A Year on, FedNow Makes Gains Amid Rising Use And Awareness of Faster Payments

July 20 marks the one-year anniversary of the debut of FedNow, the Federal Reserve’s real-time payment service. It also marks the anniversary of the payments industry letting its breath out in anticipation of the launch. Since then, both FedNow and its fellow faster payments providers have all benefited from the demand for instant payments.

Announced in 2019, FedNow gestated for four years until its launch with 35 participants. The tally is now 889 financial institutions, with an updated total expected Monday, a Fed spokesperson tells Digital Transactions News via email. That’s already double the number in January, when FedNow reached 400 financial institutions.

In the intervening 12 months, the Federal Reserve launched a FedNow user group, added developer resources, and adopted new risk-management features that it expects to make available through 2025. In June, it also launched an effort to get more financial institutions to enable send functionality.

FedNow was the second national, bank-focused real-time payments service when it debuted, joining The Clearing House Payments Co. LLC’s RTP network, which launched in 2017.

In the runup to FedNow’s launch, no one really knew what impact it might have on the RTP network, but now it’s clear it’s been a positive, judging from data released by TCH. “It is fair to say that the last 12 months have been very, very good for RTP. The market was effectively ‘frozen’ as it waited for FedNow to launch,” a TCH spokesperson tells Digital Transactions News by email. “Once it launched last July 20, and the market could see that RTP and FedNow are essentially the same product (except that RTP has actual volume and accesses 2/3 of the market – now up to 68%), FIs started to join RTP much faster (we almost doubled in size). The past year had been very busy for RTP on almost all metrics, and it seems to be accelerating even more the past few months.”

In data shared with Digital Transactions News, TCH says 668 banks and credit unions are on the RTP network as of the end of the second quarter, a 96% increase from the end of the 2023 second quarter. RTP reaches 68% of U.S. checking and savings accounts, TCH says, compared with 29% for FedNow.

RTP also has a daily average transaction volume of 902,428, and reaches 1 million at least once a week, TCH says. At the end of the second quarter, RTP’s volume was 81,526,850, a 41% increase from 57,669,138 a year prior. The value has jumped, too, going from $29,134,897,603 in the 2023 second quarter to $54,933,843,275, an 89% increase. The Fed has not released data about FedNow’s volume.

RTP has many of the nation’s largest banks as clients, while FedNow is reaching more smaller ones. “FedNow and RTP’s level of FI participation is not exactly an ‘apples to apples’ or ‘1:1’ comparison,” says Elisa A. Tavilla, director of debit advisory services at Javelin Strategy & Research. Tavilla worked on the FedNow project from 2020 through 2023 when she was employed at the Fed.

Though the number of clients differs, the composition of each network’s participants also differs in size and geography, with overlap, she adds. “The number of participants is important, but other factors should also be considered, such as market share and reach, which contribute directly to network size and volume.”

The marketing effort spent by the Fed, as some may have guessed, has offered the bonus of lifting real-time payments in general. “The launch of FedNow has fueled real-time payments growth across the payments ecosystem,” says Bridget Hall, ACI Worldwide Inc. leader of real-time payments for the Americas. “Businesses, governments, and consumers are beginning to identify the benefits that real-time payments can provide across multiple use cases.”

Others agree. “FedNow marketing has boosted awareness and accelerated adoption for other real-time and faster-payment rails like RTP and Same Day ACH,” says Tavilla. “Both TCH and Nacha announced record-breaking growth for RTP and same-day ACH transaction value and volume in Q2 2024. Participation continues to grow on all three networks—FedNow, RTP and same-day ACH.”

Same-day ACH, with multiple daily settlement times, also benefits from the real-time payments push. Thursday, Nacha, the ACH governing body, said same-day ACH volume in the second quarter grew 46.6% over the year-ago quarter.

Though no one knew what impact FedNow might have had on real-time payments a year ago, it’s clear now the impact is significant for it and other real-time payments providers.

“Many of us pay for services that help us avoid waiting in long airport security lines. We also loathe sitting in traffic or being in a slow-moving grocery-checkout lane,” Mark Gould, chief payments executive of Federal Reserve Financial Services, which FedNow is part of, says in a blog post.

“In other words,” he continues, “we don’t associate good things with waiting – yet people in the U.S. often are waiting for money. This is why I see so much opportunity for U.S. instant payments in general and the FedNow service in particular. The Federal Reserve’s goal is nothing short of making instant payments ubiquitously available and widely used in the United States. A number of current use cases will help us get there, and more are being explored.”

Though still early for FedNow, it has mostly met expectations. “Seeing the number of connected financial institutions grow from 35 to over 800 in the last 12 months has been very positive, in addition to the size of financial institutions ranging from large banks to small banks and credit unions,” Hall says. “There is more work to be done in expanding the number of financial institutions participating in FedNow, but this was expected to take time and not happen as a big-bang event.”

FedNow’s progress is notable, Tavilla says. “FIs of varying sizes across the U.S. are connecting to the Fed’s instant payment network, with more in the pipeline. It’s critical progress towards the Fed’s goal to eventually connect all of the country’s 9,000+ FIs to FedNow.”