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Preparing for Instant Payments in the US: Choosing a Payments Network

Much has been made of the upcoming FedNowSM launch, and the need to build a strategy and business case around instant payments is now weighing heavily on many financial institutions. To make matters even more complicated, many aren’t sure how the new payments network relates—if at all—to The Clearing House’s existing RTP® service. Should you be moving forward with your plans to enable transactions on RTP, or simply wait for FedNow? When exactly should you be prepared to offer instant payments services to your account holders?

With so much information in the market, it can be incredibly difficult to answer these questions, or even to determine how the addition of instant payments should fit into your institution’s overall landscape of competing priorities. In this three-part blog series, we’ll attempt to clear up the understandable confusion surrounding the addition of instant payments, breaking down the process into a few manageable strategies that any financial institution can adopt in the short term.

For starters, let’s explore the coexistence of the RTP and FedNow instant payments networks, and what should be considered before choosing between the two.

Choosing between RTP® and FedNowSM

When considering the addition of instant payments and exploring available solutions, financial institutions should first understand that FedNow and RTP are not currently interoperable, and this will remain the case for quite some time. In other words, a payment initiated on the FedNow service cannot be completed if the recipient’s bank only supports RTP, and vice versa.

This departure from the longstanding and familiar ACH model, in which one network allows for transacting across others, is simply a reality that financial institutions will need to come to terms with. The fact is, interoperability is not a top priority for either RTP or FedNow, and likely won’t be for another 3 to 5 years.

Instead, RTP is live and focused primarily on growth, with 65% of US deposit accounts now enabled to receive instant payments. FedNow is due to launch mid-year 2023, and by all appearances will also be looking to prioritize the network’s growth, albeit with no expectations that it will happen overnight. Financial institutions will inevitably take their time in implementing FedNow’s solutions into their payments processor of choice, and it could ultimately be several years until most banks have solidified their connections to one (or both) services.

In the meantime, it’s important to be forward-looking, and to strategize according to what the overall addition of instant payments will mean for your account holders. This also includes asking the question: Is it necessary—or even wise—to limit your strategy to the implementation of one instant payments service over another?

While it’s possible that one network will seem more attractive in the context of your operations, the truth is that the initial transition should be less about your institution’s preferences and more about not falling behind the curve. Put simply, choosing to connect to only one service will almost certainly result in a gap in coverage, and one that a large portion of your account base will not understand. In the worst case, your institution’s inability to execute or receive instant payments on a user’s service of choice will become a source of repeated frustration, and likely cause customers to seek a financial institution with wider access and connectivity to either network.

In short, until both RTP and FedNow prioritize settlement between them, financial institutions should focus on ensuring that payments can at least be received using either service. This may be a temporary solution as your institution moves toward a more comprehensive integration of both networks, but it will mean that your customers will be far less likely to miss an instant payment as you continue to navigate the transition.

Stay tuned for the next part of this blog series, in which we’ll discuss why receive-only could be a good place to start if your financial institution is not ready to go all in on an instant payments strategy. 

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