What Is Rail Payment and Its Role in Real-Time Transactions

Rail payment is a digital payment method that enables real-time transactions, allowing users to make payments instantly. It's designed to be fast, secure, and convenient.

Rail payment uses a centralized system to process transactions, making it possible to settle payments in real-time. This reduces the risk of errors and makes it easier to track transactions.

Rail payment is increasingly being adopted in various industries, including transportation, retail, and hospitality, to name a few. Its role in real-time transactions is significant, making it a game-changer in the way we make payments.

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RTP (Real-Time Payments) is a payment processing network used to send money electronically between banks in the United States, transferring funds between two bank accounts instantaneously.

The Clearing House's RTP network has been the go-to solution for real-time payment transactions since 2017, offering real-time settlement and confirmation of transactions. It has gained popularity over time as a critical component of the evolving digital payments landscape in the U.S.

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With the launch of FedNow in July 2023, it will be interesting to see if two real-time payment networks can coexist in the U.S. market. FedNow provides bank payments that settle in real time, catering to U.S. depository institutions with near real-time, 24/7/365 interbank clearing and settlement.

RTP transactions clear and settle in real-time, and costs are generally lower than wire transfers, at just $0.01-$2 per transfer.

Here are some key benefits of RTP:

The RTR system in Canada, backed by the Bank of Canada, promises safety with strict requirements in place for all participants looking to engage with the system. It will take approximately 60 seconds for a transaction to complete, including exchange, processing, and settlement.

With 24/7/365 availability, banks are never truly closed, allowing senders to send transactions when convenient and receive money instantly when needed. The RTR system will run on ISO 20022, the global standard for exchanging financial information, providing enhanced remittance data and worldwide interoperability.

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Payment networks are a type of payment rail that enables fast and secure transactions. They are maintained by major brands like American Express, Discover, Mastercard, and Visa.

These networks supply branded plastic cards that consumers can use to make payments, making them one of the most recognizable brands in the US. The widespread issuance of these cards has made card networks an attractive payment rail for businesses.

The card networks are evolving to support new payments technology, such as push-to-card solutions that allow companies to send money directly to consumers' debit cards. Both Lyft and Uber have introduced such solutions, allowing drivers to receive their earnings digitally.

Here are the four major payment networks in the US:

Payment rails are the backbone of any payment network, and there are several types to choose from. Different types of payment rails offer unique characteristics, making them suitable for specific needs.

The most common payment rails are real-time payment rails, which enable fast and secure transactions. They're perfect for e-commerce and online payments.

Some payment rails, like the ones mentioned in the article, are designed for specific needs. For example, some are suitable for specific industries or business models.

Real-time payment rails, on the other hand, are ideal for high-volume transactions. They can process a large number of transactions quickly and efficiently.

Payment rails can be categorized based on their characteristics, such as speed, security, and scalability.

Integrating into SaaS Platforms is a crucial step for any payment network. Integrating payment rails into your vertical SaaS platform can be a challenge, but it's essential for growth.

You could work with a payment gateway, but they're not suited for platform growth. Payment processors can help integrate different rails, but they might still have issues with preventing fraud and offering transparent fund reconciliation reporting.

A plug-and-play payments platform like Astra is built to help vertical SaaS platforms grow quickly. Astra connects you to the payments landscape instantly and protects you from unknown unknowns like chargeback handling and compliance reporting.

With Astra, you can get up and running quickly, rolling out features to your merchants fast. This helps differentiate your product in the marketplace and allows you to focus on growth.

Companies like Cloudtrucks and Splitwise rely on Astra to facilitate real-time money transfers at scale.

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American Express, Discover, Mastercard, and Visa are the major card networks that maintain payment rails. These networks have established infrastructure, rules, and regulations that allow payment transactions to run smoothly.

Card networks are some of the most recognizable brands in the U.S. due to their widespread issuance of branded plastic cards and global marketing campaigns. They are also evolving to support new payments technology, such as push-to-card solutions.

Push-to-card solutions, like Lyft Direct and Uber Instant Pay, allow companies to send money to consumers by leveraging card networks as payment rails. This flips the traditional flow of consumer-to-merchant card payments and is becoming increasingly popular as consumers shift away from paper checks and toward digital disbursements.

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ACH and FedNow are two payment rails that have been making waves in the financial industry. ACH, or Automated Clearing House, has been around for decades and is one of the most used payment rails in the U.S., handling 597.6 million Same Day ACH payments valued at $1.78 trillion in 2023.

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ACH can be used for both credits and debits, making it a versatile option for merchants, consumers, and financial institutions. Users can link their bank accounts directly or access them using an alias, such as an email address or phone number. This has allowed peer-to-peer payment solutions like Zelle, Venmo, and Square Cash to thrive by leveraging an established payment rail.

FedNow, on the other hand, is a new payment rail launched by the Federal Reserve in July 2023. It provides bank payments that settle in real time, catering to the growing demand for instant payment services in the U.S. With FedNow, consumers and businesses can engage in end-to-end payment processing within a secure and efficient infrastructure.

The pros of ACH include transfers happening within the next business day after initiation, being less time-consuming than paper checks, and being cheaper compared to wire transfers or push payments. Institutions usually charge a flat fee (20 cents to $1.50) or between 0.5 to 1.5% of the transaction volume.

ACH is a reliable payment rail that's been around for a long time, handling 597.6 million Same Day ACH payments valued at $1.78 trillion in 2023.

Transfers happen within the next business day after initiation, making it a convenient option for consumers and businesses alike.

ACH can be used for both credits, such as direct deposit of payroll, and debits, including mortgage, loan, and utility bill payments. It's also being leveraged to power popular peer-to-peer (P2P) payment solutions like Zelle, Venmo, and Square Cash.

Institutions usually charge a flat fee of 20 cents to $1.50 or between 0.5 to 1.5% of the transaction volume, making ACH cheaper compared to wire transfers or push payments.

Using ACH for recurring billing is less time-consuming than using paper checks, and it's becoming a popular choice for many businesses.

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One of the downsides of ACH is that many banks impose limits on transactions, with daily limits ranging from $1,000 to as high as $10,000 per month.

These limits can be frustrating for businesses that need to process large transactions regularly. For example, some banks impose a $10,000 monthly limit on ACH transfers.

ACH is also limited to the US market, making it impractical for international merchants who need to process payments across borders.

This can be a significant drawback for businesses that operate globally, as they may need to use other payment methods to accommodate international customers.

ACH transactions are generally slower compared to other payment rails, which can be a disadvantage for businesses that need to process transactions quickly.

This slower processing time can lead to delayed payments and frustrated customers, which can ultimately harm a business's reputation.

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FedNow has several advantages that make it an attractive option for consumers and businesses. Transactions clear and settle in real-time every day of the year.

One of the key benefits of FedNow is that it opens up instant payment services to more financial institutions, including neobanks. This means that a wider range of businesses and individuals can take advantage of real-time payments.

Transaction costs with FedNow are generally lower than card transfers. A credit transfer costs $0.045 per transfer, with the institution incurring a $25 monthly subscription fee.

By providing a low-cost and efficient payment solution, FedNow is well-positioned to become a major player in the US payments landscape.

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RTP transactions clear and settle in real-time, making them a reliable option for businesses that want to offer fast and secure transactions.

Card networks, on the other hand, are payment rails that support traditional consumer-to-merchant card payments, but are also evolving to support new payments technology like push-to-card solutions.

Push-to-card solutions, such as Lyft Direct and Uber Instant Pay, allow businesses to send money directly to a debit card, flipping the traditional flow of consumer-to-merchant card payments.

Card networks are attractive payment rails for businesses that want to offer fully digitized transactions to a broad range of consumers, thanks to the ubiquity of their plastic payment cards.

Here's a comparison of RTP and card payments:

Card networks are established networks with infrastructure, rules, and regulations that allow payment transactions to run smoothly between parties, making them a reliable option for businesses.

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Vertical SaaS companies have used payment rails to grow their businesses in various ways.

Payment rails have enabled these companies to process payments efficiently, allowing them to scale their businesses quickly.

For instance, a few examples of payment rails in action include companies using payment rails to grow their businesses.

Auto Loan Disbursement can be a game-changer for businesses and their customers. OnDeck, a fintech platform, used Visa Direct to deliver funds to recipients' debit cards instantly. This resulted in more growth for OnDeck and happier users.

Instant fund availability is a key benefit of auto loan disbursement. OnDeck's users had access to their funds right away, which is a huge improvement over traditional loan disbursement methods.

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Fold's instant funding solution enables faster fund transfers and access by allowing users to transfer funds from external debit cards to their Fold accounts. This has led to impressive results, with 92% of Fold transfers achieving a T+1 settlement speed.

The instant funding solution has also had a significant impact on user engagement, with transfer volume increasing by 200% over 60 days post-implementation. This is a testament to how seamless and efficient instant payouts can be for rewards programs.

By leveraging instant funding, Fold has been able to provide its users with a more convenient and rewarding experience, ultimately driving growth and adoption.

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Behind the scenes of rail payment, several key steps occur to facilitate the transaction. The payment process begins with the payer initiating the transaction, providing their payment information through a platform like an e-commerce store or mobile application.

The payment processor verifies the payer's information with the issuing bank or network, and upon successful authorization, the payment processor transmits instructions via the chosen payment rail network. This network facilitates communication between the payer's bank and the payee's bank, ensuring a smooth transaction.

More than 70 countries have adopted real-time payments, with 195 billion transactions recorded in 2022. India leads the way, accounting for 46% of all real-time transactions worldwide in 2022, with Brazil following closely behind.

Here's a breakdown of the top five real-time payment markets worldwide:

The payment process involves several key steps, starting with the payer initiating the transaction through a platform like an e-commerce store or mobile application.

The payer's payment information is then transmitted to a payment processor, which verifies the information with the issuing bank or network. This authorization step is crucial in ensuring that the payment is legitimate and secure.

The payment processor transmits instructions via the chosen payment rail network, facilitating communication between the payer's bank and the payee's bank. This is where the payment rail comes into play, enabling the transfer of funds between banks.

The payment rail network plays a vital role in ensuring that payments are processed efficiently and securely. In the European Union, the Single Euro Payments Area (SEPA) has standardized payment formats and procedures, making cross-border transactions easier and more secure.

SEPA has introduced standardized formats and procedures for electronic payments, based on the global ISO 20022 messaging standard. This has streamlined the way cross-border transactions are processed and reconciled.

To make a SEPA transaction, customers and businesses need only a single EU-based bank account, eliminating the need to open separate accounts in different countries. This has made it easier for businesses to manage their finances across the EU.

Here are the key steps involved in a SEPA transaction:

The payment rail network enables the transfer of funds between banks, and the SEPA zone has made it easier for businesses to manage their finances across the EU.

Real-time rails ensure the settlement of payments in real-time, allowing for instant transfers between banks. This is made possible by infrastructure like Interac Corp.'s system in Canada, which connects with around 300 financial institutions.

The top five real-time payment markets worldwide are India, Brazil, China, Thailand, and South Korea. India accounts for 46% of all real-time transactions worldwide, with 89.5 billion RTP transactions in 2022.

India's RTP market has seen a significant YoY growth of 76.8%, while Brazil's has experienced a remarkable growth of 228.9%. The RTP market is forecasted to reach 511.7 billion transactions by 2027.

Here's a snapshot of the top five real-time payment markets worldwide:

The RTP market is expected to account for 27.8% of all electronic payments globally by 2027, up from 18% in 2022.

Payment rails are the underlying systems that enable transactions between financial institutions.

ACH (Automated Clearing House) payments are low-cost electronic transfers between bank accounts in the US.

Real-time bank transfers are available with FedNow, but they can be costly.

RTP (Request for Payment) transactions happen in real-time between bank accounts, while still being affordable.

Card networks offer secure, instant, two-way card transactions, but fees are high for large withdrawal amounts.

Here's a summary of the pros and cons of each payment rail: