FedNow vs ACH: This is How They Work

Automated Clearing House (ACH) fund transfers are established and well-known to many business owners. Plenty of consumers use the ACH payments system, too, even though they may not be familiar with the term or exactly how these payments work.

FedNow is a much newer entrant into the world of payment services, although it’s rapidly gaining steam as users enjoy the many advantages it offers. Want to learn more about FedNow vs ACH payments? You’re in the right place — keep reading to learn more about these two services and how they compare to each other.

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FedNow & ACH: What They Are and How They Compare

What is the ACH Network?

The Automated Clearing House network is a centralized network for fund transfers in the United States. The foundational function is the transfer of money from one bank account to another.

These payments happen through a national network that connects nearly every financial institution in the country. ACH payments are commonly used by government entities, individuals, and businesses.

The ACH network is overseen by Nacha, a stylized form of the formal name National Automated Clearing House Association. As Investopedia explains, the ACH network is used for bill payments, direct deposit of salaries and wages, tax refunds, B2B transactions, and much more.

The ACH payment process is convenient, secure, efficient, reliable, and more affordable compared to other fund transfer options. ACH operators (including Federal Reserve banks and the Electronic Payments Network) settle payments four times each day in batches.

Same-day ACH transfers are growing more common, although they incur an additional fee. Standard ACH payments take a few business days to complete.

What is FedNow?

FedNow is a new payments service offered by the Federal Reserve that aims to offer faster payments for all users. Similarly to ACH payments, those users include individuals, businesses, and government entities.

FedNow is a flexible funds transfer service intended to be used for bill payment, compensating vendors, paying employees, and much more.

The single largest benefit offered by FedNow, and the factor that makes it unique, is offering instant payment services. It facilitates real-time transfers 24/7/365, removing the delays that are common for many other electronic fund transfer options. Eliminating the delay in receiving payments is a major benefit for all users, whether they transfer funds or receive them.

ACH vs FedNow: Comparing the Services

Considering their similarities, what sets ACH and FedNow apart? Key differences include:

• Batch vs. Instantaneous Processing. ACH payments are simply slower than FedNow payments. While ACH payments are processed four times each day, they can still take a few business days to complete. FedNow offers real-time transactions.
• Time-Sensitive Payments. This factor reflects the previous point but is so important that it’s worth highlighting on its own. FedNow payments are incredibly useful when time is a factor because they are processed in real time. If your business has to pay a supplier on a tight deadline, for example, FedNow is the best option.
• True 24/7 accessibility. FedNow transfers are always available with no delay. ACH transfers are only available during the workweek and will always have some delay (even though that delay can be just a few hours, in some cases).
• Security. ACH transfers are secure, but FedNow has some of the best security measures in the payments industry. That added security is valuable to businesses, government agencies, and individuals alike.
• Availability. FedNow is still rolling out to financial institutions, although a growing number of them have adopted it or have started the implementation process. ACH transfers are available from essentially every bank, credit union, and similar institution.

So, will FedNow replace ACH transfers? The intent of FedNow is not to explicitly replace the ACH network. However, the benefits of FedNow will likely mean that a significant amount of ACH transfers will instead be completed through FedNow, at least in the long term.

Finding the Best Payment Solution for Your Business

Swipesum is here to help your business find the best possible combination of tech, services, and providers for payment processing. Our team is on your side, from making targeted recommendations for providers to negotiating to keep costs and fees low.

Ready to learn how Swipesum can transform your company’s approach to payments? Book your free consultation now!