We’ve given you guides on both ACH and RTP. Orum can work with both payment rails, and today we’re going to help you evaluate which one is right for your business.
Automated Clearing House (ACH) is a payment rail for domestic transactions that has been available within the U.S. since the 1970s.
Transactions work like an electronic check and can be initiated by either the sender (credit push) or the receiver (debit pull). Then, the money gets cleared and settled in batches four times a day.
You can learn more about ACH in our dedicated guide here.
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Real-Time Payments (RTP) is an immediate delivery payment rail that’s been operating in the U.S. since 2017.
Only senders can initiate real-time payment transactions (credit push) which are then processed and settled individually as they come in.
You can learn more about RTP in our dedicated guide here.
The ACH network has been around for nearly 50 years and has developed several advantages for businesses sending money to other organizations or individuals.
These benefits can be split into three categories: Convenience, Security, and Cost Savings.
ACH payments are universally accepted by American financial institutions. Your business can always depend on ACH to be available whenever you need to make any type of payment.
Since this payment rail is so ubiquitous, most financial institutions provide easy functionality for initiating and receiving ACH payments, whether through an online portal or direct API integration.
ACH payments are relatively secure, especially for businesses accepting payments from consumers.
ACH rules allow consumers and businesses to dispute transactions posted in their respective bank accounts. Depending on the type of transactions posted, businesses and consumers have from 2 to 60 days to dispute transactions posted in their accounts, if they have not authorized such transactions or if the transaction amount differs from their authorization.
ACH payments are inexpensive, especially when compared to wires or paper checks. Typically, your business will pay about $0.26-0.50 per transaction, but it varies by scale.
Real-time payments were introduced as a new-generation payment rail to improve upon older systems, including ACH.
So, what aspects of money movement does RTP change, and how well does it live up to its promise as a superior alternative to more traditional payment methods?
Real-time payments allow you full control over your cash flow thanks to their instantaneous settlement.
Whether you are sending or receiving transfers, with RTP you can always see your updated account balance accounting for all transactions, even if they were initiated only minutes before! As such, you can manage your business operations with greater certainty and precision, always knowing whether invoices have been paid and whether you’ve sent out any money owed.
The main advantage of a real-time payment system is its speed.
Faster payments are extremely convenient and easy to keep track of. Whenever you need to pay another party, you don’t have to wait for them to receive confirmation of that payment’s status. On the other hand, if a customer pays you for a product or service, you can deliver it to them as soon as they send funds, without waiting for processing or fearing chargebacks.
RTP transactions can be processed and settled at any time. While most other payment methods depend on financial institutions to be physically open and confirm the status of a transaction, with RTP you can send money whenever you wish to.
This flexibility can help your business avoid potential fees or penalties if you need to send funds before a payment deadline, even if you start the transfer in the middle of the night or on a federal holiday!
While both payment rails have their advantages, they also both have certain flaws which you might wish to keep in mind.
ACH payments are quite secure, but they are not immune to fraud, and in many ways, it’s getting worse.
Because ACH is a rule-based payment rail, it has the potential for abuse. Given the system’s extensive history, bad actors have had many opportunities to discover flaws and exploits within the network’s operating rules.
Even though the ACH network has improved its processing speed significantly in the last few years, especially with the introduction of same-day ACH, it’s still not real-time.
So with ACH, if your business needs to send or receive funds urgently, you will most likely still have to wait a few hours before a payment is posted.
Since ACH payments are processed by the Federal Reserve, they can only be settled when the organization is open for banking hours.
This means that your business cannot send or receive money through the ACH payment rail on weekends, holidays, or late nights.
While real-time payments are a great alternative to ACH, its novelty also brings some flaws that could be deal-breakers for your business.
The main disadvantage to RTP is its lack of adoption. Only 65% of U.S. demand deposit accounts (DDAs) can access the RTP system for payments. In practice, this means that your business might still have to process a portion of your transactions through alternative payment rails, even if you try to use RTP whenever you can.
Since all payments are settled and posted instantly, if you make a mistake while initiating a payment, it can be complicated to fix.
Without a standardized cancellation procedure, disputes must be resolved between your business and the other party. You may have to deal with refund requests or wrong payment amounts manually, diverting time away from other business operations.
RTP is not available for all types of transactions.
You can only send an individual payment of up to $1,000,000 in value with this rail. Additionally, RTP only supports credit push payments, so all transactions must be started by the sender.
Depending on the nature of your business, some of your common transactions may not be eligible for using the new RTP network.
Choosing between RTP and ACH for your business comes down to your available options and priorities.
If you wish to prioritize speed and instant confirmation messages, then RTP is probably a better choice.
On the other hand, if you want to rely on a more tried-and-tested payment rail, then ACH could make more sense for your business.
See how Public.com provides instant access to funds for their end users.
You can also work with someone like Orum who can give you access to both of these rails and more.
At Orum, our vision is to power a better financial system where everyone has the freedom to build to their potential.
We’ve built the simplest API for fast, reliable payments. This means you get one solution to access FedNow, RTP, Same Day ACH, ACH, Wires, and more.
With our payment API, we can automatically determine the best possible speed for your transaction and mitigate the risks of financial fraud and identity theft with any transfers you conduct.
If you’re ready to implement ACH or RTP payments into your product, get in touch!