Community Blog

Preparing for FedNow: FedNow vs. RTP – What’s the Difference?

With the Federal Reserve recently announcing the finalization of a rule to govern transfers over its impending FedNow service, financial institutions have been reminded once again that the central bank’s entry into the real-time payments space is just around the corner.

FedNow is set to go live in 2023, and to prepare financial institutions for its launch, Volante has published a white paper fusing industry knowledge with research from Aite-Novarica Group, detailing everything from the system’s features, use cases, and business strategies. Over the next two weeks, this blog will look at a few key takeaways from the paper, as well as what the FedNow launch could indicate for financial institutions and the rapidly evolving payments landscape.

Due to the pre-existing widespread utilization of TCH’s RTP network, the first iteration of FedNow will exist primarily as an alternative to RTP, and there remains considerable redundancy between the two systems. This was, of course, part of the Federal Reserve’s plan all along: to bolster economic security through increased access to 24/7 real-time payments services, and to introduce healthy competition into the space. So where do the two systems differ? For one thing, the initial FedNow system will include a significantly lower transaction limit, capping transactions at $500,000 as opposed to RTP’s $1 million. Another notable difference lies in cross-border capabilities; RTP can currently process certain inbound foreign transactions, whereas FedNow will begin as a purely domestic payments network.

One feature that sets FedNow apart is its liquidity management tool, which will support instant payment liquidity transfers between FedNow participants and financial institutions with real-time capabilities. Moreover, while RTP has had a significant head start, the Federal Reserve’s broad reach and access to the market has the potential to initiate as many as 10,000 financial institutions into real-time payments upon its launch, leveling the playing field and promoting significant growth in the space.

In next week’s blog, we’ll be looking at what FedNow’s launch means for financial institutions. To learn more about how your institution can prepare for the launch of FedNow, click here to download the full white paper.

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