ACH vs Fedwire vs SWIFT: The best payment options to collect funds from USD to INR

India is on the brink of a significant transformation in its export sector. According to a report by KPMG¹, its exports, which include both goods and services, are likely to surge from $770 billion to $1.7 trillion by 2028.

But it takes more than just an opportunity to succeed in a global market. Businesses must also tap into the right solutions, payment methods and means to navigate the global market confidently.

Every country has different local methods in addition to global wire transfers that facilitate cross-border payments. In this article, we’ll examine the India-US market and how Indian companies, regardless of their size, can leverage different payment methods to collect funds that best suit their business needs.

In this article, we'll explore different payment methods, such as ACH, Fedwire, and SWIFT. We'll also break down the differences between ACH vs Fedwire vs SWIFT, exploring how each payment network works, what makes them unique, and when to use one over the other.

Every region or country has a local payment method typically integrated within their banking infrastructure. Some examples of local payment methods outside of the US are SEPA for the European Union, PIX in Brazil, M-Pesa in Africa, CHAPS in the UK and NEFT, IMPS or UPI in India. While these methods are designed to facilitate domestic transactions, they also play a key role in receiving international payments.

When receiving international business payments from the US in India, businesses have three primary options: Automated Clearing House (ACH), Fedwire, and SWIFT. Each payment method is designed to meet different business needs, from transaction speed and cost-effectiveness to overall convenience.

The key difference between these methods is that while ACH and Fedwire are local payment methods available in the US, SWIFT is a global network.

Specifically used in the US, the ACH payment system is an electronic system that facilitates transactions in US dollars between different banks in the country. The National Automated Clearinghouse Association, or Nacha, manages this fund transfer system. It's a large group of banks, payment processing companies, and credit unions. The primary role of Nacha is to define the regulations and standards that govern the ACH network.

Further, transfers via ACH are easily traceable, helping to identify fraudulent activities easily. ACH regulations protect both the sender and the recipient, as the money is transferred directly between accounts, with the account numbers kept confidential.

ACH allows batch transfer of payments. In simple terms, the ACH network first accumulates all payments and then sends them in a single instance. The best advantage of this type of transfer is the lesser cost it involves. However, there's a downside to this cost efficiency as well since ACH payments typically take longer to settle compared to other methods. Here's what a usual ACH payment transfer looks like:

1. Initiation: The sender or originator requests a payment or deposit through their bank, known as the Originating Depository Financial Institution (ODFI).

1. Batching: The ODFI collects multiple ACH requests and groups them into a batch, which is sent to an ACH operator, either the Federal Reserve or a private clearinghouse, at scheduled intervals.

1. Processing: The ACH operator sorts the batch and forwards each transaction to the appropriate Receiving Depository Financial Institution (RDFI), which is the recipient's bank.

1. Settlement: The RDFI credits or debits the recipient's account, completing the transfer. This process usually takes 1-3 business days. Same-day ACH is also available now for many transactions but at higher costs.

ACH transfers are usually of two types

According an article in Business Standard², “The US is the largest trading partner of India in 2023-24. India's exports stood at USD 77.51 billion, while imports aggregated at USD 42.2 billion in the last fiscal.”

While the opportunity is evident, businesses are often unaware of the different payment methods available to receive funds from the US in India. As a result, they may lose money due to FX fluctuations, transfer fees, or other hidden charges. It’s not just costs; businesses also face longer processing times. These challenges can lead to lost revenue, whether from hidden charges or delays in receiving payments.

Each payment method plays a crucial role in facilitating payments, but they differ significantly in speed, cost, and intended use. Local payment methods allow businesses to receive international payments more quickly, securely, and often at a lower cost than traditional global systems like SWIFT.

• Automated Clearing House (ACH) - ACH is a payment system used to move money between two US bank accounts. It was set up to address the inefficiencies in the mass sorting and processing of paper checks. Managed by the National Automated Clearing House Association (NACHA)⁴, ACH payments are batch-processed and cleared by a single intermediary known as the ACH operator.

How does ACH work?

ACH payments are processed in batches. In case of debits, the funds are generally settled either on the same day or by the next business day, while ACH credits can take anywhere from the same day up to two business days to process the payments.

ACH payments involve a series of steps to transfer funds between bank accounts. The process begins when the sender, such as a business or employer, enters the payment details into the ACH system. The payment requests are then gathered by the sender's bank and sent as a batch to the ACH operator. After that, the ACH operator forwards the batch to the recipient's bank. Once the funds reach the recipient's bank, they are released from the sender's account and routed through the ACH network to the destination account.

Benefits of using ACH in international payments

ACH transactions have become an increasingly popular choice for businesses looking to optimize their financial operations. Below, we highlight the key benefits of ACH payments in terms of cost, time, and security.

1. Cost-effective: ACH payments are electronically transmitted and passed through a single intermediary, thereby minimizing the number of steps in the transaction. This means that they cost practically nothing: The sender incurs a nominal fee (under $3) & the recipient incurs no fee.

• Secure: ACH transfers are encrypted and processed through secure networks that enforce strict regulations–making this more secure than card or wire payments. Further, transfers via ACH are easily traceable, helping to identify fraudulent activities easily. ACH regulations protect both the sender and the recipient, as the money is transferred directly between accounts, with the account numbers kept confidential.

• Reversible transfer: Banks can reverse ACH payments but must follow strict procedures and timelines. They must also notify the account holder of the reversal and provide a reason for it. Account holders can dispute a reversal if they disagree with it.

Tip: Thanks to its low cost, reliability, automation, and reversibility, ACH is best suited for low-value, non-urgent, and frequent transactions, such as paychecks and recurring bills. This is the best option for freelancers and businesses looking to get paid on a regular basis.

• Fedwire

Fedwire Funds Service⁵, commonly known as Fedwire, is an electronic payment system operated by a group of twelve Federal Reserve banks in the US. Fedwire is a Real Time Gross Settlement (RTGS) system that allows participating institutions to send and receive same-day fund transfers.

How does Fedwire work?

Fedwire transactions are initiated when the sender—in this case, a US-based client—provides payment instructions to its bank. The sender's bank then authenticates the transfer request, verifying the sender's identity and the transaction's legitimacy to ensure compliance with regulatory standards and prevent fraud. Once authenticated, the transfer is processed in real-time, with the Federal Reserve directing the funds to the recipient's bank. After the transfer is completed, both the sender and recipient receive a notification—the sender's bank confirms the transaction, while the recipient's bank alerts them that the funds have arrived. Unlike ACH, in the case of Fedwire transfers, both the sender and receiver have to pay a fee for collection and sending.

Key benefits of  Fedwire:

1. Speed: Fedwire payments are settled quickly–sometimes within hours or on the same business day. 
2. Security: Fedwire transactions are governed by strict regulatory standards. Both the sending and receiving banks perform multiple verification steps to ensure the accuracy of account numbers, routing numbers and the parties' identities. The chances of financial fraud are negligible. 
3. No limits on transactions: Well, technically, there are—the upper limit is $9,999,999,999.99 per day. This makes Fedwire ideal for high-value transactions.

Tip: Thanks to its speed, security, and lack of transaction limits, Fedwire is ideal for high-value, time-sensitive transactions. This is the best option for businesses dealing with high-value goods or services that need same-day payment.

• SWIFT

The SWIFT⁶ network, which stands for Society for Worldwide Interbank Financial Telecommunication, is the most popular system of international payments. Unlike Fedwire and ACH, SWIFT doesn’t hold funds or transfer money. Instead, it provides the messaging infrastructure that banks around the world use to talk to each other. It was founded in 1973 by a collective of 239 banks from 15 countries with the goal to create a common language for international financial messaging. The collective has since grown exponentially. SWIFT now services over 11,000 institutions around the world, spanning over 200 countries.

How does SWIFT work?

At the core of the SWIFT infrastructure is the Bank Identification Code (BIC)—a unique-eleven-character-alphanumeric code that describes each member bank, its location, and branch number. SWIFT codes allow banks to identify each other and transmit payment orders securely and quickly. 

To initiate a SWIFT transaction, the sender approaches their bank after gathering the necessary details—the recipient’s bank name, address, SWIFT code, and account number. A SWIFT message containing payment instructions is then transmitted securely through the network. Upon receiving the message, the recipient’s bank verifies the information and processes the transaction. If the two banks do not have a direct commercial relationship, the payment is routed via intermediary banks—sort of like an international flight with multiple layovers.

SWIFT transfer costs and processing time

It typically takes between one and five days for transactions to be credited, with fees varying based on the transaction amount, banks involved, currency and the country. The SWIFT fees are categorised as transfer fees and intermediary bank fees. The sender is typically responsible for a transfer fee, which can range from $25 to $100, depending on the bank and the transfer amount. If intermediary banks are involved in the process, there will be additional charges, which may be paid by the sender, shared between the parties, or covered by the recipient—the latter being the most common scenario. These fees usually range from $15 to $50 per intermediary bank. The recipient may also be charged a fee, typically between $10 and $30, based on the policies of the receiving bank.

Key benefits of using SWIFT transfer:

• Highly secure:  SWIFT messages and data flows are encrypted and constantly monitored to prevent unauthorized access, making the network highly secure. Chances of financial fraud are negligible.

• Extensive international reach: With over 11,000 participating financial institutions from over 200 countries and territories, spanning every continent, SWIFT is a truly global payment network. Its highly standardized system allows for seamless communication between all of these member institutions.

This is where a Virtual Bank Account Number (VBAN) comes in. VBANs are local accounts in foreign countries that allow users to receive funds via domestic payment methods.

A VBAN is just like a regular bank account, with two key differences:

• Unlike a regular bank account, a VBAN does not have a physical existence.  
• A VBAN cannot store a balance. It simply acts as a routing point, or a doorway that opens into a primary account located in India

This means that the sender (in this case the US-based client) can simply initiate a Fedwire or ACH transaction to the VBAN of the recipient (in this case an India based service exporter). Once the funds are received in the VBAN, they are seamlessly converted to INR and credited to the Indian bank account.

While SWIFT is the dominant payment network for international money transfers, its slow processing time, high fees and, susceptibility to fluctuating FX rates can make it frustrating for Indian recipients to collect funds from USD to INR. This leaves ACH and Fedwire as the most viable options to receive international payments, if routed via a Virtual Bank Account Number (VBAN).

Between ACH and Fedwire, the right choice depends on the business requirement: 

• ACH is well suited for low value, low urgency transactions, like freelance payments and paychecks. 
• Fedwire is better for high value, high urgency transactions, like export payments.

By using an Xflow Receiving Account, you can receive these payments within a few hours or instantaneously, at a favourable exchange rate, while incurring minimum overheads.

1. KPMG report: Unlocking India’s export opportunity 
2. Business Standard article
3. ACH
4. NACHA
5. Fedwire
6. SWIFT 
7. RDA