Are you on the rails? Vital infrastructure for payments


ANY BUSINESS that deals with transactions and transfers must also deal with payment rails, which provide the infrastructure needed to carry money between payer and payee.

As more businesses are engaging with banking-as-a-service (BaaS) providers to offer embedded payment solutions, it is vital to understand the cogs at work.

The term “payment rails” refers to the means by which any non-cash payment is transferred between businesses and financial institutions (FI). From SWIFT to SEPA (single European payment area), there is an array of options for firms, depending on their specific requirements.

Payment rails illustration
The term “payment rails” refers to the means by which any non-cash payment is transferred between businesses and financial institutions. Graphic:

Banks and financial institutions are connected by various rails which handle different types of payments, domestic and international.

They differ according to their geographic focus, the speed at which they can process transactions, and the types of payment handled.

Consumers expect a quick and seamless experience. Businesses differ on individual requirements and preferences, but one area is a key differentiator: settlement time.

That’s the total elapsed time between a single payment or transfer and the funds appearing in the target account. Most businesses require fast payment processing, particularly those handling international payments. Real-time instantaneous payments are the benchmark, though not always viable throughout the cross-border process. Geographical and currency considerations must be taken into account for foreign-exchange (FX) transfers.

Faster Payments is the gold standard for UK bank-to-bank payments, allowing transfers to be settled within seconds. But this rail is UK-focused and limited to payments under £250,000.

SWIFT allows businesses to make global payments as long as the institutions belong to the network. It allows users to pay in a variety of currencies, although settlement times are likely to take three to five business days to clear — and there are potentially higher costs involved.

For businesses considering international expansion, assessing new markets and demographics, security risks and potential costs must be considered.

Selecting a payments partner that offers simple APIs and one-time integration is beneficial; businesses can gain access to multiple markets and operate at numerous branches in real-time with instant FX conversion. At Vodeno, clients may receive interbank rates and direct access to multiple Eurozone payment rails via a partnership with Aion Bank, which has a Belgian banking licence, a branch licence in Germany, and two more branch licences in Poland and Sweden.

Some providers are more rigorous than others when it comes to their Anti-Money Laundering (AML) capabilities, which can also have a marked impact on settlement time. Again, API integration is key. Choosing a solution that automatically chooses the most suitable payment rail and carries out AML procedures as part of the end-to-end process removes friction from the payments process, allowing firms to focus on their business while everything happens behind the scenes.

Keeping up to date with industry knowledge and new technologies make it easier for end-users to have a seamless payments experience.

Tom Bentley is chief commercial officer of VODENO.