FedNow Gains Traction as Instant Payments Surge

Instant payments are gaining momentum, primarily driven by small and mid-sized financial institutions embracing the FedNow Service, reports BankingDive. According to a Federal Reserve Financial Services announcement, both the number and total volume of instant payment transactions have climbed as more firms discover innovative ways to use the system. Popular transaction types now include off-cycle payroll, earned wage access, digital wallet top-ups, real estate escrow transfers, marketplace payouts, and auto loan disbursements.

"Early adoption of FedNow was about staying ahead," said Cassandra Tucker, director of operations at ABNB Federal Credit Union. "We aimed to offer our members faster and safer transaction options without delay." FedNow has expanded its user base but also its operational costs. As of late last year, about 1,000 of the 9,100 U.S. financial institutions had enrolled. Operating expenses for 2024 are projected to surpass the $246 million spent in 2023.

To enhance its appeal, FedNow is introducing upgrades: the transaction limit will double from $500,000 to $1 million this summer. Financial institutions will also gain the ability to customize payment limits and speeds for specific customer groups. Meanwhile, competition is heating up. The Clearing House’s private RTP network is seeing a spike in activity too — exceeding one billion payments just 18 months after crossing the 500-million mark. On January 31, RTP processed a record 1.59 million transactions worth $1.44 billion in a single day.