One Year of FedNow: An Instant Payments Revolution Takes Root in the U.S.

Last month’s one-year anniversary of the FedNow Service launch was a pivotal moment to assess the adoption of real-time or instant payments in the United States. For years, the U.S. lagged other developed nations in embracing this transformative capability, but the launch of FedNow in July 2023 marked a significant turning point.

FedNow operates as a foundational element of a ubiquitous real-time payments infrastructure in the U.S. This allows financial institutions to send and receive instant payments, fundamentally changing how money moves within our economy. Real-time payments enable a world where bill payments clear instantly, funds from payroll deposits are available immediately and B2B transactions happen in real-time. This is the power and convenience that FedNow unlocks.

Business and Consumer Demands Fuel Real-Time Payments Adoption

ACI Worldwide’s latest “Prime Time for Real-Time” report sheds light on this critical juncture. Globally, 575.1 billion real-time transactions are forecast by 2028, representing a significant growth opportunity for the U.S. market as it strives to maintain pace with countries like India (129.3 billion transactions in 2023) and Brazil (37.4 billion transactions in 2023). Real-time payments are expected to grow in the U.S. at a compound annual growth rate (CAGR) of 31.7% between 2023 and 2028.

A staggering 86% of businesses and 74% of consumers said they used faster or instant payments in 2023, according to a recent survey from the Federal Reserve. The survey found that businesses are using instant payments because it helps them reduce cost (48%) and provides flexibility to pay and be paid as customers prefer (39%). At the same time, 25% of consumers are challenged by the slow speed of payments, and one in four consumers report a preference for options that enable instant money movement to help them manage their personal finances. These drivers, among others, are helping to fuel global adoption rates. Many financial institutions, including credit unions, continue to learn more about evolving consumers preferences, especially as more use cases are identified and enabled in the market. If they haven’t already, these financial institutions are coming to the conclusion that an increasing percentage of their members want to enjoy the benefits of real-time payments.

Challenges and Opportunities: A Roadmap for Growth

The first year of FedNow led to significant adoption, with more than 900 banks and credit unions joining the rail since the launch (which had 35 initial participants), according to the Federal Reserve. As the saying goes, a rising tide lifts all boats. The Clearing House’s RTP network has seen growth in financial institution adoption, transaction volume and value since FedNow’s launch, with a record 82 million transactions (valued at a record $55 billion) in the second quarter of this year, according to The Clearing House.

Despite this progress, challenges remain. Currently, FedNow and The Clearing House’s RTP are not interoperable, and consumers expect a seamless experience regardless of their financial institution’s participation in a specific network. Further industry collaboration will be essential for widespread adoption and an experience that consumers and businesses will welcome. Financial institutions must continue their adoption of real-time payments beyond receive-only capabilities by prioritizing enablement of both send and request-for-payment capabilities – features that have been critical around the globe in increasing transaction growth.

Another key factor is education. While awareness is on the rise, a gap exists between knowledge of real-time payments and active usage. Financial institutions and fintech companies must work together to educate consumers and businesses about the benefits of real-time payments and how to take advantage of them. This includes highlighting the convenience of instant settlements, improved cash flow management and reduced risk of fraud associated with traditional payment methods.

Beyond the initial benefits of speed, real-time payments open doors for innovative financial services, bringing tangible, meaningful improvements to many payment flows, including real-time bill pay, on-demand disbursements and frictionless e-commerce experiences – all driven by the underlying power of instant payments.

There is no doubt that the U.S. is on the cusp of a real-time payments revolution. The first year of FedNow has been a promising start. By addressing the remaining challenges and harnessing the immense opportunities, the U.S. financial system can embrace the future of real-time payments, leading to a faster, more efficient and inclusive experience for all stakeholders.

Bridget Hall is Leader of Real-Time Payments for the Americas for the Coral Gables, Fla.-based payments software company ACI Worldwide.