Payment rails, the ins and outs of financial payment tech

Did you order online takeout last night? How about a brand new TV on Black Friday? Then you used a smart financial tech called payment rails without even knowing it.

Payment rails are a core part of the digital financial landscape and are a part of most transactional services.

Let’s dive into payment rails and how they can bolster your Fintech’s product offering.

What are payment rails?

Payment rails are a financial technology that facilitates secure digital money transfers between users in seconds.

Companies and individuals can use payment rails to send and receive funds instantly, improving convenience and accessibility.

Different payment rails connect banks and financial institutions globally, making them suitable for various transactions.

Essentially, payment rails are network infrastructures that facilitate digital money transfers between any payer and payee, anywhere, anytime, using any digital method. Different rails handle transactions based on factors like type, speed, technology, and location.

Why payment rails are important?

Payment rails are crucial for the global economy, enabling secure and efficient money transfers between businesses (B2B) and consumers (B2C).

Without payment rails, electronic money transfers would not be possible, leading to financial institutions being unable to communicate.

Payment rails serve as the foundational infrastructure for payment platforms, facilitating both business and personal transactions.

New payment networks leverage advanced digital and mobile technologies to provide real-time U.S. options and multi-rail approaches for instant global B2B payments.

What is settlement time and why speed is important?

Settlement times refer to the amount of time it takes for money to be officially transferred from one party to another.

Payment rails are designed to make settlement times fast and straightforward, helping businesses and individuals alike to complete their transactions quickly and painlessly.

Types of payment rails

A few of the most common types of payment rails include:

Automated Clearing House

ACH is an electronic network for processing low-value payments between banks. It's the dominant payment rail in the US, handling transactions like direct deposits, bill payments, and transfers.

ACH works by batching funds and sending them through a clearinghouse for settlement, typically taking 2-3 business days.

Nacha, a non-profit, manages ACH and sets regulations. It offers cost-effective transactions compared to checks or wire transfers.

How does Automated Clearing House work?

ACH facilitates electronic transfers between banks, which is handled in three steps:

  1. Initiation – Transfer originator sends transaction details to their bank.
  2. Clearing – Bank forwards details to the central ACH clearinghouse.
  3. Settlement – The clearinghouse notifies banks, triggering debits or credits in relevant accounts.

In all ACH transactions (bank transfers), one bank acts as the Originating Depository Financial Institution (ODFI). The transferor (individual or company) is responsible for verifying account validity and sufficient funds.

Card payment rails

Card networks like Visa, Mastercard, and American Express are the payment rails for credit and debit card transactions.

When a card is used, the merchant's bank (acquiring bank) contacts the cardholder's bank (issuing bank) to verify details and authorise funds.

This can take days or weeks, and the card network charges merchants a fee.

How do card payment rails work?

When a customer swipes their card at the point of sale (POS) and/or makes an online payment (AKA cardholder not present transaction), their card information is typically processed through an electronic payment gateway.

The POS communicates with the customer’s bank and the merchant’s bank, verifying the customer’s identity and the funds' availability in the customer’s account.

Digital wallets

While digital wallets themselves wouldn't be classified as a payment rail, they rely on them to process transactions.

Thanks to tokenization technology, a digital wallet, otherwise known as an electronic wallet, stores a user’s payment information for quick, secure and easy access. Digital wallets can be used to make payments with a few clicks.

How do digital wallets work?

When the customer is ready to make a purchase, they can simply authorise the digital wallet to communicate with the merchant’s payment processing system.

The payment is then actioned, and the funds are transferred to the merchant’s account. In cases where the tokenized card/debit information has changed, Account Updater technology enables card information changes (such as expiration date changes, account number changes, account closures, and more) to be conveniently updated.

One of the most common uses of digital wallets is the storage of cryptocurrency.


Real-Time Payments

The RTP (Real-Time Payments) network facilitates instant electronic money transfers between banks in the United States for both retail and commercial customers.

RTP enables immediate fund transfers between banks and financial institutions. Its goal is to provide faster and more efficient payment services compared to traditional methods.

How do real-time payments work?

To initiate a Real-Time Payment, the sender will provide their bank account information as well as the recipient’s bank account information. The payment is then processed and settled instantly, with the funds being transferred directly from the sender’s account to the recipient’s account.

In addition to speed, RTPs are generally also highly secure and compliant with the latest payment regulations.


The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is critical in facilitating international money transfers. This global messaging network, owned by its members, allows financial institutions to securely exchange information.

While not directly transferring funds itself, SWIFT acts as a communication hub, transmitting standardised messages containing vital details like payment instructions, account information, and transaction data. This enables banks to efficiently execute international transactions.

How does SWIFT work?

By providing the necessary details, such as the sender’s and receiver’s bank account information, the SWIFT payment can be quickly transferred from one bank account to another.

Transactions can be made in a variety of currencies and the funds are typically transferred within two to three days.


This payment rail allows seamless movement of euros between bank accounts in the SEPA zone, encompassing 36 member countries. It facilitates three main transaction types: direct debits, instant credit transfers, and regular credit transfers. Notably, fees for SEPA transactions are comparable to domestic payments.

SEPA's core objective is to create a unified euro payments market. It eliminates the complexities of cross-border transactions, making them as simple and inexpensive as domestic transfers.

How does SEPA work?

SEPA transfers come in three flavours, each suited for different needs. All SEPA transfers rely on IBANs (sender and recipient bank accounts) and, sometimes, BICs (bank identification codes) for routing funds.

  1. SEPA Credit Transfer – This standard transfer method moves money between banks, typically within a business day.
  2. SEPA Instant Credit Transfer (SEPA Instant Payment) – his option offers near real-time transfers (under 10 seconds). Payments are processed and settled immediately, unlike batched processing in standard transfers.
  3. SEPA Direct Debit Transfer – Ideal for recurring payments like rent or bills, this method allows a recipient to withdraw funds repeatedly from a payer's account.


PayPal simplifies online payments, acting as a middleman for transfers between users. Users create a PayPal account, linking a debit card or bank account for transactions.

Funds are then transferred directly between PayPal accounts using the Automated Clearing House (ACH) network.

How does PayPal work?

PayPal verifies user information to confirm ownership before enabling account usage.

A user links their bank account or card to PayPal. When making online payments, they select the account for transaction processing.

PayPal connects to the Automated Clearing House (ACH) and serves as the originating financial institution for transactions.

PayPal functions as a wallet, holding received funds for various purposes: point of sale (with a PayPal card), e-commerce, user transfers, or bank withdrawals.

For instant transactions, PayPal places a hold on the card to ensure payment acquisition, even if initially declined.


Blockchain technology underpins cryptocurrencies, acting as a secure and transparent public ledger for recording transactions.

Cryptocurrencies, like Bitcoin and Ethereum, leverage blockchain technology for secure and anonymous online payments. These digital currencies eliminate the need for traditional financial institutions, relying instead on a network of computers to verify and record transactions.

How does the blockchain work?

While different cryptocurrencies exist, they are all based on the same blockchain technology.

A transaction takes place on the blockchain, and a record of it is transmitted to all computers on the participating network.

The transaction’s validity is confirmed. Then, a block representing the transaction is created.

Each block in the chain has a specific storage capacity. When filled, it is closed, and then linked to the previous block that’s been filled, forming a chain.

The transaction is then transmitted as completed.

What are the benefits of payment rails?

Payment rails offer a variety of benefits for businesses and individuals alike.

Some of the key advantages include:

  • Speed and convenience — Payment rails enable businesses to quickly process payments. This eliminates the need for businesses to wait for paper checks to clear or for payment transfers to take several days.
  • Security and compliance — Payment rails are highly secure and compliant with the latest international payment regulations.
  • Cost-effectiveness — Payment rails often incur lower transaction fees than other payment methods, making them more cost-effective.
  • Accessibility — Payment rails allow businesses and individuals to make payments from anywhere in the world.

What is Multi-Rail Strategy?

Businesses can now leverage multi-rail payment strategies to speed up global B2B transactions. This approach enables instant digital transfers between buyers and sellers.

Examples include Zelle's payment platform, while Mastercard also offers a multi-rail strategy through its Track Business Payment Services (BPS) launched in November 2020 specifically for US companies.

What Are Real-Time Payment Rails?

Real-time payment rails, like The Clearing House's RTP Network and Mastercard's multi-rail strategy (utilising RTP, ACH, SEPA Instant, and VocalLink/Nets infrastructures), enable instant digital payments. These offer several advantages:

  • Speed – Funds are available immediately, a game-changer for those needing immediate access.
  • Transparency – Instant confirmations and settlements provide a more efficient payment experience.
  • Innovation – Real-time payments foster new business models, like instant driver payouts for Uber and Lyft.
  • Improved Cash Flow – Faster access to funds improves cash management, forecasting, and business planning for companies.

What is the difference between payment gateway and payment rail?

Payment gateways and payment rails play crucial roles in online transactions. The gateway securely captures and sends customer payment information for authorization, while the payment rail acts as the network that facilitates the transfer of funds between banks.

Selecting the right payment rails strategy

Selecting the right payment rails strategy is important for Fintech startups, especially when it comes to offering customers an efficient and secure payment experience.

The first step is to identify the payment options that customers want to use, then integrate the right payment rails APIs into the product offering.

Businesses should evaluate the payment rails providers to ensure that they are secure, and compliant, and offer competitive fees and rates. This will ensure that customers have an efficient, secure, and cost-effective payment experience.

By using our APIs, Fintech startups don’t need to fumble with complex integration code or stringent regulations. Our APIs help to connect your systems with third-party payment rails providers in as fast a time as possible.

Want to see Fintech infrastructure in action? Book a live demo today.

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