Happy 1st Birthday, FedNow: Adoption Slow as RTP® Profits from the Buzz

The financial world held its breath in summer 2023 as the Federal Reserve’s FedNow instant payment service debuted. It’s been one year since the big day came and went.

What have we learned? 

Ironically, we’re finding that instant payments take time. Reasons include the pending switchover from Fedwire to the ISO 20022 standard, with a March 2025 deadline closing in. That’s mostly a timing issue as banks and FIs prioritize the ISO deadline. Then there’s the fact that many banks have agreed to be receivers of funds under FedNow, but not senders. 

As The Fed irons that out, there’s also entrenched US competition in real-time payments. In another irony, FedNow’s launch is proving a strong driver -- for its main competitor. 

That beneficiary is the RTP® network, launched by The Clearinghouse (TCH) in 2017 as an innovation in payments speed. Showing how promotion of FedNow is stoking demand, TCH announced its first $1 billion day ever in a July 2024 press release, saying “consumers and businesses sent over $1 billion in instant payments on June 28 over the RTP® network, a single day record for the largest instant payments system in the United States.” 

That said, the RTP® network got off to a slow start too. As FedNow starts to scale, “The two will compete,” said Jessica Cheney, VP, Product Management and Strategic Solutions at Bottomline. 

“Some banks are much more comfortable with the Fed, because they have all their ACH processing and wire processing done through the Fed. Some banks are very comfortable with TCH. It's going to come down to comfort and preference,” she said. 

Doing More Than Instant Payments 

More important than which entity Financial Institutions are comfortable with is how FedNow (and the RTP® network for that matter) can and will improve business payments. 

“To begin with, FedNow and RTP® are very precise cash management and liquidity tools,” Cheney said. “Secondly, what I like about instant payments, whether that's RTP or instant through the Fed, is that they are tracked end-to-end. You are made aware when your receiver's account has been credited,” she said. That is not the case with ACH or wires.  

Upgrading systems is part of the process of going real-time with either system. Due to this, corporates may have more prep work to do than any other party to instant payments. 

“Systems need to be changed at a corporate to take advantage of these new rails,” Cheney noted. “I might be making a check payment that I want to now make as an instant payment. I have processes within my organization and systems that I must now change to accept a real-time payment. That comes with a certain amount of cost, whether it’s hard dollars or time invested in making that switch.” 

However, she added that the increased flexibility, the liquidity management, and the payment reconciliation efficiencies “all outweigh the cost of making that change.” 

Additionally, Cheney feels that more banks will join both FedNow and the RTP® network over time, using routing gateways to send payments to the best network for a particular transaction at a particular time, or to cater to user preferences when necessary. 

RFP Vs. RTP Vs. FedNow 

In the excitement around real-time payments created by RTP® and then FedNow, another elegantly simple real-time payment solution – Request-for-Payment (RFP) – hasn’t gotten the attention it likely should. Cheney thinks banks desirous of a reason to implement real-time/instant payments right now should investigate RFP as well. 

Part of both the RTP® and FedNow  solutions, RFP is an electronic invoicing tool that enables the recipient to pay the invoice instantly on receipt.  

“In my opinion RFP is the silver bullet to substantial increases in adoption in real time and instant payments in general,” Cheney said. “It’s a great small business tool. It could be the answer to Electronic Bill Presentment and Payment that the industry has been fully looking for. Consumers are already comfortable with electronic payment requests through services like Venmo. RFP is exactly that extension in the real time business payments world.” 

While RFP may see increased uptake, a May press release from the Federal Reserve based on a survey said “Overall, 86% of businesses and 74% of consumers said they used faster or instant payments in 2023, and most (74% of businesses and 79% of consumers) reported looking to their financial institution to provide these services.” 

In other words, banks and credit unions continue to enjoy the lion’s share of trust when it comes to handling instant payments. Even so, TCH is the trailblazer, with Cheney saying the two systems with their similar fee structures and feature sets will coexist, giving the market optionality. Until instant payments rails like RTP® and FedNow achieve ubiquity, Cheney believes many banks will offer both, to ensure they get the greatest reach.