RTP versus FedNow: Where should you start with faster payments?

Between faster payment rails like the Federal Reserve’s FedNow Service, The Clearing House’s RTP, and even Same Day ACH, there are a growing number of payment options for today’s financial institutions. Not to mention, there’s been an explosion of payment services in recent years, including Zelle, CHUCK, and countless buy now pay later (BNPL) options.Navigating this rapidly evolving space can be challenging, but important nonetheless. Offering faster, more efficient payment options can be a major competitive differentiator for today’s financial institutions.This blog will explore the differences between the various innovations in payments and how the right infrastructure can help financial institutions of all sizes scale and monetize their payment offerings.

Differences Between RailsTo start, let’s focus on the available payment rails or networks that equip banks and credit unions to process transactions faster. According to Independent Banker, “payment rails serve as the infrastructure that enables the movement of money from one financial institution to another, like how a train transports passengers from one location to another.”FedNow, The Clearing House’s RTP and Same Day ACH are considered rails and they have some basic differences that financial institutions should be aware of as they prepare to offer faster payments.

FedNow: The Federal Reserve launched its instant payments infrastructure, the FedNow Service in July of 2023. FedNow enables financial institutions to provide instantaneous payments, whether sending cash to a child in college, closing a real estate transaction or purchasing an automobile from an individual or a dealer. The transaction limit is $500,000 a day.

RTP: The Clearinghouse’s Real Time Payments network is more seasoned than FedNow, having launched in November of 2017. As of September 2023, RTP had processed more than 1 million daily payments.  With instant availability and payment confirmation, payment senders and receivers know exactly when the payment is received, and receivers can use funds immediately.Though the money moves in real time, the settlement occurs through the ACH network or credit card rails at a later time in the day. The transaction limit is $1 million a day.The Clearing House is introducing features and capabilities that make the network even more valuable to participants, their customers and clients:• DDA Tokenization:  Secure Token Exchange is an optional capability that issues tokens to stand in for real account numbers when sending or receiving payments. It’s a way to reduce the potential for theft and fraud.• Document Exchange: This new service provides access to PDF or XML documents such as bills, invoices, and remittances as part of an RTP payment or request for payment message.

Same Day ACH: Nacha’s ACH Network offers same-day payments for up to $1 million, with settlement occurring four times each business day. The processing costs are less than for RTP or FedNow. The ACH Network is well-established and therefore, accessible to most individuals and businesses with a bank account. This may give accounts that are not currently covered by The Clearing House’s RTP network or FedNow a way to transact faster, although not in real time.  

Benefits of Adopting All
One payment rail is unlikely to satisfy everyone's needs and narrowly focusing on a single faster payment rail could limit a financial institution’s ability to innovate and adapt in the future.Leaders must recognize the nuances between the different payment rails while thoughtfully evaluating the needs of their customers and members before implementing new payments technologies. It is unlikely that a bank or credit union will find a one-size-fits-all payment rail, so it’s best to consider multiple payment rails and determine how each one can provide unique opportunities to better serve their market.

Consider selecting a payments partner that is already plugged into these networks to simplify the implementation process. A partner that takes a one-to-many approach eliminates complexity and reduces time to market, which means your institution can adopt and scale real-time payments efficiently and profitably.