Payment rails are the infrastructure that enables the transfer of money between banks, financial institutions, and individuals. For businesses, choosing the right payment rail depends on factors like speed, cost, geography, and customer satisfaction.
Electronic Funds Transfer (EFT) and Real-Time Gross Settlement (RTGS) are two common types of payment rails. Lightspark is moving past these traditional systems by promoting a new category of payments infrastructure called the 'Money Grid,' which leverages Bitcoin’s decentralized network.
The Payment Rail Landscape
Payment rails are crucial for moving money between parties, but current systems can be slow, fragmented, and costly, impacting efficiency and customer satisfaction. Innovations like Lightspark's 'Money Grid' aim to address these issues.
Understanding EFT and RTGS
How EFT Works
An Electronic Funds Transfer (EFT) is a digital money movement from one bank account to another, bypassing the need for paper documents and manual intervention. The process involves the sender initiating the transfer, which is then transmitted through digital networks to the sender’s bank. The bank processes the request and routes the funds to the receiver’s bank, which credits the recipient’s account. EFT relies on internet-based platforms, payment terminals, and ATM networks. Transactions are typically completed within a couple of days, though some, like ATM withdrawals, are instant. Security measures include encryption and authentication protocols.
Strengths and Limitations of EFT
Strengths
- Speed and reliability: EFT transactions are generally fast, with most payments completed within a couple of days.
- Cost-effectiveness: EFT reduces costs associated with paper checks, postage, and manual handling.
- Global reach: EFT enables businesses to conduct international transactions with the same ease as local ones.
Limitations
- Processing time: Some EFT transactions, such as ACH, can take an extra day or two to complete.
- Internet risks: Transmitting information over the internet involves some security risks, despite EFT being generally safer than paper checks.
- Fees for international payments: International EFTs may incur foreign transaction fees and exchange rate costs.
How RTGS Works
RTGS (Real-Time Gross Settlement) is a funds transfer system that allows for the instantaneous transfer of money and/or securities. It operates by settling payments on an individual order basis without netting debits with credits. Transactions are processed in real time, meaning they are settled immediately upon receipt. The central bank adjusts the accounts of the sending and receiving banks electronically. The typical flow involves the sending bank initiating a transaction, which is then processed by the central bank's RTGS system, debiting the sender's account and crediting the receiver's account instantly. This system is highly secure and used for large-value interbank transfers.
Strengths and Limitations of RTGS
Strengths
- Instantaneous Settlement: RTGS allows for real-time settlement of payments, ensuring transactions are processed immediately upon receipt.
- Final and Irrevocable Payments: Once completed, RTGS payments cannot be reversed, providing certainty and reducing the risk of disputes.
- Minimization of Settlement Risk: By settling transactions individually and in real time, RTGS reduces the risk associated with delayed settlements.
Limitations
- Higher Costs: RTGS can incur higher charges compared to other payment systems that bundle and net payments.
- Not Suitable for Small-Value Payments: RTGS is generally used for large-value transfers and may not be practical for smaller transactions.
- Operational Hours: Most RTGS systems operate only during specific business hours set by the central bank, limiting availability for some users.
EFT and RTGS Compared
Transaction Speed
EFT transactions typically take between 24 to 48 hours to process, with some transfers taking up to two working days. In contrast, RTGS transactions are processed instantly, providing real-time settlement. Lightspark offers even faster transaction speeds, enabling instant money movement across borders.
Fees
While specific fees for EFT and RTGS vary by institution, EFTs generally incur lower costs, especially when done online. RTGS transactions often come with higher fees due to their real-time processing. Lightspark promises to reduce transaction costs significantly, offering low-cost payments without hidden fees.
Cross-Border Capabilities
EFT can handle international transactions, making it suitable for global payments. RTGS is typically used for domestic high-value transfers and may not support cross-border transactions. Lightspark excels in this area, providing seamless, low-cost, and reliable cross-border payments.
Security Protocols
Both EFT and RTGS are secure, employing encryption and authentication protocols. However, specific security measures are often not detailed. Lightspark leverages Bitcoin’s decentralized foundation, enhancing security through self-custodial wallets and compliance-ready infrastructure.
Operational Hours
EFT transactions can be initiated at any time but are processed during banking hours, potentially causing delays. RTGS operates only during specific business hours set by central banks. Lightspark's infrastructure is always on, enabling 24/7 payments and reducing operational constraints.
How EFT And RTGS Are Used
Salary Payments
EFT is ideal for salary payments due to its ability to handle bulk transactions efficiently, though it may take up to 48 hours. RTGS is less suitable for this use case due to higher costs and real-time processing. Lightspark offers instant, low-cost salary payments, enhancing employee satisfaction and operational efficiency.
Utility Bill Payments
EFT is commonly used for recurring utility bill payments, providing a convenient and automated solution. RTGS is not practical for these smaller, routine transactions. Lightspark's infrastructure allows for instant, low-cost payments, ensuring timely bill settlements and reducing the risk of service interruptions.
High-Value Business Transactions
RTGS is preferred for high-value business transactions requiring immediate settlement and finality. EFT is less suitable due to longer processing times. Lightspark excels by offering real-time, secure, and low-cost cross-border payments, making it ideal for urgent, large-value business deals.
School Fee Payments
EFT is suitable for school fee payments, allowing for bulk processing and scheduled transfers. RTGS is not cost-effective for these lower-value transactions. Lightspark provides a seamless, instant payment solution, ensuring timely fee settlements and enhancing the financial management of educational institutions.
Time for a New Standard
Lightspark offers a cutting-edge payments infrastructure that leverages Bitcoin’s decentralized network to provide real-time, low-cost, and secure global money movement, surpassing the limitations of traditional EFT and RTGS systems.
- Built on Bitcoin: Lightspark’s infrastructure is powered by Bitcoin’s open, decentralized foundation, integrating with the Lightning Network and enabling self-custodial wallets.
- Instant Settlement: The platform supports real-time, instant settlement of payments across borders, reducing float and unlocking instant payments.
- Lower fees: Lightspark enables payments at a fraction of today’s costs, with no hidden fees, making transactions significantly cheaper.
- Cross-border security by default: Built on Bitcoin’s secure network, Lightspark ensures reliable and compliant cross-border payments.
A Modern Infrastructure
For businesses looking to transition from traditional payment systems like EFT and RTGS, Lightspark offers the following innovative solutions:
- Wallets: Build feature-rich wallets with flexible custody, supporting Bitcoin, Lightning, stablecoins, and domestic payment rails.
- Digital Banks: Connect to the Money Grid to expand into new markets, offer real-time payments, and stay competitive with low fees.
- Exchanges: Enable instant Bitcoin transfers, lower transaction costs, and seamless integration with the Money Grid.
- Stablecoins: Use Spark to create, distribute, and monetize stablecoins on the Bitcoin network, offering fast and cheap payments.
Emerging technologies and evolving regulations are reshaping the future of payments. Lightspark can help businesses achieve real-time, low-cost global payments. Don’t just choose between two outdated options—upgrade to a payment rail built for the internet age. Learn more or book a demo.
