Although instant payments have been available in the United States since 2017 – via The Clearing House’s RTP rails – many in the industry treated last month as their first anniversary. That’s because in July 2023, the Federal Reserve launched its FedNow service, kicking off market competition in earnest.
The past year has undoubtedly seen heightened instant payments activity, with a sizeable number of banks and credit unions enabling emerging rails. On the other hand, transaction volumes are relatively light (notably on FedNow), most financial institutions (FIs) remain on the sidelines, and those enabled for instant payments have yet to develop use cases and monetization strategies fully.
As explained in our latest special report, SRM firmly believes that instant payments are essential to an FI’s broader payments strategy, given the growing number of use cases gaining traction among consumer and corporate customers. Those failing to adopt in the next 12-18 months risk placing their FI at a significant competitive disadvantage.
Receiving, Sending, and Sitting on the Sidelines
FedNow and the RTP Network have reported enabling 900+ and 650+ FIs on their instant payment rails. Their progress over the past year has been impressive and, for the most part, complementary, with RTP leading the way with large institutions and FedNow addressing the long tail of community FIs. The total reach between the two networks approaches 70% of US DDAs, with daily payment volume frequently exceeding 1 million transactions.
Despite this momentum and the benefits from customer participation, nearly 8,100 banks and credit unions have yet to implement an instant payments solution. That’s roughly 85% of the total US market. Moreover, most adopters remain in receive-only mode, limiting the available benefits.
SRM’s recent Market Pulse survey, as detailed in our special report, digs deeper into FI perspectives on instant payments and illuminates key barriers to adoption. FIs still on the sidelines cited the same concerns as those that remain in receive-only mode. We see this as an encouraging sign that the industry needs only to focus on a short list of concerns to unlock instant payments’ full potential.
Fraud: Perception and Reality
Fraud was the most frequently cited concern among non-adopters and receive-only institutions alike. This is ironic, given public statements from both the Fed and TCH that current fraud rates on FedNow and RTP transactions are below the levels experienced using other instruments (ACH, checks, wires).
There are certainly explanations for the paradox. FIs have been judicious in the accounts they enable for instant payments in the early stages, and fraudsters have gravitated to the larger opportunity pools found elsewhere. While risk management enhancements are warranted, real-world data reveals that the early-stage risk of activating instant payments is manageable.
Another frequently stated concern is the need for operational adjustments to areas such as client support, liquidity management, client/staff education, and exception handling. We believe these fall into the category of continuous improvement that FIs should be pursuing regardless to meet the “always-on, always-available” expectations of today’s bank customers or credit union members. Starting this journey with instant payments, while volumes remain manageable, offers valuable, low-risk, “learning by doing” opportunities.
The Bottom Line
SRM’s special report on the state of instant payments analyzes these points in greater detail and adds direct insights from our Market Pulse survey. While the instant payments journey ahead for the vast majority of FIs is not without challenges, a thoughtful approach can help to capture an outsized share of benefits for these institutions.
We encourage FIs to step off the instant payment sidelines in 2025 before the window of opportunity closes. Contact us to learn how SRM can help you explore instant payments strategies.