Bank transfers are one of the most common payment methods across the world. This is because they are cheaper, safer and more reliable compared to other payment methods. A bank transfer is a way of transferring money from one account to another. This may sound simple, but there is a lot that takes place behind the scenes when money is transferred.
As a business owner, it is important for you to understand the bank transfer process in your country, including how long it takes and why it takes that long, so that you can decide whether it is worth offering bank transfers as a payment option for your customers.
Let’s look at some of the most common methods of bank transfers across the world and how they work.
Automated Clearing House (ACH)
What is it?
ACH payments are electronic fund transfers that take place through the Automated Clearing House network, an electronic network that processes debit and credit card transactions in the United States. This type of fund transfer is commonly used for making vendor payments, employee payments and direct deposits. ACH payments can be made in two ways:
- Direct Deposits are payments made directly to the receiver’s account. For example, employer paying his/her employees.
- Direct Payments processed as ACH credit will push the funds into an account. This is initiated by the payee to pay bills through their bank account. Direct payments processed as ACH debit will pull funds from an account. For example, monthly subscription payment to any service will take the money from your account.
How does it work?
- The sender of the payment (the originator) sends ACH payment files containing their routing and bank account numbers to the sender’s bank or the Originating Depository Financial Institution (ODFI).
- The ODFI then sends all ACH payment requests in batches to an ACH operator, which is either the Federal Reserve or the clearing house.
- The recipient’s bank or the Receiving Depository Financial Institution (RDFI) receives the information from the ACH operator.
- The RDFI deposits the money in the receiver’s bank account.
How long does it take?
It takes one or two working days to receive the money in your account, since all payment and deposit requests are processed in bulk at the end of each day.
Read more about ACH transfers here.
Direct Debit
What is it?
Direct Debit is a popular payment method in the UK. Direct Debit allows a business or person to take money from your account when a payment is due. Direct Debit is most commonly used for depositing money, paying bills and making recurring payments.
How does it work?
In order to receive Direct Debit payments, you need to set up a mandate or a Direct Debit instruction with your customers. Your customers need to complete the mandate form, which can be done online, offline, or through telephone. Once you submit the mandate form to the bank, you will be able to collect payments within a few working days.
How long does it take?
It takes 3-5 working days for the Banker’s Automated Clearing Service (BACS), the organization which clears and settles funds, to process your transaction and for your payment to reach you.
Learn more about Direct Debit here.
SEPA
What is it?
The Single European Payments Area (SEPA) was introduced to unify payments
across Europe. There are two schemes under SEPA: the Core scheme and the B2B scheme. With the Core scheme, business owners can collect direct debit payments in Euros from customers with bank accounts in any of the 34 SEPA countries and territories. The B2B scheme is used when the transaction takes place between two businesses.
How does it work?
Similar to Direct Debit, SEPA payments require a mandate to be signed by the customer and submitted to the bank. Once the mandate has been signed, the business owner can request payments. The communication and transfers are handled directly by the two banks involved in the transaction.
How long does it take?
For initial payment collections under the SEPA Core scheme, you must submit the collection to the banks 5 interbank business days before the payment due date.
For subsequent payment collections, you must submit the collection to the banks 2 interbank business days before the payment due date.
Under the B2B scheme, a collection request must be submitted to the banks 1 working day before the due date.
Read more about SEPA here.
NEFT
What is it?
National Electronic Funds Transfer (NEFT) is an electronic fund transfer system in India. This system can be used by individuals and business owners to make bank-to-bank money transfer payments, as long as it is sent to any bank that participates in this scheme. There is no limit on the total amount of funds being transferred. However, each transaction cannot exceed ₹50,000.
How does it work?
- The person initiating the payment must submit a few details about the receiver through their bank’s internet banking portal, such as name, bank account number, and IFSC code to identify the bank’s branch.
- The payer’s branch sends a request to the NEFT service center, which transfers it to the NEFT clearing center, which sorts the transactions according to the bank’s destination and prepares accounting entries.
- The clearing center sends a remittance message to the service center, which passes it on to the two banks that are involved in the transaction.
How long does it take?
Payment transactions are processed in batches every 48 hours. The fund transfer takes place instantly, but it can take up to 2 hours from the time a payment is submitted until the batch is processed. This service is available 24×7 including weekends and holidays.
RTGS
What is it?
RTGS or Real Time Gross Settlement is a bank transfer method in India that allows individuals or business owners to transfer funds instantly. This method of transfer is available only for transactions worth ₹2,00,000 or above.
How does it work?
When the payer initiates payment through RTGS, they have to submit the following details about the receiver to their bank.
- The amount to be paid
- Receiver’s name and account numbers
- Name of the receiver’s bank and branch
- IFSC code
How long does it take?
Typically, the receiver gets the funds immediately, as the transactions are processed individually in real time instead of in batches. The receiving bank will credit the amount within 30 minutes of receiving the transfer message. This service is available 24×7 including weekends and holidays.
IMPS
What is it?
Immediate Payment Service or IMPS is an instant electronic payment service available in India for transferring smaller amounts of money. This service is available throughout the year including bank holidays, and it can be used to transfer up to ₹2,00,000.
How does it work?
Payments can be initiated through apps or mobile banking. The payer has to provide the following details in the app or their bank’s website.
- Mobile Money Identification Number (MMID), a seven-digit number representing the IMPS service of the receiver’s bank
- Name, account number and mobile number of the receiver
- IFSC code of the receiver’s bank
How long does it take?
An IMPS transfer is instant. It typically takes less than 20 seconds to reach the receiver’s account.
Read more about NEFT, RTGS, and IMPS here.
Before you decide on providing a specific payment mode, compare all the options available in your region including bank transfers to see which of the methods are worth offering. You need to consider a few important factors before you make the decision such as how long the money takes to reach you, the ease of making payments, how secure the whole process takes, and how much it costs to process the payment.