When moving money, you have options when it comes to making fast payments. Three factors we encourage customers to keep in mind when making payments are speed, cost, and ubiquity. Often we find that when comparing the payment rails, comparing their functionalities will require a company to determine which set of these attributes are most important in making use of a specific payment viable for certain workflows or repeated money movement.
It’s important to remember that payments contain three components:
- Authorization: Permission by a recipient of an initiated payment to engage in the transaction. In the case of a debit, the permission to have funds moved to the account that has initiated the payment from another party’s account.
- Clearing: The process of the receiving and originating depository financial institutions (RDFI and ODFI, respectively) ensuring the availability of funds for transfer for the associated payment.
- Settlement: The movement of funds from the originating account to the receiving account.
Which payment method is fastest?
Below are the speeds and directions of the fastest domestic payment methods in the United States. Note that using third-party senders can slow the payment down by several business days, as it will need to pass through their bank account; many third-party senders hold funds for a period of days to reduce risk. Third-party service providers like Modern Treasury do not sit in the flow of funds.
The fastest way to send money in the United States is via Real-Time Payments (RTP), which launched in the United States in 2017 through the Clearing House. RTP enables accounts at financial institutions that support RTP to settle payments instantly to accounts at other financial institutions that support RTP. Over half  of all bank accounts in the United States support RTP as of fall 2020. In 2023 or 2024, FedNow, the Federal Reserve Board’s version of RTP, will extend the capability to more financial institutions, particularly smaller, regional banks.
The next fastest way to send a payment is wire transfers. Domestic payments can settle intraday between banks as long as the payment is received by 5pm EST at most institutions.
Are there any recognized drawbacks to the faster methods?
Real-Time Payments are credit only. They are limited to both support by the originating (sending) and receiving bank. Because of that, and the relative newness of RTP to other payment rails, originating RTP payments is currently supported by a handful of banks in the United States, including J.P. Morgan, and not all accounts are eligible to receive real time payments.
Wires, once sent, are irreversible, which makes them easy targets for fraud. It's important to make sure you know who you're sending the payment to, and to verify the account information to avoid scams.
What’s the fastest way to initiate a debit?
Some banks support Same-day ACH. This payment rail is an extension of ACH, but permits payments initiated by noon ET to complete the payment lifecycle and be made available in the receiving account by 5:00pm local time. Same-day ACH limits are currently set at $100,000 but set to go to $1,000,000 in March of 2022.  Alternatively, next-day ACH is a faster option than the standard ACH offering, allowing for settlement within 1 business day of payment initiation.
How to choose the best payment rail to move money
Ultimately, the best payment rail will need to be chosen based on your bank’s capabilities and the direction in which you wish to move money. If your business runs on initiating debits, same-day ACH is the fastest option. If your bank supports RTP initiation and your recipient’s bank account supports RTP, that may be the best option for quickly moving money for your business. Businesses should note that Same-day ACH also works for credit payments, and may be considered dependent on bank-related costs or recipient account support.
If you’re interested in learning how Modern Treasury can help your business quickly move money, contact us.