With the upcoming July launch of the Federal Reserve’s instant payment platform, FedNow, many are wondering how it differs from the existing Real-Time Payments (RTP) network. While both systems enable 24/7/365 clearing and settlement of domestic payments in the United States, a closer examination reveals unique advantages and characteristics for each method. In this article, we explore the features of FedNow and RTP and highlight the key differences between the two platforms.

FedNow: Instant and Efficient Payment Platform

FedNow is an upcoming instant payment platform developed by the Federal Reserve. Designed to provide safe and efficient access to funds in real-time, FedNow ensures that money is transferred between sending and receiving banks instantaneously. The receiving party gains access to the funds within seconds, and FedNow guarantees that this transfer will occur within 20 seconds, often even faster.

What sets FedNow apart is its commitment to settle and clear online payments 24/7/365, including nights, weekends, and holidays. Both the sender and receiver of the transaction are promptly notified of the payment’s success. Furthermore, the backing of the Federal Reserve ensures that both banks involved in the transaction are made whole immediately. When money is sent, it is deducted from the sending institution’s master account at the Fed and deposited into the receiving bank’s Fed account.

RTP: The Clearing House’s Real-Time Payments Network

Real-Time Payments (RTP) is a system introduced by The Clearing House in 2017. As the name suggests, RTP processes US domestic payments around the clock, every day of the year, with immediate settlement. While RTP shares similarities with FedNow, its operational approach and settlement process differ.

To participate in the RTP network, financial institutions must opt in, but the vast majority of customers have access. The Clearing House estimates that RTP is accessible to institutions holding approximately 90% of US demand deposit accounts (DDAs). For customers, the payment process is seamless. The sender initiates the transaction as a credit push, and the RTP network individually processes the payments in real time.

Unlike FedNow, RTP requires participating funding institutions to hold a separate pooled account for liquidity purposes at The Clearing House. Interbank settlement occurs immediately, even before the receiving bank confirms the recipient’s account details. Like FedNow, both the sender and receiver of RTP transactions receive instant payment status updates to confirm success and the amount paid.

Key Differences between FedNow and RTP

  • Transaction Limits: RTP currently holds the advantage in transaction limits, allowing transactions of up to $1 million. In contrast, FedNow’s default limit is set at $100,000, although financial institutions have the ability to increase it to the network limit of $500,000.
  • Access: FedNow gains an advantage in terms of accessibility. Its integration with the Federal Reserve’s larger network enables smaller local banks in communities across the US to access the platform. While RTP is also widespread and accessible to institutions holding about 90% of US demand deposit accounts (DDAs), not all institutions with access have chosen to opt in. As a result, some local community banks may not be integrated with RTP.

The future of real-time payments

The introduction of both FedNow and RTP into the US financial system lays the foundation for a more efficient and faster payment future. Although they share similarities such as 24/7/365 payment processing, instant settlement, and confirmation of transactions, key differences exist between the two platforms.

FedNow stands out with its backing by the Federal Reserve, immediate reimbursement to both banks involved, and its accessibility to smaller local banks. On the other hand, RTP offers higher transaction limits and wider availability to financial institutions, albeit with some community banks potentially not yet integrated.

As the competition between these instant payment platforms intensifies, businesses have the opportunity to leverage the benefits of faster payments and enhance their financial operations. The coexistence of FedNow and RTP contributes to a more comprehensive and efficient financial ecosystem in the United States.

How Neopay Global Can Help

Neopay Global is a leading provider of payment solutions and consulting services for businesses of all sizes. With a deep understanding of the payments industry and cutting-edge technologies, Neopay Global is well-positioned to help businesses navigate the FedNow landscape and unlock the full potential of this new service. Contact us to find out how we can support your business.