Recent years have seen the steady adoption of real-time payments around the world. The UK’s Faster Payments Service was launched as long ago as 2008, with markets such as Hong Kong, Singapore and Thailand following suit between 2014-2018.

In Europe, meanwhile, the SEPA Instant Credit Transfer was launched in 2017 – and more recently, the Instant Payment Regulation entered into force in April 2024, requiring EU banks and payment companies to be able to receive instant payments by 9th January 2025, and send instant payments by October 2025.

In the US, however, the route to real-time payments has been somewhat different. “The US, unlike other countries or regions, has no government mandate surrounding real-time payments,” explains Miyoshi Lee, Director in Global Payments, Global Payments Solutions at Bank of America. “Instead, the evolution of real-time payments has come from traditional supply and demand inputs.”

Supply and demand

According to Lee, one significant element has been the impact of consumer expectations on corporate behaviour. “The experience of immediacy in consumer payments is propelling similar expectations from our corporate customers when making disbursements, and even more importantly from our customers’ customers,” she says.

“By meeting these expectations, corporate customers are able to utilise the key value propositions of real-time payments (eg availability, immediacy, transparency and precision) to create added-value with improved and stickier product offerings. This ability to create value for customers is what is driving the evolution for real-time payments.”

Miriam Sheril, Head of Product USA at Form3, notes that offerings such as Zelle, PayPal and other ‘instant-like’ solutions have been around for years. “The US market is different than other countries in that there are already many private solutions like Wallets and Zelle that are in high use and function as instant payments in many respects,” she explains.

“Zelle, in particular, which is owned by EWS (a consortium of US banks), is a P2P network that allows money movement account to account – so it really does act like an instant payment where you are moving money in and out of bank accounts, rather than a prefunded wallet.” But as Sheril points out, “the infrastructure to ensure the end-to-end money is truly settling in real time has not existed and that is the gap that the new schemes – RTP and FedNow – are filling.”

Launched in 2017, the Real-Time Payments (RTP) network is owned by The Clearing House, a banking association and payments company. RTP is open to insured banks and credit unions in the US and supports the immediate clearing and settlement of payments.

In 2023, this was followed by the launch of the FedNow service by the Federal Reserve, which allows eligible depository institutions of different sizes to provide instant payment services.

While both schemes enable payments to be sent and received in a matter of seconds, the two schemes have different transaction limits, settlement models and message structures.

“Having two instant payment networks in the US creates a competitive dynamic that differs from other markets around the world,” comments Bob Stark, Head of Enablement at Kyriba. “FedNow and The Clearing House are both enjoying rapid success, driven mainly by their significant advantages over manual payments.”

Growing transaction volumes

Sheril points out that adoption of real-time payments should be considered from two different angles: “There is bank adoption (which must come first) and end user or corporate/retail adoption.”

She explains that where bank adoption is concerned, there has been something of a leap since the arrival of FedNow. “RTP started eight years ago and paved the way for the industry, letting the industry set up all the necessary tools around the rails to help with adoption. When FedNow launched, many smaller institutions were willing to join, seeing the Fed as their usual path to accessing payment rails.”

Where volume is concerned, she notes that RTP is seeing significant growth, with over a million transactions per day and year-on-year growth of 40%, “which leads to incredible projections for the future.” In addition, RTP recently increased its limit to US$10m per transaction, “which significantly opens up use cases.”

Following the introduction of the higher transaction limit, TCH recently announced that BNY had completed the largest instant payment in US history with a US$10m inter-company liquidity management payment. FedNow, in comparison, has only been live since 2023 and transaction volumes are correspondingly smaller. However, adoption is increasing rapidly. In Q4, FedNow settled over 915,000 transactions, an increase of 172% compared to the previous quarter – and over 1,200 financial institutions are now live on FedNow, compared to 750+ on RTP.

Competitive advantage

According to Stark, the value of real-time payments lies in the ability to increase control over payments. “With instant settlement, treasury teams can time exactly when a payment is delivered, meaning they can hold on to cash literally until the very last second before payment,” he says. “Treasurers regain control of the cash conversion cycle, while potentially negotiating improved terms in return for delivering payments instantly.”

Bank of America’s Lee says that up-take of RTP was initially evident in a few areas, including the gig economy as well as industries such as insurance and large retail, which may need to make time-sensitive payments to consumers. “But corporates are realising there are other benefits to RTP besides speed, and this is opening up new and interesting use cases. RTP can be a competitive advantage, allowing companies to grow and expand by creating differentiated products.”

Adopting real-time payments: what to consider

When it comes to adoption, says Lee, “one consideration for companies is to realise what it means to not just originate real-time payments, but to receive them as well.” She notes that as a 24/7/365 product, real-time payments are redefining traditional business hours. “To truly unlock the benefits of RTP, corporate accounting systems will need to receive and acknowledge receipts that may occur on nights and weekends,” Lee adds. “This becomes especially important where payment due dates or deadlines are involved.”

Where origination is concerned, Lee says treasury departments may choose to alter their work hours, and/or adopt mobile solutions such as Bank of America’s CashPro app that allow for greater flexibility than traditional 9-to-5 treasury operations, “to meet the changing needs and business models of their customers or vendors.”

If there is an ERP system in the mix, she adds, “treasurers will need to ask questions of their providers to ensure they are able to accommodate these payment rails in a way that allows them to take advantage of real-time payments. But most of all, treasurers need to rethink the needs of their own operations and those of their customers to determine how real-time payments can help shift their business model to fit the changing times.”

Other considerations include:

• Payments data strategy. According to Stark, treasurers need to ensure that their payments data strategy supports real-time payment processes. “Increases in the frequency and complexity of payments fraud schemes necessitate that internal payment validations operate at machine speed – using AI and APIs to ensure only the right real-time payments are transferred,” he says.

• Impact on liquidity. Form3’s Sheril says that from a business perspective, the main change that treasurers need to consider is the nature of real-time payments. “These are irrevocable real-time, credit push instant payments,” she says. “Which means that as treasurers consider liquidity, there is no need to reserve liquidity pending the ultimate outcome, as payments are final within 15-30 seconds.”

  She explains that this change allows treasurers to reconsider how much liquidity they need, and how to manage their liquidity. “While ultimately this is a benefit, a treasurer implementing these solutions may need to think about which processes to change and when, so as to take advantage of these changes without creating too much negative effect downstream.”

• Fraud risk. A further consideration is fraud, and Sheril says that while real-time payment volumes in the US aren’t yet high enough for this to be a major concern, it’s important to bear in mind the saying ‘faster payments, faster fraud’. “Since these payments are irrevocable and they happen so fast, you need to make sure you have the right tooling and operations in place to stay ahead of it,” she says. “In other areas like Zelle, we are seeing this become a big issue, and it is something to stay alert to.”

Chicken and egg

So what might be holding firms back from taking advantage of the benefits of real-time payments? Where bank adoption is concerned, says Sheril, “One of the main barriers right now to adoption, funnily enough is adoption. These schemes work on network effect, so it’s a chicken and an egg scenario. While the networks grow, use cases will grow with them – but not all FIs are on these schemes yet, so an issue with adoption is that not all accounts are reachable.”

She adds, “Once we are in a position where almost all accounts are reachable, then adoption becomes much simpler as you can move all your use cases over and not have to account for an either/or situation.”

Other potential barriers for banks and corporates include the following:

• Technical implementation. For banks, Sheril says that technically implementing RTP schemes can be a challenge, which is further complicated by the existence of two different systems. “The cost to implement the connectivity, the messaging, etc, isn’t small, and with the differences between the two schemes, that cost is doubled,” she says, adding that this effort can be considerably simplified with solutions such as that provided by Form3.

  Likewise, banks may need to consider signing up to receive payments from both schemes to get the full network effect. “But if you use a provider like Form3 that offers smart routing, the pain of having to know which bank is on which scheme, and how to route your payments, can be removed.”

• Transaction limits. Until recently, says Bank of America’s Lee, the US$1m transaction limit presented a barrier, as it created more work for treasury teams to bifurcate their payments portfolio into <US$1m and >US$1m. “Now, with the per-transaction limit being raised to US$10m, that barrier is no longer a point of contention for most use cases.”

• Existence of same-day ACH. Stark says that the existence of same-day ACH represents the biggest challenge, “as both same-day payments and instant payments help corporate treasurers accelerate payment compared to additional ACH or even cheques.” As such, he says The Clearing House and FedNow must continue to innovate in order to demonstrate better value for treasurers, and “convince them to migrate to instant payments from same-day alternatives.”