When you send money internationally or make a purchase with your card, it’s important to consider the intricate payment systems facilitating the transfer. 

These payment systems, referred to as “payment rails” or just “rails”, are hugely important in shaping our everyday business and personal transactions. Payment rails are integral to various business transactions, encompassing supplier payments, operational expenses, and investments such as fixed assets and payroll.

As a result, businesses of any size must grasp the intricacies of payment networks and processing. This understanding is crucial for minimising costs when making international payments and sustaining a competitive advantage.

How do payment rails work, and which are best for your business

Payment rails serve as the essential infrastructure facilitating the transfer of funds between a payer and a payee. They can be thought of as the foundational framework for financial transactions. They provide the necessary pathway for money to travel from one account to another, just as tracks enable a train to travel from Point A to Point B.

Their significance lies in their ability to connect banks and other financial entities, creating a network that allows money to move seamlessly regardless of geographical location, payment method, or currency involved.

Once a payment is initiated, a coordinated exchange of information commences. This includes the customer account details and instructions for the involved financial institution. The smooth flow of this data is made possible by the diverse types of payment rails that exist to facilitate various forms of transactions.

What are the most popular payment rails used for business?

Depending on the nature of your transactions, certain types of payment rails will be more suitable for you, and provide better benefits than others.

SEPA

SEPA, short for the Single Euro Payments Area, is designed to facilitate the seamless transfer of Euros between bank accounts. SEPA payment rails encompass direct debit, instant card transfers, and credit transfers exclusively within countries in the SEPA zone. Notably, the transaction fees associated with SEPA transfers mirror those of domestic payments.

How SEPA payment rails work

There are three different types of SEPA transfers available:

• SEPA Credit Transfer (SEPA CT): This allows for the swift transfer of funds between banks, typically completed within a single business day.
• SEPA Instant: In this variant transactions are processed in 10 seconds or less, available at any time of day and not constrained by regular business hours.
• SEPA Direct Debit Transfer: Primarily used for recurring payments, the sender initiates this transfer after signing a contract that authorises regular fund transfers. This method is commonly employed for transactions requiring repetitive or scheduled payments.

SWIFT

The Society for Worldwide Interbank Financial Telecommunication, commonly known as SWIFT, operates as a messaging network facilitating the transmission of payment instructions among banks globally. SWIFT offers a popular means for the international transfer and receipt of funds, whether electronically or through card payments.

Faster Payments

Faster Payments, which is used in the UK, is recognised as one of the best payment rails for conducting rapid domestic payments. This electronic transfer service was introduced to reduce the processing times significantly for such transactions.

Faster Payments enable settlements within a remarkably short timeframe, ranging from a few seconds to approximately two hours. Transactions are limited to payments at a maximum of £1 million, though some institutions may impose additional limits. 

The streamlined nature of Faster Payments, combined with its accessibility through various banking channels, makes it a convenient and efficient option.

CHAPS

The Clearing House Automated Payment System, or CHAPS, is another UK domestic rail. It plays a crucial role in settling foreign exchange and money market transactions for financial institutions, businesses, and individuals, with payments typically completed on the same day.

CHAPS is particularly effective for larger transfers due to its ability to facilitate quick settlement. It is commonly utilised for significant and time-sensitive transactions, such as placing a deposit on a house or making substantial investments.

What is a Multi-Rail payment solution?

The concept is straightforward, yet the advantages are extensive. It allows you to leverage the strengths of various, mitigating dependency and associated risks linked to relying on a single solution.

ONE’s unified platform allows you to adopt a multi-rail approach, by having easy access to a number of major payment rails, so you can choose the right rail, for the right situation.

How Does a Multi-Payment Rail Solution Work?

• Diverse payment methods: Merchants can offer preferred payment methods tailored to their specific market or vertical, unhindered by limitations imposed by individual payment providers.
• Simplified integration: Utilising a single API that consolidates connections to multiple players in the payments value chain streamlines and accelerates integration, compared to a platform or merchant handling this process directly.
• Cost efficiency: Aggregating payment solutions to combine multiple payment methods into a single unified solution can potentially reduce costs significantly compared to connecting to multiple providers and solutions individually.
• Redundancy: In the event of a provider failure or a suboptimal connection, there are always fallback options available.
• Open banking optimisation: Multiple connections ensure access to the most stable connections and the broadest geographical reach, addressing the potential limitations of individual providers.

How to Know Which Payment Rail Is Right For Your Business

In conclusion, when selecting a payment rail for business purposes, it’s essential to carefully evaluate several key considerations:

• Speed of settlement: The time it takes for transactions to be settled is a critical factor. Businesses often prioritise payment rails that offer quick and efficient settlement processes to ensure timely processing.
• Required technology: Different payment rails may necessitate varying levels of technology infrastructure. Assess the technological requirements of each option to ensure compatibility with your business’s systems.
• Cross-border transactions: Consider whether your business involves cross-border transactions. Not all payment rails are equally adept at handling international transfers, so choosing one that aligns with your business’s global operations is crucial.
• Fraud concerns: Evaluate the security measures and fraud prevention protocols associated with each payment rail. Understanding the level of protection offered can help mitigate risks and safeguard your business and customers.
• Applicable fees: Examine the fee structures associated with each payment rail. This includes transaction fees, processing fees, and any other charges that may apply. A clear understanding of the cost implications is vital for budgeting and financial planning.

Payment rail FAQs

What is a payment rail?

Payment rails form the fundamental infrastructure and systems essential for transferring funds between diverse parties, including individuals, businesses, and financial institutions. 

These frameworks enable the secure and efficient movement of money, facilitating transactions both domestically and internationally. In the absence of these systems, conducting financial transactions in today’s interconnected global economy would pose significant challenges for both businesses and individuals.

What is the difference between a payment gateway and a payment rail?

Payment rails are the foundational infrastructure for financial transactions, consisting of essential components such as payment processors and gateways.

Payment processors: These are third-party entities that play a pivotal role in facilitating the smooth transfer of funds between the payer and the payee. Payment processors ensure the secure and efficient execution of financial transactions.

Payment gateways: These platforms act as intermediaries, connecting the merchant’s website or application to the payment processor. Payment gateways enable the seamless flow of transaction data between the customer, the merchant, and the payment processor, ensuring a cohesive and secure payment experience.