The fintech industry is at the forefront of technological advancement, and payment system technology is crucial to the success of a fintech business. If you've ever needed to transfer money within the U.S. for your company, you may have also become familiar with two common payment methods—ACH and RTP. That is Automated Clearing House and Real Time Payments.
While both payment rails can help you initiate and receive money between bank accounts at different financial institutions, such as between a credit union and a bank, there are significant differences. Read on to learn the difference between Real-Time Payments and ACH payments and how they work for your business.
What are Real Time Payments?
Real Time Payments (RTP) is a newer kind of payment system first introduced in the U.S. in 2017. The RTP Business Committee sets the rules.
It's operated by The Clearing House, which also processes ACH payments. The U.S. is fairly late to the real time payment game, but more businesses are seeing the need for quick payments and adopting RTP as a payment rail.
Like ACH, RTD is also a purely electronic payment method. However, one difference between RTP and ACH transfers is that the latter only supports credit push transactions.
What are ACH Payments?
Automated Clearing House (ACH) payments are an electronic payment rail for transactions within the U.S.
ACH has been around much longer than RTP, with operations dating back to 1972. With its switch to electronic paper transactions, it moves money faster than paper checks and cash. The payments are processed by The Federal Reserve and The Clearing House.
The ACH system is set to process batches four times daily; each batch is processed during banking hours. There are two types of ACH payments:
- ACH Debit (Direct Payment): Where the receiver initiates the payment with authorization from the sender. This way, money is drawn out of the sender's account with approval in order for a payee to receive it. Examples of common ACH debit is a bill payment or subscription.
- ACH Credit (Direct Deposit): Where the sender initiates the payment- meaning they push money out of their account into a payee's account. Common ACH credits are payroll deposits or government benefit payments.
Real Time Payments vs. ACH Payments: What's the Difference?
While using the same operator, The Clearing House, RTP, and ACH payments offer different benefits. We've compiled some comparisons to help you decide which of them might be best for your needs:
Speed
When paying with ACH payments, the speed of your payment could be either same-day or next-day. There is a misconception that ACH payments take three to five days to process. There are same-day ACH transactions. As the name implies, one-day ACH transactions are processed within one working day. All payments clear and settle in batches, so they need to be collected during specific processing windows at 8:30 a.m. ET, 1:00 p.m. ET, 5:00 p.m. ET and 6:00 p.m. ET to accommodate banking hours and processes.
On the other hand, RTP transactions are processed individually and in real time. After every transaction is cleared, a confirmation message is sent to both the sender and receiver, as seen when using a payment app like Zelle or CashApp.
Both payment rails offer benefits to users. The Sila ACH API allows you to process payments efficiently through the Automated Clearing House (ACH) network. It's a fast, affordable, and secure way to get money into your accounts.
Sila's Beta Instant ACH feature ensures that funds are available in your wallet as soon as possible, instantly up to $500. This way, you don't have to wait for the ACH funds to be deposited before accessing them.
Availability
ACH is available at all U.S. financial institutions. However, some banks are still achingly slow with processing payments, so it is essential to pair with a money API that offers instant payment ACH if quick payments are important to you and your business. RTP is not as widespread as ACH. Financial institutions may opt in, and you may find that it is not as convenient for you or your customers.
Limits
The limit for the ACH network has had different speeds depending on the origination and destination. There is no transaction limit for slower processing. However, the fastest transaction option (same-day ACH) has a maximum transaction value limit of $1,000,000.
In the case of RTP, the transaction value is the same as same-day ACH, at $1,000,000.
Processing Hours
Since the ACH network is settled through the Federal Reserve, ACH payments are only settled during opening hours for the Federal Reserve. An ACH transaction is not settled between 6 p.m. ET and 8:30 a.m. ET on weekends and national holidays.
RTP transactions are processed and settled as the transaction is made, every day of the year, at all hours.
RTP or ACH Payment: Which is Best for You?
While the impetus exists to process payments quickly, especially in a fast-paced environment like the financial industry, fintech startups are eager to find the best payment option for their operations. Overall, RTP is the faster payment option.
We often hear that RTP is a smart option. While this is true for some transactions, it's important to note that all transactions aren't eligible for an RTP payment. Only those in which both parties' banks are a part of the RTP system are able to receive them.
In addition, certain conditions may mean your business isn't eligible for RTP. This can sometimes make it challenging to use same-day ACH payments or RTP for business-to-business transactions.
For the sake of having a convenient and secure API for your business, ACH payments are more versatile. Next-day and regular processing offer both cost savings and benefits to your organization.
When considering either RTP or ACH, both are good options. However, not many transaction types are not eligible for RTP. The ACH network is likely a better fit, offering more convenient and practical solutions for your customers and business.
Choose Sila's ACH API for Your Financial App
Explore our site to learn more about Sila's products, including our ACH API, and discover how Sila can help your business achieve its goals.
We provide integration for the payment method you want, so you don't need to build it from scratch. Our API is the best way to go if you want to reduce your payment-processing time and automate processes. Tell us more about your business, and we'll figure out what will work best! Book a live demo or get started by speaking to an agent.