In a significant development for the US financial landscape, two instant payment systems have been launched. The Federal Reserve introduced its system, FedNow, which went live recently, operating alongside RTP or Real-Time Payments, a real-time payment platform operated by The Clearing House for the past five years.
The presence of two distinct systems has raised questions about whether having two parallel systems is beneficial, especially considering that they are not currently interoperable, leading to potential challenges in the future.
FedNow, as highlighted by the Federal Reserve, boasts the capability to facilitate instant and round-the-clock processing of paychecks and invoice payments.
In terms of early adopters, 35 banks have signed up for FedNow, including major players like JPMorgan Chase and Wells Fargo. However, notable exclusions from this initial group include Citigroup and Bank of America. The US Treasury has also joined as an early adopter of FedNow.
Meanwhile, RTP has already garnered the participation of 353 banks and credit unions, positioning itself as a formidable competitor in the instant payment space.
To utilize either FedNow or RTP, both the sending and receiving banks must be registered participants in the respective system.
While the availability of two instant payment systems marks a significant step forward for the US financial landscape, it remains to be seen whether two systems are truly advantageous. The lack of interoperability between the two platforms raises concerns about potential inefficiencies and complexities in the payment ecosystem.
Despite the launch of these systems, widespread daily usage of instant payments is not expected to happen immediately. In countries like the UK, India, and Brazil, instant payments have already become an integral part of daily transactions. However, the US government has not imposed any mandates on banks to join either system, leaving the decision in the hands of individual financial institutions. This has resulted in limited incentive for banks to adopt either system, leading to a slower adoption rate.
As the dual systems continue to operate in parallel, the focus may shift towards exploring options for greater interoperability and potential collaborations to create a more seamless instant payment infrastructure in the future. However, it is evident that it will still take time before most people in the US embrace instant payments as a part of their daily routines. The absence of strong business cases for banks to adopt these systems further adds to the cautious approach towards their widespread adoption.
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