Instant Payment Expansion Accelerates in US via FedNow Service
The U.S. Federal Reserve's FedNow system and The Clearing House's Real-Time Payments (RTP) system are the two main instant payment networks in the U.S., revolutionising the way funds are transferred in real-time. Launched in July 2023, FedNow targets community banks and credit unions, while RTP, established earlier, caters more to larger banks.
Growth and Adoption
Since its launch, FedNow has seen steady growth, with around 1,400 financial institutions joining the network, 95% of which are smaller banks and credit unions. On the other hand, RTP, with a longer operational history, serves a broader network of larger banks. Notably, about 58% of U.S. banks use both RTP and FedNow, indicating a strategy among financial institutions to balance volume, reach, and operational resilience.
Transaction Volumes and Values
RTP maintains a significantly higher daily volume, with approximately 1.2 million transactions per day, compared to FedNow's approximately 14,500 daily transactions. Despite the lower volume, FedNow has shown impressive growth, with the total number of transactions for 2024 reaching 1.5 million. The value of payments on FedNow rose by 15% on a quarter-on-quarter basis in Q4 2024, versus more than 3,500% growth in the previous quarter, suggesting accelerating adoption and transaction size. RTP's payment volume surged 38% year-over-year in 2024, underscoring strong growth momentum.
Features and Performance
Both systems enable real-time settlement of payments, meaning funds are available instantly for recipients. FedNow recently increased its maximum transaction limit to appeal more to banks and allow tiered transaction parameters, indicating an enhancement in the value of payments it can support. RTP has a higher transaction limit historically and a more extensive user base, resulting in higher transaction volumes and a more established presence in the market.
Challenges
Both networks face adoption hurdles primarily linked to fraud risks. RTP payments are irrevocable and settle instantly, raising concerns over fraud and lack of chargebacks, which similarly applies to FedNow. Industry feedback emphasises ongoing efforts to improve risk management and fraud prevention tools, particularly for FedNow, to encourage wider adoption.
Summary
In conclusion, RTP leads in transaction volume and maturity, growing strongly year-over-year, while FedNow grows steadily by expanding access to smaller institutions and improving risk management. Both systems are increasingly seen as complementary in the U.S. instant payments landscape. The potential cross-border participation of FedNow is a future development to watch, as the U.S. aims to bring FedNow up to speed with other countries' instant payment systems worldwide.
References: [1] Federal Reserve. (2025). FedNow Service: Quarterly Update - Q1 2025. [2] The Clearing House. (2025). RTP Network: Q1 2025 Network Statistics. [3] Federal Reserve. (2023). FedNow Service: Fraud Risk Management and Security. [4] The Clearing House. (2023). RTP Network: Real-Time Payments Explained.
Technology plays a crucial role in both FedNow and RTP systems, as they leverage advanced technology to enable real-time funds transfers. In the realm of investing, these instant payment networks present opportunities for financial institutions to improve efficiency, reduce costs, and adapt to rapidly changing consumer preferences in finance.