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RTP (Real-Time Payments) is a payment processing network used to send money electronically between banks in the United States. It transfers funds between two bank accounts instantaneously and is available year round. RTP processes transactions on bank holidays and weekends, and after business hours.
RTP has major commercial applications in payroll, utility bill payment, insurance and even retail payments to name a few. With instant funds settlement, it has the potential to improve the payments experience and reduce transaction risk.
History of RTP
RTP was first launched in 2017 and is the newest electronic bank payment method available today. The network is managed by The Clearing House, a membership organization owned by all the major US banks. It was the first new payment rail to be launched in the US in the last 40 years. Any federally insured depository institution can join the RTP network. They don't need to be a member of The Clearing House.
The RTP network was created to address the shortcomings of ACH and Wire Transfer. ACH takes at least one business day to move funds (although same-day ACH can move funds on the same business day), creating risk and uncertainty for all parties in a transaction. Banks and companies need to withhold funds for longer to offset this risk, making money movement costlier and more expensive. Wire Transfers are faster, taking anywhere from a few minutes to a few hours to complete. But they are also more expensive, costing as much as $50 per transaction.
RTP increases the speed of bank transfers in a cost-effective manner, reduces transaction risk by eliminating payment reversals and returns, and supports attaching richer context on payments.
How do RTP payments work?
Unlike ACH, RTP only supports credit or 'push' payments. You can not 'pull' or debit another bank account using RTP. Since it enables instant funds transfer, all payments are final when completed and cannot be reversed. This also eliminates payment failures due to insufficient funds, which is a common occurrence in ACH. For example, if an insurance company debits a customers bank account for a premium payment and their account doesn't have enough funds, their bank can refuse the payment. Since RTP is credit only, there is no risk of payments failing due to insufficient funds.
It also allows for more data to be attached to each payment. For example, a marketplace like AirBnB could include details about the reservation like duration and reservation ID on payments made to hosts, or an accounts payable solution could include the invoice number on payments sent.
RTP is also available year round unlike ACH and Wire Transfers which don't operate on weekends, bank holidays and outside business hours. Since they process payments in batches, you need to keep track of the cut-off time for your bank to know when your payment will be processed. Most banks have different cut-off times.
All RTP payments are processed by The Clearing House. When you pay your utility bill for the month using RTP, your bank sends message to network which includes the details of the payment. The Clearing House then processes the message and routes it to utility company's bank, completing the payment. RTP uses the ISO-20022 standard for the messages used to initiate payments and retrieve transaction status.
How does RTP compare to other payment methods?
When comparing payment methods, you need to consider their speed, cost and coverage. Speed is typically measured by settlement time, or how long it takes for funds to move from the originating account to the receiving account. Cost is measured per payment and coverage refers to how many banks and financial institutions in the US support the payment method. The direction supported by the method is also important.
| Payment method | Cost per payment | Settlement time | Payment direction | Bank coverage |
|---|---|---|---|---|
ACH | $0.20 - $1.50 | 2-3 business days | Credit & Debit | Every Bank |
Same-Day ACH | $1 - $5 | Same business day | Credit & Debit | Every Bank |
Wire Transfers | $25 - $50 | Within minutes | Credit | Most Banks |
RTP | $0.25 - $1 | Instant | Credit | Some Banks |
Note that the costs per payment for each method are in approximate ranges. In practice, they vary significantly depending on your bank, transaction volume, average transaction size and other factors.
Learn more about RTP by reading these frequently asked questions:
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Everything you need to know about the payment rails that power the world’s economy, from ACH and wires to RTP, FedNow, and more.
ACH credits and debits are two kinds of ACH transactions. Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
US companies moving money internationally will likely weigh the pros and cons of SWIFT vs. Global ACH when it comes to attributes like speed and cost.
The Clearing House (TCH) is a banking association and payments company owned by 20 of the world’s largest commercial banks.
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ACH (Automated Clearing House) is a payment processing network that facilitates electronic transfers between banks in the United States. It enables automated electronic debiting and crediting of checking and savings accounts. ACH payments work by batching transactions together, which are then processed at scheduled daily intervals.
A return is a credit or debit entry initiated by the Receiving Depository Financial Institution (RDFI) that returns a previously originated payment to the Originating Depository Financial Institution (ODFI).
ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier to spot and resolve payment failures.
An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.
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A Standard Entry Class or SEC code is a three letter code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
A SWIFT code, also known as a SWIFT ID or Bank Identifier Code (BIC), is a unique 8-11 character code assigned to a bank for SWIFT wire transfers.
SWIFT payments or international wires are global payments made through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks and financial institutions in the United States.
The Clearing House Interbank Payments System, or CHIPS is the largest private sector USD clearing system for wire transfers.
Electronic check presentment (ECP) is the process of electronically submitting a check to a bank for payment.
An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks.
Part of the FedACH system, FedGlobal ACH offers low-cost and efficient cross-border ACH payments.
FedNow is a new payment rail that enables faster bank payments for financial institutions of any size, in any community, 365 days of the year.
Fedwire Funds Services, commonly known as Fedwire, is a real-time gross settlement transfer system that allows participating financial institutions to send and receive same-day fund transfers.
Fiat money is a form of currency issued by a government and declared legal tender, though not backed by a commodity.
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The National Automated Clearing House Association (Nacha) is responsible for overseeing the Automated Clearing House (ACH) Network, which is used to send money electronically between banks throughout the United States.
RTP (Real-Time Payments) is a payment processing network used to send money electronically between banks in the United States. It transfers funds between two bank accounts instantaneously and is available year round.
A Request for Payment (RFP) is an ACH Network message that can be used by businesses to send electronic invoices to their customers.
Same-Day ACH is an improvement to the ACH network that allows the processing of credit, debit, and return transactions several times a day.
Wire fraud is a serious criminal offense that uses electronic or interstate communications methods to defraud someone out of money or property.
A take rate refers to the fees online marketplaces (such as Amazon or eBay) or third-party service providers (such as PayPal) collect for enabling third-party transactions.
A wire transfer is an electronic payment made through a global network, allowing for fast, irreversible, foreign or domestic electronic money transfers.
ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network.
An ACH credit refers to the process of electronically depositing, or “pushing,” funds into a bank account using ACH.
In an ACH debit, funds are electronically withdrawn, or “pulled,” from a bank account using ACH.
A Notification of Change (NOC) is used to notify the sender of an ACH payment to correct or change information related to a customer’s bank account.
A pre note or prenotification is a zero dollar payment to validate the account and routing details of a bank account before debiting or crediting it.
An International ACH Transfer—also known as Global ACH—is an ACH payment made cross-border from a US-domiciled account.
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The Faster Payments Service (FPS) is a banking service in the United Kingdom. The FPS was instituted in order to reduce payment times between accounts held by different customers.
The Single Euro Payments Area (SEPA) is a system of payment schemas that standardizes cashless transactions in euros.
Unified Payments Interface (UPI) is a real-time payments system for mobile applications designed and launched by the National Payments Corporation of India.