The multi-rail payments ecosystem has four main rail types: card, account, distributed ledger, and closed-loop. Open banking underpins these rails (©MasterCard Academy On Web).

Card rail has two infrastructure variations:

1. Pull payments include most card purchases, recurring subscriptions, and membership fees. The mechanism for pull payments is by requesting funds based on the card account number.
2. Card-based push payment infrastructure allows cardholders to send funds directly to consumers and small businesses via their payment card accounts in a near real-time flow. Typical push payments include P2P transfers, insurance claim settlements, on-demand wages, government aid, and gaming payouts.

One of the push payment types is QR payments. QR payments provide digital acceptance for Merchants through a quick, simple onboarding process and enable sales capture even when consumers do not have cash. QR codes do not share consumers’ credentials with merchants, increase transaction security, and minimize risk exposure compared to cash.

Account-to-account (A2A) ecosystem consists of the following players:

• Technology Providers (Finastra, net, fiserv, some global schemes)
• Local/Regional Networks (ACH, UPI, Faster Payments, Fednow, Bancnet)
• Regional/Global Examples (TIPS, SWIFT)

A2A rail has lack of interconnections for local RTP networks to join a global network. A2A features are as follows:

• Bill payments
• Request to pay
• Pay by account
• Other use cases (P2P cross border payments, B2B payments, B2P salary / disbursement payments)

Individuals and business has direct communication with billers by using a banking or TPP fintech apps to query unscheduled bills. Pay to request is the feature where payees request real-time payment message for payers to approve or decline the request. The service translates the payment request into a credit transfer after approval by payer with authentication. Furthermore, payers can pay in full,  in part, request additional time to make a payment or decline. It enables the transformation from batch to real-time processing.

The distinction between A2A and closed-loop rails is that closed-loop rail harnesses the power of wallet platform. Therefore, scalability is the main downside for this rail. The rail has the following ecosystem players:

• Fintechs and Telcos (eMoney companies like Paypal, venmo, stc, Square Cash)
• Platform and Social Media Providers (WP, Wechat, Google Pay, Ali pay, Apple Cash)
• Remittance Networks (Money Transfer Operators like WU, Transwise, MoneyGram, Neteller)

A2A rail has three infrastructure variations:

1. Automated Clearing House (ACH) infrastructure is a low-cost electronic bank transfer system designed for transferring low-value, low-risk payments. Typical ACH payments include automatic bill payments, direct paycheck deposits, and tax refunds. ACH transactions are processed in multiple batches daily, requiring one to two business days for settlement. Modern ACH systems can settle daily or multiple times in a single day.  
2. Wires or Real-Time Gross Settlement (RTGS) refer to large, instantaneous, intra-day money transfers between banks on a real-time gross basis. Compared to ACH and RTP, RTGS processes the largest transaction sizes, making RTGS an option for larger B2B payments. RTGS transaction fees are significantly higher than ACH and RTP transactions because RTGS transfers more money and carries a higher cost of risk management. There are no set fees a bank can set on RTGS transactions to cover losses. Real-time settlements require a robust clearing and settlement engine, and banks must have enough funds to cover large transfers.
3. Real-Time Payments (RTP) infrastructure provides consumers, merchants, businesses, financial institutions, and governments with 24/7 payments, real-time settlement, instant notifications, and consolidated reporting. RTP is the new standard, encouraging countries to modernize national payment ecosystems and drive changes across traditional payment types, including checks, credit, debit, and ACH networks. The standard use cases for RTP are peer-to-peer (P2P) payments. To maximize monetization, RTP can also encompass peer-to-merchant (P2M) payments, business-to-business (B2B) payments, and aggregated services. RTP (when compliant with ISO 20022 standards) enables rich payment messaging, such as a request to pay and payment acknowledgment.

ACH credit (push transaction) value chain:

• Originator (employer)
• Originating Depositary FI (transmitting transfer message)
• Operator (ACH) – ACH receives batches of ACH entries from ODFI and transmits them to RDFI
• Receiving Depository FI (Insurance company’s bank) – credits to receivers
• Receiver (via bank statement) – shows credit from employer

ACH debit (pull transaction) value chain:

• Originator (Telco company)
• Originating Depositary FI (request to withdraw)
• Operator (ACH) – ACH receives batches of ACH entries from ODFI and transmits them to RDFI
• Receiving Depository FI (customer’s bank) – debits from receiver
• Receiver (via bank statement) – shows debit to Telco company

RTGS industry roles and value chain:

• Sending Company
• Sender’s Bank – forwards the instruction
• RTGS Network – forwards the instruction
• Receiver’s Bank – credits receiver’s account
• Receiving Company

RTP industry roles and value chain:

• Payer
• Payer Participant performs lookups and receives responses either directly or through proxies (TPP)
• TPP – provides support and configuration between ISO 8583 and ISO 20022 to facilitate bank onboarding
• RTP Infrastructure – RTP Switch / Directory/Proxy Directory / Back Office / Data Warehouse / Batch Payments
• Payee Participant
• Payee can connect rails directly via Portal which is linked to RTP Infrastructure or through Participant.
• Central Bank – holds settlement accounts, sends settlement positions to RTP infrastructure, and receives settlement confirmations

As indicated, best-in-class RTP infrastructure has four components: switch, directory, back office, and data warehouse. The switch handles routing and validity checking of all processed messages, including ISO 20022 compliance. The directory securely stores and maps unique recipient identifiers (consumer, merchant, or business information) to their bank account information with less than a second look-up time. A proxy directory allows people to send and receive money using a phone number, QR code, or other unique ID. The back office manages the user interface and operations. The data warehouse holds data extracted from the back office in archive format. The below flowchart illustrates the RTP infrastructure in detail.

ISO 20022 is the upgraded payments messaging standard for transactions. ISO 20022 is a universal standard covering all transaction types, unlike previous common standards (e.g., ISO 8583 only covers card transactions). FIs migrating to ISO 20022 can process Real-Time Payments (RTP) with standardized, rich, and contextual payment messaging. 

ISO 20022 has hundreds of message formats. Payment, exception, value-added, and admin messages are four of the most notable message format types. The multitude of ISO 20022 message formats unlocks the ability to transfer more information directly on account-to-account rails in real-time, such as a request to pay, payment acknowledgment, and request for information. 

• Payment messages contain credit transfer transaction information (e.g. payment instruction and status)
• Exception messages indicate the RTP system did not complete a message (e.g. payment rejected, questionable transaction)
• Value-added messages are non-payment messages used to initiate or support payment messages
• Admin messages notify users of service disruptions to the RTP system (e.g. unsolicited messages)

Overall, multi-rail payment settlements must complete or guarantee simultaneously with clearing on a  24/7 basis. Moreover, FIs need to modify the reconciliation and reporting schedule to accommodate a 24/7 multi-rail business model and develop new daily reconciliation reporting.