custody, supporting Bitcoin, Lightning, stablecoins, and domestic payment rails.
- Digital Banks: Connect to the Money Grid for real-time, global payments, enabling digital banks to expand into new markets and stay competitive.
- Exchanges: Seamlessly integrate with the Bitcoin Network and Lightning Network for instant, low-cost Bitcoin transfers, boosting adoption and reducing costs.
- Stablecoins: Launch and monetize stablecoins on Bitcoin instantly with Spark, enabling fast and cheap payments.
Emerging technologies and evolving regulations are reshaping the future of payments. Lightspark offers real-time, low-cost global payments, leveraging Bitcoin’s decentralized foundation. Don’t just choose between two outdated options—upgrade to a payment rail built for the internet age. Learn more or book a demo.
