FedNow’s Rising Adoption Buoys Its Biggest Rival

A big movement among financial institutions to join the Federal Reserve’s FedNow real-time payments network appears to be benefiting its biggest competitor.

“Ever since FedNow launched, we’ve seen a surge of interest in real-time payments,” says a spokesman for the Real Time Payments network, operated by The Clearing House Payments Co. The RTP network has added 135 participants in the second half of the year alone, he says, bringing the current total to 483.

The Federal Reserve reported in mid-December that some 331 institutions were sending or receiving transactions on FedNow, which launched in July last year with 35 participants. The much-anticipated commercial launch followed years of development work that came after the Fed announced in the late summer of 2019 it would develop a real-time payments platform.

But many participants appear to be interested in using both FedNow and its biggest rival, RTP. Of the 331 banks and credit unions that had signed on to FedNow by mid-December, 137 were participants in RTP, according to TCH’s figures. “We’ve seen a lot of overlap,” says the TCH spokesman.

New York City-based TCH, which launched RTP in 2017, has for years stood as the nation’s most prominent national provider of real-time transfers. TCH is owned jointly by 22 of North America’s largest banks, including Bank of America, Capital One, Citibank, JPMorgan Chase, and Wells Fargo. Its real-time network is now processing 25 million transactions monthly, according to TCH.

Many of these banks have benefited from the experience they’ve had with RTP, the TCH spokesman says, another factor that he says accounts for at least some of the overlap among participants in RTP and FedNow. “The institutions that have joined RTP, they’ve done the homework,” he notes, adding that once these banks have gained experience with RTP, “it’s not a heavy lift” to connect to FedNow.

But for the time being, at least, TCH can claim a significant advantage, even with FedNow having started commercial operation, the TCH spokesman says, as attracting smaller participants could be a harder and slower mission. The vast number of smaller banks, he adds, “is a long tail.”

The Fed’s key advantage, however, is its longstanding connections to “thousands” of banks, a fact the regulator pointed to in its Thursday announcement. “These are still early days for the FedNow service, and we are pleased with the robust level of adoption over the first few months as we transition from launch phase to standard operations,” said Ken Montgomery, FedNow program executive and also first vice president of the Federal Reserve Bank of Boston, in a statement.

If that remains true, TCH expects this awakening of interest in real-time payments to benefit RTP, as well.