In today’s fast-paced world, being able to make and receive payments quickly and reliably is fundamental to any competitive business. But what kind of payment system should you be using – real-time payments vs ACH?
Companies with an optimized payments ecosystem benefit from:
- Reduced transaction costs of streamlined payments, both locally and cross-border
- Seamless integration with financial services and financial networks across the globe
- Improved cash flow by receiving funds promptly, enhancing liquidity, and reducing the need for working capital
- Enhanced security through advanced fraud detection and better compliance standards
There are two main payment infrastructures that enable fast payments: real-time payments (RTP) and Automated Clearing House (ACH) payments.
Real-time payments refer to the electronic transfer of funds that settle almost immediately, giving businesses and consumers pretty much instant access to funds.
On the other hand, ACH transactions follow a batched process that takes longer before settlement. But while RTPs are faster, ACH payments cover some of the limitations of the former.
With businesses increasingly looking for instant payment functionality, Deloitte predicts that real-time payment networks could replace between US$18.9 and $37 trillion in ACH and check-based B2B payments in the United States by 2028.
Source: Deloitte
But does the advance of RTP settlements mean ACH payments are redundant?
Each system has its advantages and knowing when and how to use real-time payments or the ACH network can improve an enterprise’s operations, costs incurred plus client relations.
This article dives deeper into the ‘real-time payments vs ACH’ debate by examining what each payment option is all about, how they differ, plus use cases.
By the time you finish reading this article, you will understand when it is best to leverage either type of B2B payment for cutting costs, improving cash flow, and more.
[Your business should be offering faster payments. Schedule a free assessment with Berkeley Payments and learn how to integrate real-time payments into your ecosystem.]
What is real-time payment for businesses?
First, what is real-time payments again? Real-time payments are an innovative payment system that enables near-instant electronic fund transfers between two bank accounts.
Unlike traditional payment methods like wire transfers, RTP systems operate non-stop and year-round, making funds available seconds instead of the usual days after a transaction is initiated. The data transferred through RTP payment rails is rich and two-way following the ISO-20022 protocol, further enabling payment optimization.
Boasting such benefits, it’s no wonder that RTP payments are on the rise globally, with 266.2 billion real-time payment transactions recorded globally in 2023. This represents a year-on-year growth of 42.2%, according to a yearly report from payment systems company ACI Worldwide.
Commenting on the results presented in the rapport, the company’s Chief Product Officer, Debbie Guerra, said that “Real-time payments—and especially cross-border payments—are the future. They remove payment friction, provide greater liquidity in the financial system, and ultimately drive economic growth and financial inclusion.”
Meanwhile, North America is behind in the use of real-time payments, ranking 11th globally in RTP adoption. The US’ two RTP payment rails, The Clearing House's RTP network (which includes the Zelle P2P payment platform) and the Federal Reserve's FedNow, and Canada’s Interac e-Transfer, accounted for 3.5 and 1.2 billion transactions in 2023 respectively.
In the US, that transaction volume counted for a mere 1.8% of all non-paper-based transactions. Real-time payments are, however, set to grow in transaction share in the coming years.
Source: ACI Worldwide
What are ACH payments? And is ACH instant?
ACH payments are a transfer method that is widely used in the US. These payments are routed through an electronic funds transfer system managed by the National Automated Clearing House Association, or Nacha.
ACH transfers have largely been adopted by businesses for both B2C and B2B payments, who mostly use this payment option for high-volume transfers. The ACH network is versatile and can be used for various transactions, including direct payments, direct deposits, and account-to-account (A2A) payments.
Compared to traditional payment methods like wire transfers and checks, which still account for 45,4% of B2B transactions, routing payments through the ACH network is a fast and cost-effective payment method – but are ACH transfers instant?
ACH transactions are handled through a multi-step process involving the accumulation of payment instructions into batches for clearing and settlement. That means many ACH payments are stuck in end-of-day batch processes and only settled within two to three business days.
Same-day ACH reduces waiting time for domestic payments. Unlike with regular ACH transfers, these batches are processed several times per day, resulting in much faster payments – albeit not instant.
Nacha’s data show how business-to-business same-day ACH payments have taken off in recent years.
Source: Nacha
However, whether or not your same-day ACH payments are cleared on the same business day depends on the time you submit your transactions, with the same-day ACH cutoff time being 1PM EST – after which your payment is processed in the next day’s first batch.
Regarding transfer speed for real-time payments vs same-day ACH payments, the former clearly wins. But there are other differences to consider.
Real-time payments vs ACH: Key differences
As far as electronic payment methods go, real-time payments and ACH transactions are the biggest payment options in today’s business landscape.
And while the two payment services both facilitate secure and fast fund transfers, they significantly differ in many ways. Below are the major differences between these payment systems:
Transaction Speed
Speed is the biggest differentiator between the two payment systems, with RTP payment rails being the only true solution for instant payments. Real-time payments give immediate access to funds 24/7/365. In contrast, regular ACH payments can take one to three business days to complete, while same-day ACH transactions are processed within one business day.
Availability and Accessibility
For businesses operating in the US, ACH payments are widely accepted and accessible at all banks and financial institutions across the country. However, that ease of use stops with cross-border payments. Real-time payments might have a more limited reach today, being supported by around 285 banks and credit unions. But RTP adoption is set to increase, as is cross-border interoperability.
Transaction Limits
Real-time payment networks have implemented a transaction limit of $1,000,000 per transfer to mitigate risk. On the other hand, ACH payments have no limit for next-day transactions, making them more suitable for larger fund transfers. RTP transactions will likely accommodate higher transfer limits in the future.
Security and Fraud Risks
While both payment systems prioritize security, real-time payments have inherent risks due to their instantaneous nature and irrevocability. On the other hand, the ISO-20022 standard ensures safety and data protection.
ACH payments are generally considered more secure – not just because of their longer processing times, but because the ACH network has been in use far longer.
Cost Considerations
The costs associated with these payment systems are both much lower than traditional payment solutions. However, the fees the service providers charge for transactions differs between use cases.
Carefully consider what type of transactions you want to process with these payment systems. To help you, we list a some use cases for real-time payment
ACH transfer vs real-time payment: Use cases
In practice, whether to use ACH or RTP transactions depends on the context.
ACH payments are suitable for recurring or non-time-sensitive payments. Real-time payments are faster and thus better suited for urgent, time-sensitive transactions where immediate fund availability is crucial – like real-time credit.
But what is real-time credit? This type of credit transfer provides recipients instant access to a line of credit through an RTP payment rail.
Below is a list of some of the key use cases for both payment systems:
Real-time payments
- Time-sensitive payouts (e.g., contractor payments, insurance claims, gig worker payments)
- Earned wage access, allowing employees to access real-time payment credit on bank statements for their earned wages before the next payday cycle
- Business-to-business supplier payments to ensure uninterrupted supply chain operations
- High-value transactions that require immediate verification, like down payments for real estate or vehicle purchases
- Customer refunds that need to reflect directly in the recipient's account
- Real-time credit where users get access to a credit line as soon as a new card is requested
ACH payments
- Payroll processing for salaried employees, where ACH
- Recurring bill payments (utilities, rent, mortgage, etc.)
- Subscription-based or membership payments, where ACH can be used to collect recurring payments from user
- Payments to vendors, suppliers, and contractors that aren’t time-sensitive
- Tax payments and other payments to government entities
Integrating real-time payments and ACH into your business
Is there a better option when choosing between real-time payments vs ACH payments for your transactions? As we’ve seen, it depends on the specific payment you plan on making.
In today’s complex payment landscape, having different payment options at the ready helps meet clients’ and customers’ demands and stay competitive. Integrating both real-time payments and ACH into your payment infrastructure means you cater to a wide variety of use cases, from urgent settlements to recurring billing cycles and from earned wage access to real-time credit.
[Want to cut payment costs and time? Explore Berkeley Payments' payment solutions and seamlessly integrate RTPs with your existing systems to provide users with next generation payment options.]
