Payment rails are the infrastructure that enables the transfer of money between banks, financial institutions, and payment service providers. For businesses, choosing the right payment rail depends on factors like speed, cost, geography, and customer satisfaction.
NEFT (National Electronic Funds Transfer) and RTGS (Real-Time Gross Settlement) are two widely used payment systems. NEFT processes transactions in batches, while RTGS settles payments individually in real-time. Lightspark is trying 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 moving money between parties, but current systems can be slow, fragmented, and costly, often leading to inefficiencies and higher transaction fees for businesses and consumers alike.
Understanding NEFT and RTGS
How NEFT Works
NEFT (National Electronic Funds Transfer) is an electronic payment system in India that processes transactions in hourly batches. The process begins with the sender initiating a transfer via internet or mobile banking, or at a bank branch. The sender's bank sends transaction details to the NEFT clearing center, which sorts and batches transactions. These are then settled and sent to the beneficiary's bank, which credits the funds to the beneficiary's account. NEFT uses secure electronic communication and strong authentication mechanisms, such as OTPs, to ensure the safety of funds during the transfer process.
Strengths and Limitations of NEFT
Strengths
- NEFT allows for the transfer of funds without any minimum or maximum transaction limits, making it suitable for both small and large transactions.
- It is available 24/7, including weekends and holidays, providing flexibility and convenience for users.
- NEFT transactions are cost-effective, with no fees for online transfers as per RBI guidelines, making it an economical choice for fund transfers.
Limitations
- NEFT transactions are processed in hourly batches, which means they are not instantaneous and can take a few hours to complete.
- Each bank may impose its own transaction limits, potentially restricting the amount that can be transferred in a single transaction or per day.
- NEFT requires the addition of a beneficiary before transferring money, which can take 1-4 hours for activation, delaying the first transaction.
How RTGS Works
RTGS (Real-Time Gross Settlement) is a funds transfer system that allows for the instantaneous transfer of money and securities. Managed by central banks, it operates on secure, real-time electronic communication networks. The process involves the sending bank submitting a payment instruction, which is processed individually and settled immediately by the central bank. The central bank debits the sender's account and credits the recipient's account electronically. This method ensures that each transaction is final and irrevocable, reducing settlement risk and ensuring immediate availability of funds. Examples include the U.S. Fedwire and the UK's CHAPS systems.
Strengths and Limitations of RTGS
Strengths
- RTGS allows for instantaneous settlement of transactions, ensuring funds are transferred immediately and securely.
- It is designed for high-value transactions, with a minimum transfer amount of ₹2 lakh and no upper limit, making it ideal for large payments.
- RTGS operates 24/7, including weekends and holidays, providing flexibility for urgent and time-sensitive transfers.
Limitations
- RTGS transactions can incur higher fees compared to other payment systems, especially for frequent or lower-value transfers.
- It is not suitable for small-value transactions due to the minimum transfer limit of ₹2 lakh.
- RTGS requires detailed beneficiary information and may involve a mandatory wait time for beneficiary activation, which can be cumbersome for users.
NEFT and RTGS Compared
Transaction Speed
NEFT processes transactions in hourly batches, which means transfers can take from 30 minutes to a few hours to complete. In contrast, RTGS offers real-time settlement, ensuring that funds are transferred instantly. Lightspark, leveraging the Lightning Network, promises even faster, real-time global money movement.
Fees
NEFT transactions are generally low-cost or free for online transfers, while RTGS transactions can incur higher fees, especially for high-value transfers. Lightspark aims to reduce costs further by offering low-cost, real-time payments without hidden fees.
Cross-Border Capabilities
Both NEFT and RTGS are designed for domestic transfers within India and do not support direct international transactions. Lightspark, however, facilitates seamless cross-border payments, supporting over 140 countries and 120 currencies.
Security Protocols
Both NEFT and RTGS are regulated by the Reserve Bank of India and use encryption to ensure transaction safety. Lightspark enhances security by utilizing Bitcoin’s decentralized foundation and cryptographic protocols, ensuring secure and transparent transactions.
Operational Hours
NEFT and RTGS are available 24/7, including weekends and holidays, providing flexibility for users. Similarly, Lightspark operates continuously, enabling instant money movement at any time, without the limitations of traditional banking hours.
How NEFT And RTGS Are Used
Paying Utility Bills
NEFT is ideal for paying utility bills due to its low cost and lack of minimum transaction limits. RTGS is less suitable for such small, non-urgent payments. Lightspark offers a better alternative by enabling instant, low-cost payments globally, ensuring bills are paid on time without delays.
High-Value Business Transactions
RTGS is designed for high-value transactions, providing immediate settlement for amounts above ₹2 lakhs. NEFT is less suitable due to batch processing delays. Lightspark excels by offering real-time, low-cost transfers for large sums, enhancing business efficiency and reducing transaction costs.
Emergency Medical Payments
RTGS is suitable for urgent, high-value payments like emergency medical expenses, ensuring immediate fund availability. NEFT's batch processing makes it less ideal for emergencies. Lightspark's instant, 24/7 global payments ensure funds are available when needed most, without the constraints of traditional banking hours.
Cross-Border Transfers
Neither NEFT nor RTGS supports direct international transfers, limiting their use for cross-border payments. Lightspark, leveraging the Lightning Network, facilitates instant, low-cost global transfers across 140+ countries and 120+ currencies, making it a superior choice for international transactions.
Time for a New Standard
Lightspark is a global payments infrastructure company that enables real-time, cross-border money movement for Bitcoin, fiat, and stablecoins, offering faster, cheaper, and more secure transactions compared to NEFT and RTGS.
- Built on Bitcoin: Lightspark’s infrastructure leverages Bitcoin’s open, decentralized foundation, providing a secure and transparent global payments network.
- Instant Settlement: The platform ensures real-time, global money movement, making funds available instantly.
- Lower fees: Lightspark facilitates low-cost payments without hidden fees, reducing transaction costs significantly.
- Cross-border security by default: Designed for secure, cross-border payments, Lightspark ensures seamless and reliable transactions across 140+ countries and 120+ currencies.
A Modern Infrastructure
For businesses looking to transition from traditional payment systems like NEFT and RTGS, Lightspark offers the following solutions:
- Wallets: Build advanced, feature-rich digital wallets with flexible custody options, supporting Bitcoin, Lightning Network, stablecoins, and domestic payment rails.
- Digital Banks: Connect to the 'Money Grid' to expand into new markets, offer real-time payments, and stay compliant across jurisdictions.
- Exchanges: Integrate with the Bitcoin Network to enable instant Bitcoin transfers, lower costs, and eliminate friction for cryptocurrency exchanges.
- 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 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.
