Account-to-account payments are digital (or electronic) transfers between bank accounts through payment rails such as the ACH Network and RTP® Network. As consumers and companies move toward more efficient and potentially safer ways to transfer funds, these payment methods are positioned as the future of digital payments. Whether you’re a startup integrating with a payment service provider for the first time or a legacy company undergoing a digital transformation, account-to-account payments will be integral to your business today and well into the future.
Under the ACH (Automated Clearing House) umbrella, bank-to-bank transfers are processed reliably via the ACH Network. With a Standard ACH transaction, after a transfer is initiated, funds can take up to 3-5 days before they are available to the recipient. For those who need faster speeds, Next Day ACH (exclusively through Dwolla) makes funds available the next business day, while Same Day ACH allows a credit to or debit from a bank account to settle within the same business day.
Real-Time Payments (RTP) are account-to-account transactions that clear and settle near instantaneously via the RTP® Network. RTP transactions are credit-only transfers that support extensive remittance data that can be used to easily reconcile funds. Payments cannot be debited or “pulled” via RTP. Since the transaction settles within seconds, all transfers are final.
Wire transfers are a completely separate payment option outside of the ACH or RTP networks, using networks like FedWire Funds Service, CHIPS, and SWIFT. In a wire transfer, the sender (referred to as the originator) initiates the transaction by providing their bank with the recipient’s (referred to as the beneficiary) bank account details, including the bank’s routing number and the recipient’s account number. The sender’s bank sends the funds to the recipient’s bank using a secure network of financial institutions. The recipient’s bank then credits the funds to the recipient’s account.
Wire transfers take several hours to process and require manual processing on both ends of the transaction. A wire transfer is more costly and is harder to automate than an ACH or RTP transaction. Wires are final once the transfer is completed.
While RTP, ACH and wire payments are all types of account-to-account transfers, each uses separate payment rails and is governed by different entities.
The chart below compares faster payment methods.
|Sent via the ACH Network (ACH operators are the Federal Reserve Bank or The Clearing House)||Sent via the RTP® Network Operator, The Clearing House||Sent via FedWire Funds Service, CHIPS, or SWIFT|
|Rules issued by National Automated Clearing House Association (Nacha)||Rules issued by The Clearing House (TCH)||Rules issued by the Federal Reserve|
|Funds can take anywhere from two hours to 5 business days.||Near real-time availability of funds.||Funds available within 24 hours.|
|Traditional business hours Monday-Friday, excluding federal holidays.||24/7/365||Traditional business hours Monday-Friday, excluding federal holidays.|
|Agreed-upon process for correcting erroneous transactions (ACH returns).||Funds are irrevocable (although not guaranteed, as a sending bank may request return of funds).||Funds are irrevocable.|
|Varies by financial institution, typically $25,000 for ACH. Same Day ACH limits are up to a $1 million per transaction limit.||Varies by financial institution, RTP Network limits are up to a $1 million per transaction.||Varies by financial institution, typically $50,000.|
|Collect or Disburse||Disbursement Only||Disbursement Only|
|Credit or debit transfers (Push or Pull)||Credit transfers(Push Only)||Credit transfers (Push Only)|
|Transactions are batched.||Transactions clear and settle individually.||Transactions clear and settle individually.|
To send and receive ACH transactions, a business (the originator) typically has to have an ACH agreement with its financial institution (the Originating Depository Financial Institution, or ODFI). In order for a financial institution to participate in the RTP network, they must integrate into the RTP network directly, through third-party service providers, bankers’ banks or corporate credit unions. Not all financial institutions currently participate, but the list continues to grow. Today, the RTP network’s real-time payment capabilities reach 65% of all U.S. DDAs.
Real-Time Payments can be initiated at all hours of the day—no matter if that day falls on a holiday or weekend. RTP transfers are account-to-account transactions that clear and settle nearly instantaneously.
A disbursement from account to account in real time is the ultimate form of control for a business. RTP improves cash flow for any business, and the remittance data that comes with each transaction provides accounting and finance teams with greater insight into each payment. Goodbye processing times! Hello more liquidity!
Here are few real-time payment use cases:
- Financial services platform uses Real-Time Payments to pay independent driver-contractors. Eligible drivers appreciate the faster access to their funds as they receive daily payouts when they are done working.
- A platform connecting trucking companies to drivers enables near instantaneous payments to drivers and provides truckers with greater control over the timing of their paychecks. Truckers can verify their work and receive their payment.
Additional use cases include insurance companies reimbursing policyholders in real time, real estate platforms sending escrow payments, and fintechs enabling consumers real-time access to loans.
ACH transactions aren’t real-time or instant transactions. Instead, the transactions post and settle in batches. These batches of ACH transfers are sent by banks to the ACH Operator, similar to how a letter dropped in a mailbox waits to be picked up by the U.S. Postal Service.
The ACH Network processes batches of transactions at specific times during the day, so there may be a delay between the initiation of the transaction and the instruction being sent to the ACH Operator. For example, let’s say a bank sends its ACH files to an ACH Operator at 11 a.m., 3 p.m. and 6 p.m. In that case,
- An entry originated at 11:02 a.m. won’t be sent to the ACH Operator until 3 p.m.
- An entry originated at 6:05 p.m. won’t be sent to the ACH Operator until the next business day at 11 a.m.
Below are a few examples of use cases for ACH:
- Real estate platforms use ACH transactions as a secure and cost-effective alternative to wire transfers for earnest money deposits.
- Marketplaces use ACH to streamline payments from buyers to sellers for goods purchased. With ACH, marketplaces are able to reduce sellers’ time to liquidity.
- Investment platforms use Same Day ACH to speed up the time to collect payments for fractional shares of rare assets.
- Tipping platforms use Same Day ACH to help their customers access their tips faster.
A Standard ACH transaction can take up to five days to complete, so businesses who need money to move more quickly often complement their experiences with faster account-to-account payment methods.
RTP is the fastest payment method to send funds to a bank account, and the fastest way to receive funds is with Same Day ACH.
Same Day ACH is a highly adopted transfer speed among businesses using ACH payments. Same Day ACH transactions are growing in popularity, with almost 700 million credit and debit transactions initiated in 2022 alone. And with the March 2022 increase in Same Day ACH transaction limits from $100,000 to $1 million, businesses can move large sums of money quickly, reliably and affordably using ACH.
Businesses who integrate with Dwolla’s modern API also have the option to use Next Day ACH, which applies to the debit portion of a transaction with Dwolla and enables funds to be debited directly from a bank account and settled in the Dwolla Network. Essentially, Next Day ACH gives businesses access to an additional window of availability for a payment to settle faster.
According to a recent study by U.S. Bank, over 62% of finance leaders said that the ability to offer modern payment options will be a competitive differentiator for their business.
When it comes to enabling a fast and streamlined payment experience, identifying a payment services provider with a modern API that is reliable is half the challenge. For nearly a decade, Dwolla has been powering innovations with sophisticated account-to-account payment solutions. With a single API integration, businesses can access the ability to easily send, receive and facilitate payments using a variety of account-to-account payment methods.
Ready to modernize the payment experience at your business? Reach out to our team and we’ll work through a solution with you.