Instant payments: Accelerating treasury disruption

Instant payments through the RTP^® network has transformed money movement with immediate settlement and 24/7/365 availability. The arrival of the FedNow^SM Service increases the reach of instant payments and will further accelerate transformation.

Payments transformation gains major momentum with the Federal Reserve’s launch of FedNow^SM Service in July 2023. Developed to work in tandem with the RTP^® network, which has been providing real-time payments since 2017, FedNow expands the reach of instant payments to banks and credit unions that weren’t already members of the RTP network.

Once the rollout is completed, payers will be able to send instant payments to even more beneficiaries, accelerating the treasury transformation that has been building for years. After all, the RTP network already reaches 65% of U.S. bank accounts, according to The Clearing House, which operates the network. And its transaction and revenue volume have been growing rapidly.

“FedNow’s launch is exciting, as it represents the digitization of payments through multiple rails and solutions,” says Adam Carter, group product manager in Global Treasury Management at U.S. Bank. “It will allow our clients to continue their journey from paper-based products to digital solutions, so they can better control their funds, better understand settlement timing, and improve service to their customers.”

Instant payments overview

Like the RTP network, the FedNow Service is built to provide round-the-clock instant settlement of payments between senders and receivers and offer rich messaging capabilities, including a request-for-pay message that billers can use to solicit payments from customers.

Both instant payments networks provide faster, more reliable and safer payments that eliminate the inefficiencies associated with paper-based payments or traditional electronic payments like ACH and wires with limited processing windows.

Since instant payments aren’t restricted by processing times, there’s more control over payment timing with the ability to make and receive payments 24 hours a day, even on weekends and holidays. And instant payments can be executed “just-in time,” without any concerns around loss of float revenue. 

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What is RTP? The benefits of instant payments for businesses

As computers and other digital devices have become omnipresent, the payments ecosystem has irreversibly shifted toward offering increased speed, more choices and simpler ways of sending and receiving payments.

With high dollar transaction limits and data rich capabilities, RTP and FedNow were developed to help businesses move payments at the speed of modern business. Both offer:

• Immediate payments, available 24/7/365
• Irrevocable, good funds payments
• ISO 20022 global standard information to deliver data rich messages

RTP, which is operated by The Clearing House, supports instant payments up to $1 million. The Federal Reserve is launching FedNow with a $500,000 limit.

Two payment delivery options to magnify the benefits

Adding more financial institutions to the instant payment ecosystem creates multiple benefits. It increases the opportunities for more businesses to send instant payments and extends the reach to more potential receivers – great news for businesses that had limited their instant payments volume, or not started, because of concerns about the availability of some beneficiaries. 

“The Fed has been working closely with The Clearing House to ensure compatibility of functionality and rule sets between the two rails,” Carter explains. The Federal Reserve has a long history of providing payment services alongside private-sector providers, like it does with the dual ACH rails that are also operated by The Clearing House and the Fed.

That kind of redundancy means the two networks can back up one another if either one ever goes down, and creates benefits by allowing for both types of instant payments.

At U.S. Bank, clients won’t have to tell the bank they want to send a particular payment by FedNow or by RTP. All they will need to do is instruct the bank to make an instant payment. Carter says the bank will then use the two rails, in tandem, to offer a seamless instant funding solution with broader coverage than either could provide on its own.

“With our intelligent routing solutions, we will be able to offer our clients whichever rail is appropriate for reaching their destination account,” he says.

“The bottom line is that instant payments will ultimately become ubiquitous,” Carter says, “and the faster businesses start to use them, the faster they will see the benefits.”

RfP applies the power of instant payment to digital bills

Businesses can send a Request for Payment (RfP) through the RTP network to receive instant payment with immediate settlement. FedNow will also add RfP over time.

This functionality extends the value of instant payment by attaching it to a digital bill. It can be applied to recurring or one-time transactions, including subscriptions and one-time payments from vendors, partners or consumers.

RfP is especially well-suited for supply chain transactions, creating the ability to match the moment of delivery and confirmation with immediate billing and instant payment.  And that delivery/transaction can happen any time, any day, with straight-through processing and reconciliation.  

How it works in real-time

Instant payments move at the speed of the digital economy.

With Request for Payment (RfP), immediate billing and payment is available 24/7/365.

Businesses can utilize RfP in many ways, like enabling payment upon delivery. In that scenario, the driver can send the RfP from the dock, right after confirming the value of the load. And the recipient can pay the bill with one click that is verified immediately.

The RfP workflow processes payments through the following steps:

1. The biller initiates a request for payment through their banking application. 
2. The biller’s bank validates that the receiver’s bank accepts instant payments and routes the request for payment to the receiver’s online banking application. 
3. The receiver verifies they want to pay and sends the payment back through their app. 
4. The network validates the receiver’s payment. 
5. The network sends immediate payment to the biller’s app. 
6. Confirmation of the payment is provided back to the receiver’s app.

All of this happens within seconds, any time of day, any day of the year.

What is data-rich messaging?

RTP provides process automation and simplification by aligning with the global ISO 20022 standard, along with two-way data-rich messaging. These detailed messages enable straight-through processing and speedy reconciliation. FedNow is expected to add similar capabilities. They enable:

• Confirmation – Generates message to sender and recipient that transaction was successful
• Remittance advice – Details payment and additional customer data as a single conversation
• DDA tokenization – Issues tokens through Secure Token Exchange, an optional capability, to stand in for real account numbers when sending or receiving payments and reduce the potential for theft and fraud
• Document exchange – Provides access to PDF or XML documents such as bills, invoices and remittances as part of an RTP payment or request for payment message

These features not only streamline payment processing, but also help reduce fraud often associated with paper-based payments, batch ACH and traditional wires. 

What this means for treasury professionals

The exchange of information on the instant payment networks takes seconds to complete, rather than the usual one to two days for a standard ACH transaction or longer for other methods like checks. From a settlement standpoint, this saves both sides of the transaction time and expense compared to more traditional payment methods.

38% of businesses surveyed by U.S. Bank in 2022 were already using RTP with another 18% planning to adopt instant payments by the end of 2024. The addition of FedNow will only expand that footprint, especially as more businesses see that the value of instant payments extends beyond the speed of the transaction.

While Treasury organizations have traditionally focused on streamlining internal processes, creating a seamless, immediate experience for customers and suppliers can be a key driver of payments transformation. Instant payments, especially those embedded in a company’s web experience, can deliver just that.

For example, a large automotive dealership group transformed its online car market by using RTP to pay immediately when its representative picks up a car in the seller’s driveway. And a broker/dealer in financial services uses RTP to allow investors to move money in and out of their online brokerage accounts instantly and securely, 24-hours a day, 365 days a year.

Other opportunities to leverage the power of instant payments include:

• Delivering urgent payments to customers immediately (e.g., insurance claims) 
• Managing recurring monthly payments efficiently (e.g., utilities, gym memberships, cell phone bills) 
• Enabling control to pay bills with precision (e.g., on due dates)

Set your strategy for the future

Ultimately, instant payments will have ubiquitous reach through the RTP network and FedNow Service, so companies that are committed to adding instant payments should start the conversations with their financial institution now.

At U.S. Bank, we listen, understand and meet our customers where they are on their digital journey and work collaboratively to remove friction in the payments process. We were part of the first payment on the RTP network and participated in the FedNow pilot.

The work we’ve done over the years in real-time payments brings the expertise to help accelerate your digital payments strategy. Our knowledgeable team can provide guidance to help you navigate the payments landscape and expertise to help you achieve your long-term goals.

To learn how instant payments are changing the way companies do business, visit our instant-payments resource page, explore our survey of 1,000 American businesses, or schedule a call with a treasury management expert.