Since the release of The Clearing House’s Real-Time Payments (RTP) network in 2017, the payments landscape has changed. No longer are cards and cash the only option for instant settlement.
At the same time, the Automated Clearing House (ACH) payment rail has seen rapid growth through the expansion of new payment types, such as peer-to-peer payments—despite the fact that ACH payments do not settle instantly. The evolution of the payment industry means businesses need a deeper understanding of their payment options to stay competitive.
While payment rails like cash and credit are relatively straightforward, RTP and ACH can be more challenging to understand. This article explores the key differences between these two payment methods and when and why customers might prefer one over the other.
Real-time payments vs. ACH: What are the differences?
Real-Time Payments (RTP) is an electronic payment rail operated by The Clearing House that allows funds to be transferred almost instantly between bank accounts. ACH payments are electronic transfers through the Automated Clearing House (ACH) network—essentially, they work like electronic checks.
Both payment types are growing fast, but ACH still dwarfs RTP. According to the Federal Reserve, the value of all noncash payments reached $128.51 trillion in 2021, with ACH payments accounting for 90% of the increase in noncash payments.
While these payment rails sound similar, there are distinct differences—and pros and cons—for each payment type.
One of the most significant differences between ACH and RTP is when and where each payment rail is typically used. ACH payments are often used for recurring payments, such as employee salaries, government benefits, and bill payments. Business-to-business (B2B) payments also use ACH due to its higher payment limits.
Currently, ACH dominates the electronic payments landscape, with over $77 trillion transferred annually, due in part to the rise of same-day ACH, which allows for faster settlement of transactions. In contrast, $25 billion changed hands via RTP in the first quarter of 2023. Still, that is about a five times increase over Q1 2020, just three years prior.
RTP is ideal for instant payouts in B2C transactions like delivery app drivers getting paid or transferring the account balance from a P2P payments app like Venmo to your bank account. Any time you see an option to pay a few dollars for "immediate" funds, that is likely RTP. It is also sometimes used by businesses to send warranty payments or process instant payroll. RTP usage is expected to grow significantly in the next few years, with an estimated 8.9 billion transfer volume by 2026.
However, RTP’s transaction volume may be impacted by the summer 2023 launch of FedNow, another instant payment rail from the Federal Reserve that will make real-time payments more widely available. FedNow aims to “allow financial institutions of every size across the U.S. to provide safe and efficient instant payment services.” While it is a also real-time payment rail, FedNow is not the same as RTP offered by The Clearing House.
ACH payments typically take hours to days to settle, while RTP payments are processed in real-time, meaning funds are available immediately. This difference in speed can be critical for certain use cases, such as emergency payments or time-sensitive transactions. While ACH has been the dominant electronic payment method in the US for many years, the rise of fintech has driven demand for faster payments and increased the need for real-time payment options.
To address speed and fraud concerns, the ACH network has introduced same-day ACH, which allows for faster (but not instant) settlement of ACH transactions. This helped bridge the gap between ACH and RTP, but RTP remains the preferred option for many use cases where speed is critical since RTP settles instantly.
→ Plaid Transfer now supports instant payouts via RTP, allowing businesses to send money in seconds, rather than days.
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The cost of ACH vs. RTP payments is another differentiator between the two payment rails. ACH payments are generally cheaper than RTP payments. According to the National Automated Clearing House Association (NACHA), the average cost of an ACH transaction is between $0.26 and $0.50.
In contrast, RTP fees range from a few cents to two dollars per transaction, depending on the provider. The Clearing House (TCH) charges the same preset fees to all payment providers, who then decide how much to charge their customers to use RTP.
Some of the TCH fees include $2.00 for pre-funded balance account drawdowns, $0.045 for credit transfers, and $0.01 to request a payment. The RTP network does not offer volume discounts or require monthly minimums, ensuring all financial institutions pay the same rate regardless of their size. However, the cost of real-time payments may also be impacted by the launch of FedNow, which will likely cost less than RTP network transfers.
While RTP fees are generally higher than ACH fees, they do offer the benefit of real-time processing, which can be crucial for urgent or time-sensitive transactions. For businesses and individuals looking to save on transaction costs, ACH payments remain a cost-effective option, especially if instant settlement is not needed.
ACH is generally more accessible than RTP because it is accepted in more places, including for online store purchases, bill payments, and direct deposits. ACH payments are also more generally available to individuals and businesses, making it a widely accessible option for a variety of use cases. In contrast, RTP payments are still gaining acceptance and are not yet as widely available as ACH payments.
However, with the introduction of the Federal Reserve's FedNow service, real-time payments will become more widely accessible in the US According to the Federal Reserve:
"The FedNow Service is a new instant payment infrastructure developed by the Federal Reserve that allows financial institutions of every size across the U.S. to provide safe and efficient instant payment services."
Though not the same as RTP, the FedNow infrastructure will allow more financial institutions to offer real-time payments to their customers. While ACH remains the more accessible option, real-time payments (through both RTP and FedNow) are likely to increase market share in the coming years as more options become available.
Fraud risks are a concern for both ACH and RTP network payments. One of the benefits of ACH payments is they are reversible in the event the consumer claims that a transaction was incorrect or unauthorized. However, ACH payments can pose a risk to businesses because of the potential for returns.
RTP, on the other hand, is instant and irrevocable, which can make it attractive for businesses and consumers looking for faster payments that are not subject to return. However, the lack of chargebacks and other protections can make RTP more vulnerable to fraud and other types of financial crime. Fraudsters may be more motivated to target RTP payments, as the immediate transfer of funds can make it easier for them to avoid detection and escape with funds.
RTP vs ACH: Which one should your business choose?
When comparing RTP and ACH, it's easy to assume it's an either-or conversation. Rather than choosing between RTP or ACH payments, businesses should consider offering customers a multi-rail payment solution. By providing multiple payment options, businesses can cater to a wider range of customers with different payment preferences and needs. This can help improve customer satisfaction and drive conversions.
One way to offer a multi-rail payment solution is by using a payment platform like Plaid Transfer, which enables businesses to securely transmit both ACH and RTP payments through a single API integration. This helps simplify the payment process for businesses and provides a more streamlined experience for customers.
A multi-rail payment solution allows customers to choose whether they prefer the speed and immediacy of RTP or the lower costs of ACH. Overall, a multi-rail payment solution can help businesses to stay competitive and meet the needs of customers in the rapidly changing payment landscape.
The future of payments is fast and multi-railed
As the world becomes increasingly digital and interconnected, the future of payments is undoubtedly faster. The introduction of FedNow is set to make real-time payments more widely available and accessible, which will likely accelerate the shift toward faster payments.
Offering a multi-rail payment solution that includes both ACH and RTP (and eventually FedNow) allows businesses to serve a broader range of customers with different payment preferences and needs. Plaid helps expand the payment rails available to businesses, making it easier than ever to offer a variety of payment options through a single, secure platform.
→ Learn more about how integrating with Plaid Transfer enables your customers to seamlessly choose either ACH or RTP.