Real-Time Payments: Is the U.S. Finally Catching Up?

Why Real-Time Payments Hold So Much Promise

Today, over 70 countries offer real-time payment rails, and that number is growing at over 60% year-over-year. The fast adoption is because RTP solves problems for both businesses and consumers; they’re fast, cheap and easy.

Real-Time Payments are Faster: The primary differentiator between RTP and traditional card networks is that with RTP settlements happen in real-time. A payment can be sent, cleared and settled within seconds rather than the typical two days or more. For small businesses, that can mean improved cash flow, financial health and a better ability to forecast and handle emergencies. For consumers, it means everything — rent, purchases, money transfers, even payroll — can be sent or received quickly.

Real-Time Payments are Cheaper: Worldwide, low transaction costs are a defining feature of RTP. It currently costs senders 4.5 cents to make a real-time payment in the U.S. On the other hand, recipients only have to pay a penny to send a request for payment (RFP). In the U.K., most RTP transactions can be made over the Faster Payments Service (FPS) for free; in cases where fees do apply, they’re extremely low. Compared to the average credit card interchange rates that range from 1% to 3% of a transaction’s value (plus ten cents), the cost-benefit of RTP is clear.

Real-Time Payments are Easier: Consumers appreciate how easy real-time payments make it to transfer money to friends and family. Younger consumers, especially, rely on RTP more than any other demographic and use P2P apps to split bills at least once per week. As software providers integrate RTP into more apps, it’ll only get easier to use.

The U.S. Is Far Behind the U.K. and EU in Real-Time Payment Adoption

The United States is one of the largest markets in the world, but it is years behind peer markets in places like the United Kingdom, the European Union and even Canada when it comes to RTP. For example, FedNow — the U.S. Federal Reserve’s attempt at a unified nationwide RTP network — just came online in July of 2023. In the U.K., the Faster Payment Service launched in 2008 — 15 years earlier. 

In the EU, where cross-border instant payments between members were a huge challenge for a long time, the Single Euro Payments Area (SEPA) platform has been fully available since 2014. Even still, those markets can’t touch the growth of instant payments in developing countries like India and Brazil.

The relative youth of the U.S. RTP market is reflected in how little it’s currently used. The U.S. is the world leader in paper check usage, and bill payments are the primary use case. ACH and paper checks are the most common forms of B2B payment. The fact that more payers reach for checks than an RTP rail says a lot. By comparison, in the U.K., bills and invoices are regularly paid with RTP. Among businesses, FPS is now the most used payment method of all.

While the gap represents a lag in the American market, it also represents an opportunity. According to Deloitte, RTP could pull almost $19 trillion in B2B payments away from ACH and paper checks by 2028. The consumer side should also experience growth as FedNow cements RTP more firmly in American commerce and big businesses look for cheaper ways to accept payments.

FedNow and the Big Card Networks Are Working To Bring RTP to More Users

In November 2017 the U.S. first introduced its real-time payments when The Clearing House — a membership association owned by large American banks — launched RTP Network. The RTP Network allowed any financial institution to connect to its rail, regardless of membership. However, since it was a centralized system technically owned by the country’s largest banks there was a barrier to adoption among smaller competitors. Without a widespread network of participants, RTP didn’t succeed. Today, FedNow aims to solve that issue.

RTP networks are not cross-compatible, so scale matters. If a payer uses an app or bank connected to a specific RTP rail that the payee doesn’t, a real-time payment between the two isn’t possible. By creating a decentralized system owned by the Federal Reserve rather than the competition, FedNow aims to solve the scale problem by onboarding a much wider cross-section of U.S. banking. That ensures the maximum number of consumers and businesses have access to real-time payments.

When it launched, FedNow had just 35 partner institutions signed up. As of May 2024, there are now over 700. Although it has grown significantly, it’s still only the beginning, considering there are over 4,000 commercial banks in the U.S. There are also non-financial institutions to consider. Right now, fintechs can’t connect directly to FedNow or the RTP Network, but they’re still being targeted as potential participants.

Wider access to fintechs will be a key aspect of maximizing RTP adoption. That will mirror the U.K. and the EU, where non-bank payment service providers (PSPs) have access to Faster Payments and SEPA. Wide-scale access is so important, the EU just adopted new legislation that requires all PSPs to offer instant payments that take 10 seconds or less in Euro and European Economic Area (EEA) countries.

The Card Networks Want To Stay Relevant

Despite its success in the U.K., real-time payments haven’t cut significantly into the credit card market, which is as healthy as ever. However, the major card networks want to cement their place in an RTP-enabled world to ensure continued relevance in all aspects of digital payments.

Because real-time payments are bank-owned, card networks mostly provide infrastructure and value-added services. When The Clearing House wanted to launch the RTP Network, it turned to Mastercard as the primary design partner for the new rail. That tech-enablement partnership was recently extended. 

Visa focuses more on value-added overlays that RTP rails can use to solve common problems like cross-border payments, data security and fraud — one of the biggest problems real-time payments face. Visa’s near-real-time service, Visa Direct, also enables faster payment options like push-to-card, where a payer can send a payment nearly instantly to an account using only a debit card number on file.

The Future of Real-Time Payments

Real-time payments are far from perfect. Today, they still suffer from some notable drawbacks. Their irreversible nature means that there is little to no recourse for a payment gone wrong. Once the money is sent, it’s sent. Unlike with credit cards, there is no chargeback process to protect the payer. Since real-time payments are always payer-initiated, banks — especially in the U.S. — treat them as authorized transactions, leading to increasing tension over who is responsible for losses due to fraud.

Despite some challenges, RTP is the future, and the rest of the world is already blazing the trail. The U.S. market has always been slow to adopt new payment technologies. Even chip cards and contactless tap payments once lagged behind the global market.

With the Federal Reserve, the country’s biggest banks and the major card networks all working to make real-time payments available for more Americans, mass adoption is imminent. While it may take years for the U.S. market to reach the maturity of the U.K. or Europe, the real-time future awaiting consumers and merchants will be here before we know it.