A year into the FedNow era, the Federal Reserve’s instant payments service has been successful by many measures. With more than 900 financial institutions using the service, it has already outpaced the RTP network, which has been operational for seven years old.
Yet, some competitive disadvantages remain. The RTP Network has a sizeable advantage in transaction volumes, processing $55 billion processed in Q2 2024. While FedNow has not released its transaction volumes, estimates suggest its numbers are much lower than RTP’s. Additionally, a third close-to-real-time option, Same Day ACH, remains much bigger than both.
According to SRM’s report, Examining the First Year of FedNow and the State of Instant Payments, 6% of U.S. financial institutions are participating only in FedNow, 3% only in RTP, and 4% in both. SRM calculates that as of June 30, roughly 8,100 of the 9,310 U.S. banks and credit unions are not using either service.
Nevertheless, the RTP Network works with financial institutions representing 66% of total U.S. demand deposit accounts, including nearly 90% of the U.S. DDAs’ payment volume. This dominance is not just a reflection of its longer service time but also because many of the largest banks in the U.S. hold an ownership stake in RTP, naturally favoring its use. Earlier this year, RTP announced that it had surpassed 500 million cumulative transactions.
Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research, has argued that a single use case could be enough to propel FedNow into everyday usage rivaling that of RTP. “The Treasury is connected to FedNow, so that could be a strong catalyst for adoption,” Tavilla told PaymentsJournal. “An earlier parallel would be under the Clinton administration, when all federal payments, except tax refunds, were mandated to be issued electronically by January 1999. That significantly expanded direct deposit using ACH.”
Competition from Same-Day ACH
The SRM report also highlights intriguing differences between the two instant payment protocols and Same Day ACH, which has been around for a year longer than RTP. Same Day ACH payments do not close in real time but are much faster than traditional ACH payments. Over seven years, Same Day ACH has processed over 3 billion transactions—six times the number RTP handled in its first six years.
In dollar terms, RTP and Same Day ACH grew at similar rates of just over 40% in 2023. Same Day ACH transaction volume run rates are currently three and a half times those of RTP, with 292 million transactions in Q2 2024, out of a total of 8.3 billion transactions on the ACH network.