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.
FedNow and RTP are two prominent real-time payment systems in the United States. While these systems offer significant improvements over traditional methods, Lightspark is aiming to move past these payment 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 higher expenses for businesses and consumers alike.
Understanding FedNow and RTP
How FedNow Works
FedNow is an instant payments service by the U.S. Federal Reserve Bank, offering 24/7/365 processing. It features integrated clearing and supports ISO 20022 messaging standards. A typical transaction involves a payer initiating a payment, which their financial institution authorizes and submits to FedNow. The service validates and forwards the payment to the payee’s institution for acceptance or rejection. If accepted, funds are instantly transferred and all parties are notified. FedNow includes fraud prevention tools, liquidity management, and supports both consumer and business payments, making funds immediately available to beneficiaries.
Strengths and Limitations of FedNow
Strengths
- FedNow offers 24/7/365 availability, ensuring uninterrupted processing and immediate fund transfers.
- It supports integrated clearing functionality and ISO 20022 messaging standards, enhancing data richness and interoperability.
- Backed by the Federal Reserve, FedNow provides a high level of trust and reliability for financial institutions and their customers.
Limitations
- FedNow has a lower transaction limit of $500,000 compared to RTP's $1 million, which may restrict its use for higher-value payments.
- As a new system, FedNow faces challenges in gaining widespread adoption and integration with existing payment infrastructures.
- FedNow only supports credit push transactions and does not allow for debit pulls, limiting some business use cases.
How RTP Works
RTP (Real-Time Payments) operates as a payment processing network that enables instant fund transfers between U.S. bank accounts, available 24/7/365. Managed by The Clearing House, RTP uses the ISO-20022 messaging standard, allowing for rich data inclusion like invoice numbers. The process involves the sender's bank initiating a payment message to the RTP network, which The Clearing House routes to the recipient's bank. The recipient's bank then credits the account instantly, with the transaction being final and irreversible. This system supports only credit (push) payments, ensuring immediate settlement and funds availability.
Strengths and Limitations of RTP
Strengths
- RTP offers instantaneous fund transfers with settlement occurring in real time, providing immediate finality of payment.
- It operates 24/7/365, ensuring availability even on weekends and holidays, unlike traditional payment methods.
- RTP supports rich data attachment through the ISO-20022 messaging standard, enhancing transaction context and information.
Limitations
- RTP is currently supported by a limited number of banks, restricting its reach and utility for some users.
- All RTP payments are final and cannot be reversed, which can be a drawback in cases of errors or fraud.
- RTP only supports credit (push) payments and does not allow for debit (pull) transactions, limiting its flexibility for certain business use cases.
FedNow and RTP Compared
Transaction Speed
Both FedNow and RTP offer immediate transaction processing and settlement, ensuring funds are available to recipients in real time. FedNow and RTP transactions are typically completed within seconds, providing instant access to funds. In comparison, Lightspark also emphasizes real-time, instant money movement, leveraging Bitcoin’s decentralized foundation for global transactions.
Fees
FedNow charges $0.045 per customer payment and $0.01 per request for payment. RTP has a similar fee structure, with $0.045 per customer payment and $0.11 per request for payment. Lightspark offers a competitive edge with low-cost payments, eliminating hidden fees and reducing transaction costs significantly.
Cross-Border Capabilities
Neither FedNow nor RTP currently supports cross-border transactions, focusing solely on domestic payments within the United States. In contrast, Lightspark’s Money Grid enables seamless, low-cost, and reliable payments across borders, operating in over 140 countries and supporting 120+ currencies.
Security Protocols
Both FedNow and RTP employ tokenization and direct account exchanges to secure transactions, ensuring critical account information is masked. Payments on both platforms are irrevocable, adding a layer of security. Lightspark leverages Bitcoin’s robust security model, offering instant, secure payments with built-in compliance and seamless interoperability.
Operational Hours
FedNow and RTP both operate 24/7/365, ensuring continuous availability for instant payments. This round-the-clock service is crucial for businesses needing uninterrupted payment processing. Similarly, Lightspark’s infrastructure is always on, enabling 24/7 payments and ensuring money moves instantly, anytime, anywhere.
How FedNow And RTP Are Used
Business-to-Business (B2B) Payments
For high-value B2B transactions, RTP's higher transaction limit of $1 million makes it more suitable than FedNow's $500,000 limit. However, Lightspark's global reach and low-cost, instant transactions offer a significant advantage, enabling seamless cross-border payments and reducing operational costs.
Consumer-to-Business (C2B) Payments
FedNow's lower request-for-payment cost of $0.01 is beneficial for frequent C2B transactions. Yet, Lightspark's ability to support multiple currencies and instant settlement provides a superior solution for businesses with international customers, ensuring quick and cost-effective payments.
Peer-to-Peer (P2P) Transfers
Both FedNow and RTP offer instant, irrevocable P2P transfers. However, Lightspark's infrastructure supports self-custodial wallets and low-cost transactions, making it ideal for users seeking secure, instant transfers across borders without hidden fees.
Payroll
RTP's 24/7 availability and higher transaction limits are advantageous for payroll processing. Lightspark enhances this by enabling instant, low-cost payments globally, ensuring employees receive their salaries promptly, regardless of their location, and reducing administrative overhead for businesses.
Time for a New Standard
Lightspark is a global payments infrastructure company that enables real-time, cross-border money movement using Bitcoin, fiat, and stablecoins, offering a more versatile and cost-effective solution compared to FedNow and RTP.
- Built on Bitcoin: Lightspark’s infrastructure leverages Bitcoin’s decentralized foundation to enable secure and open global payments.
- Instant Settlement: The platform ensures immediate transfer and settlement of funds across borders and currencies.
- Lower fees: Lightspark offers low-cost transactions, eliminating hidden fees and reducing operational costs.
- Cross-border security by default: Built on Bitcoin’s secure foundation, Lightspark provides robust security for international payments.
A Modern Infrastructure
For businesses looking to transcend traditional payment systems like FedNow and RTP, Lightspark offers the following solutions:
- Wallets: Build feature-rich digital wallets with flexible custody options, supporting Bitcoin, Lightning, stablecoins, and domestic payment rails.
- Digital Banks: Connect to the Money Grid to expand reach, improve efficiency, and offer advanced payment capabilities globally.
- Exchanges: Enable instant, low-cost Bitcoin transfers, enhancing user experience and reducing operational costs.
- Stablecoins: Launch stablecoins on Bitcoin instantly with Spark, providing fast, cheap, and user-friendly financial applications.
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.
