Real-time payments go beyond early adopters to a new phase as a series banks AND credit cooperatives to take on the government-backed FedNow network in its first year. There are now more than 900 financial institutions offering FedNow, the Federal Reserve said in August. That’s up from 450 in February and 35 at the real-time payments network’s July 2023 launch.

While that’s a big jump, it leaves as many as 8,000 eligible banks and credit unions in the U.S. that haven’t signed on. And the U.S. lags behind countries where governments have mandated the use of real-time payments, or transactions that settle in seconds instead of the same day or two to three days. Brazil and India far ahead of the US According to Statista, in Brazil about 95% of digital payments are processed via the country’s network. For comparison, the share of real-time payments in the US is forecasted at 4% by 2026.

“Volumes will come to the U.S., but it will take time,” said Erika Baumann, head of commercial banking and payments and healthcare payments at Datos Insights. “Anything market-driven moves slowly in this space, and FedNow is no exception.”

How Real-Time Payments Are Used

Instant settlement is becoming increasingly popular as a way to help businesses manage their cash flow by matching payments to available funds and quickly paying freelancers and other gig economy workers.

“There are companies that need help with cash flow management and want to know what we can do to avoid having to miss payment deadlines,” said Aaron Wiatrek, treasury manager at Frost Bank, a San Antonio-based bank with $52 billion in assets.

Frost recently signed a deal with payment technology company Finzly to power real-time payments for FedNow and RTP, with the ability to receive payments set to launch later this year and sending payments set to debut in 2025. Frost is combining FedNow and RTP into one system to make it easier to work with two networks that have different processing models and are not interoperableWiatrek predicts that the first users of RTP and FedNow will be business payments and treasury management departments.

Frost is also interested in using Payment requestor an option that matches invoice delivery directly to the RTP network (FedNow is also developing an RfP option). RfP aims to include instant payment settlement information to better manage receivable and payable balances. “This will help with the disconnect that’s happening with business payments being made through new channels,” Wiatrek said of the current mix of paper invoices, digital payments and long settlement windows.

Keeping up the pace

FedNow’s influence has included attracting small financial institutions, given the competitive pressure to either adopt real-time payments or at least have a plan. About 77% of banks offer or plan to offer FedNow, according to the study Arizenpublisher American Banker. Research has shown that 62% offer or plan to offer RTP.

“We’re starting to see the rise of real-time payments among smaller and midsize institutions,” said Debbie Buckland, principal and analyst at Gartner. “These smaller banks need to support real-time payments to remain competitive.”

About 78% of FedNow participants are credit unions and community banks, the Fed said. In an email sent Wednesday, the Clearing House said there are 711 banks and credit unions on RTP, up from 652 at the end of June and 340 at the end of June 2023. About 93% of RTP network members are credit unions or community banks.

IN previous interviewJames Collassano, senior vice president of Clearing House, said: “FedNow has shed light on real-time payments in the U.S. and confirms that real-time payments will be the payment mechanism of the future.”

The Federal Reserve, which has not released FedNow payments data, did not respond to a request for comment by deadline.

FedNow has raised awareness of real-time payments, given the Federal Reserve’s name recognition and the broader attention that instant settlement is now getting, said Nicole Dilts, vice president of commercial solutions at MSU Federal Credit Union, a $7.8 billion credit union that primarily serves members associated with Michigan State University. “FedNow has been helpful,” Dilts said. “There are a lot of transactions that are processed in real time that we wouldn’t have otherwise gotten.”

The credit union launched real-time payments on the six-year-old RTP network in 2021 and launched FedNow in August 2023, making it one of the first users of FedNow. MSU processed 685 payments on RTP in the first month of 2021, and the number of transactions quickly grew to more than 84,000 by the end of the year and 185,000 by the end of 2022, 250,000 in 2023 and 155,000 in the first half of 2024. Only about 1% of the credit union’s total payments are processed in real time, so there is room for expansion, Dilts said.

The gig economy and peer-to-peer transfers were the top types of payments for real-time settlement at MSU. “Those are the types of payments where people want to have it available right away, not in a few days,” she said. Dime Bank, a niche bank that sells financial services to small businesses that run or are affiliated with day and overnight camps in the Poconos, added RTP in 2021 and “just started” supporting FedNow. The bank processes about 550 transactions a month through RTP and has not yet collected data on FedNow. “Real-time payments are a drop in the bucket right now,” said Ferdinand Feola, senior vice president and chief technology officer at The Dime Bank, a $990 million bank based in Honesdale, Pennsylvania.

Feola predicts that the number of real-time payments will increase as account-to-account and gig economy payments are added to real-time networks in the coming months.

Frost Bank also predicts real-time volume growth via A2A paymentsan older payment method that’s getting new life as businesses and consumers try to avoid credit card fees. “Employees will be able to get paid for their work every day and decide how much money they have available to pay their bills,” Feola said.