FedNow vs Real-Time Payments (RTP): A Comparative Guide to Both Instant Payment Solutions

Some people get excited about Taylor Swift’s Eras tour or the NBA playoffs. At Orum, we get excited about new payment rails.

Hey, you can’t blame us! It doesn’t happen often: When FedNow, the Federal Reserve’s new instant payment platform, begins in July it will be the first new rail since Real-Time Payments (RTP) launched in 2017.

Want early access to FedNow? Book a meeting today.

Backed by the Fed and offering instant money movement, FedNow might at first glance seem similar to real-time payments (RTP) in that they both clear and settle U.S. domestic payments 24/7. But comparing RTP vs. FedNow directly shows that each method offers unique advantages for different use cases.

What is FedNow?

FedNow is an upcoming instant payment platform designed to safely and efficiently provide access to funds in real time, 24/7/365.

Announced in 2019 and built by the U.S. central bank, FedNow is set to launch in July 2023. Orum is proud to be one of the select launch partners, and we’re excited to help financial institutions of all sizes seamlessly integrate the FedNow service.

How FedNow works

FedNow is a significant expansion of the US payments infrastructure. It’s built on ISO 200022 standards, which focus on improving interoperability and transparency of money movement. 

This new rail will move money between sending and receiving banks    instantly, so the receiving party has access to the funds within seconds. FedNow guarantees this will happen within 20 seconds, and  often much faster.

FedNow will also settle and clear online payments 24/7/365 including nights, weekends, and all holidays. The banks on both sides of the transaction instantly exchange the necessary information to immediately move the money between customer accounts, and interbank settlement happens after the receiving bank has confirmed the recipient’s account information. Both the sender and receiver are notified whether the payment was successful.

What’s more, the backing of the Federal Reserve means FedNow can immediately ensure both banks are made whole: When money is sent it comes out of the sending institution’s master account at the Fed, and it’s deposited into the receiving bank’s Fed account.

FedNow transaction limits 

The Fed has said that the transaction limit will be $100,000 by default. Participating financial institutions may opt to increase the limit up to $500,000. 

What is RTP? 

Real-time payments (often called RTP or The RTP Network) is a system introduced by The Clearing House in 2017. True to its name, RTP processes U.S. domestic payments 24/7/365 with immediate settlement. That sounds pretty similar to FedNow, but RTP works differently in how it accesses interbank liquidity and confirms settlements.

How RTP works

Financial institutions have to opt in to become part of the RTP network, but most customers have access: The Clearing House estimates it’s accessible to institutions that hold about 90% of U.S. demand deposit accounts (DDAs).

When accessing RTP through solutions like Orum’s simple API, the process is seamless for customers: The person sending the payment initiates the transaction (as a credit push), and the RTP network processes the payments individually in real time. 

To do that, the RTP network requires participating funding institutions to hold a separate, pooled account for liquidity purposes at The Clearing House. Interbank settlement happens immediately, before the receiving bank confirms details of the recipient’s account. As with FedNow, both the sender and receiver of RTP transactions get payment status updates instantly to confirm success and the amount paid.

Key differences: FedNow vs. RTP

At Orum, we believe in both FedNow and RTP—so we will proudly offer access to both (in addition to several other payment rails like ACH, Same Day ACH, and Wires). But each offers unique advantages.

One rail may be better for your needs and use cases at a specific time, while another is the most efficient and cost effective for a different need or time. 

You don’t have to waste time figuring that out. Orum’s simple API integration connects you to a platform that is highly orchestrated to automatically ensure your customer’s payment gets from Point A to Point B as quickly and efficiently as possible. Our platform instantly considers details like the size of the transfer, the time of day, the day of the week, and the credentials on file so the payment takes the most efficient path available. The introduction of FedNow further optimizes this orchestration with a new rail option.

First, let’s briefly review the similarities of these two rails in particular. Both FedNow and RTP offer: 24/7/365 payments processing, instant and irrevocable settlement, access for customers with accounts at institutions that have opted in, confirmation of transactions for both senders and recipients, and transaction limits that are lower than that of ACH and wires. Here are some of the key differences between FedNow and RTP:

Transaction limits

RTP has the jump on FedNow here, as RTP offers transactions up to $1 million. At FedNow, the default limit will be $100,000 with financial institutions having the ability to request up to $500,000.

Access

Here, FedNow may have the advantage. One of FedNow’s biggest differentiators is its integration with the Federal Reserve’s larger network, which means it will be accessible to smaller local banks in communities across the U.S.

RTP is also widespread, as The Clearing House estimates it’s accessible to institutions that hold about 90% of U.S. demand deposit accounts (DDAs), though the network currently reaches only 62% of DDAs as not all institutions with the access have chosen to opt in. The thousands of institutions currently integrated with RTP can be found on The Clearing House’s website, and some customers may find that their local community banks aren’t on the list.

Comparing payment methods

Both FedNow and RTP are major expansions of the U.S. payments infrastructure, and both offer instant payouts on a 24/7/365 schedule. Through Orum’s easy-to-implement payout API, you can move money through not only FedNow and RTP but also several other major payment rails including ACH, Same Day ACH, and Wires.

We’ll have you set up in two weeks or less, without costly bank integrations or prolonged compliance. Ready to move? Let’s talk. Get in touch with Orum today.