With its first year of operation almost complete, the Federal Reserve’s new instant payments system, FedNow, has already surpassed the number of financial institution participants on the private real-time system known as RTP.
FedNow has amassed about 800 banks and credit unions on its fledgling FedNow system since it launched on July 20 of last year. Meanwhile, The Clearing House’s rival RTP network, which was established in 2017, has attracted about 652 financial institutions as of early this month, after FedNow’s launch last year seemingly spurred growth for RTP too.
The Fed declines to disclose the payments volume flowing over its new system while RTP makes clear that it has significant, and rising, activity. Last week, The Clearing House, which is owned by major banks, said it had posted several volume records during the second quarter, including a 7% increase in volume for the quarter to 82 million transactions, with a 30% jump in value to $55 billion.
In an interview posted online Monday, Federal Reserve Financial Services Chief Payments Executive Mark Gould acknowledged that FedNow is still growing, and noted the central bank’s ambitious objectives.
“The Federal Reserve’s goal is nothing short of making instant payments ubiquitously available and widely used in the United States,” he said in the Q & A post.
The Fed’s target is signing up about 8,000 of the nation’s 10,000 banks and credit unions. Gould pointed to use cases he expects to help the activity on FedNow spool up, namely “digital wallets, payroll and earned wage access, e-commerce, bill pay, real estate transactions, online marketplaces, insurance, government payment.”
Nonetheless, several major U.S. banks still haven’t signed onto FedNow, including Bank of America, Citigroup, PNC and Capital One Financial — all of which are among the nation’s 10 largest banks.
In a statement, Bank of America said: “We are very supportive of faster payments in the US, and we continue to monitor the FedNow network and its progress.” A spokesperson for PNC said by email: “PNC is still in the process of evaluating FedNow.” Capital One and Citigroup didn’t immediately respond to requests for comment.
It was always expected that FedNow would attract more of the many small U.S. financial institutions than did RTP because their bank leaders have expressed worries for years about the notion of connecting their institutions to RTP, a system run by their larger bank competitors.
Attracting more participation and building awareness of FedNow will take time, said Bridget Hall, who is leader for real-time payments in the Americas for payments software provider ACI Worldwide. ACI is a certified service provider for FedNow that began working with the Fed on the new system early on. She said she has been struck by the high level of FedNow participation in the first year.
Nonetheless, Hall isn’t surprised that some banks haven’t signed onto FedNow yet because there are competing priorities for their tech investment dollars, and some are opting to pick one system, for now, in their initial real-time effort. They’re also spending on the ISO 20022 international payments standard, she said.
“Banks have a lot of priorities on their plate, and the different objectives that they need to spend time and money and effort on,” Hall said in an interview this month.
Different banks will have different client needs and different incentives as to when they’ll join each of the real-time systems, but her company sees a benefit for financial institutions connecting to both systems, she said. As the overall volume increases and use cases proliferate, Hall said she expects more participation.
FedNow will be best suited to certain types of payments that need “speed, finality and irrevocability,” but that other types of payments, such as ACH, will continue to serve other needs, Gould said in the Fed’s post.
Potential fraud on FedNow is a chief concern for CEOs and financial institution leaders, Gould said, but he sought to allay those fears in his comments, pointing to safeguards in the system. Specifically, he noted that micropayments sent on FedNow can be used to authenticate receivers. He also mentioned a fraud classification tool that helps better understand instances of fraud and gauge its magnitude.
FedNow’s functionality will increase over time. Over the next year, the Fed is on a mission to increase appeal for corporate customers on one particular front, Gould said.
“Financial institutions are working with their corporate customers on specific use cases, such as encouraging corporate originators to make more single B2B payments for single-invoice items, as opposed to single payments for multiple invoice items,” he said in the post. “That's a real focus for us in the year ahead.”
