What are payment rails?

Rails, or payment rails, are the infrastructure or platforms which move money between a payer and their payee. You can think of them in the same way as physical rails, connecting financial organizations and banks with other businesses and consumers. Rails are used to transfer digital payments between two entities.

What types of payment rails are there?

Rails will have unique characteristics from one other, depending on their type. For example, some will allow for transferred funds to be immediately available, (known as real-time rails), while some may take 3-5 days or longer.

Choosing a payment rail will involve considering your specific needs, such as settlement time, geographic region, ease of use, or which rails work for your payee.

The most common types of rails

Real-time rails: These will differ between locations. For example, in the UK, Faster Payments is the most commonly used choice for bank to bank payments of up to £250,000, while in the US, this approach is completed via Real-time Payments (RTP).  If your country has signed up to SEPA, the Single European Payments Area, it can be used for payments that are completed in less than 10 seconds.

SWIFT: Standing for the Society of Worldwide Interbank Financial Telecommunication, SWIFT offers an easy way to pay in multiple currencies and to any global bank. However, you lose the speed of payments, and transactions can take between 3-5 business days, and have a higher cost attached, too.

Blockchain: For cryptocurrency, Blockchain is a payment rail, although one that works peer to peer, and doesn’t involve financial institutions. Payments can be sent extremely quickly and securely using Blockchain, and each form of cryptocurrency will be its own payment rail, meaning you can’t exchange one for another.

ACH: ACH is a well-known payment rail which manages payments between bank accounts in the United States. These usually have a settlement time of between 1 and 2 business days, making them a fast option for domestic payments.

Credit cards: The credit card payment system has a number of payment rails, each owned and managed by a card network such as Visa or Mastercard. The network will charge for processing payments using their rails.

Electronic payment systems: PayPal, Venmo, Zelle and others are examples of electronic payment rails which allow for quick and intuitive payment transfers. These often have high transaction fees, and are also only used for peer to peer transactions.

SEPA: The Single Europe Payments Area allows for easy cross-border payments between the 27 EU member states and 9 other countries. Payments can be made based on common rules and standards.

Why are payment rails important?

Understanding how payment rails work behind the scenes to send and receive money is essential for any business. Creating a strategy for using the right payment rails at the right time can help to speed up settlement time, reduce costs, and build stronger relationships with business partners, vendors, global workforce, and clients.

Paying your employees needs to be consistent in date, currency, and compliance. Setting up the right payroll payments solution is essential for you business.