If you’re like most people watching the recent meteoric growth of the faster payment rails, you’ve no doubt found yourself wondering how to distinguish between the FedNow Service and RTP Network.
I mean … how different are they, really? Are we talking Pepsi and Coke or apples and oranges? Do I have to choose? Or can I have a fun, fruity salad?
Understanding the differences between FedNow® and RTP® helps ensure you provide the best solutions for your accountholders and weave instant payments as seamlessly as possible into your financial institution’s payments strategy.
First, the Similarities
Both the FedNow Service and the RTP network are instant payment systems. While both networks are based on the ISO 20022 payment message standard, each has its own set of features and participation requirements.
I like to say that RTP speaks ISO 20022 with a New York accent, where its owner, The Clearing House, is headquartered. FedNow sounds more like it’s from Boston, the home of the Boston Fed, which operates that network.
(Clearly I’m a payment geek, because I thought that was funny!)
Volume (at the Moment)
Launched in July 2023, FedNow has begun to gain traction: In the fourth quarter of 2023, total value of payments was $13 million. A year later, FedNow’s fourth quarter total value of payments surged to just over $20 billion.
On the other hand, RTP, which has been operational since 2017, saw 2024 payment value on the network jump 94% from the previous year to $246 billion, while volume jumped to 343 million transactions. Both networks are on a trajectory that goes steadily up and to the right. One just had a head start.
With FedNow coming in at 1,200+ institutions in their latest announcement and RTP at 675+, there is significant overlap between the networks, but it’s not 100%. And not all the biggest institutions have announced plans to add FedNow Send to their strategy.
We have and continue to recommend financial institutions Receive on both networks and base their Send choice on a combination of network characteristics and their own payments strategy.
In Case Size Matters …
An easy-to-spot difference between FedNow and RTP today is their transaction limits. On February 9, RTP changed its limit from $1 million to $10 million dollars, opening capabilities for corporate and brokerage account-to-account transfers. Then, starting summer 2025, FedNow will increase its transaction limit from $500,000 to $1 million and introduce new risk mitigation features, including account activity threshold functionality.
There is also a difference in average transaction size, which really speaks to the use cases currently in market. RTP’s 2024 average payment value was $719, up from $514 in 2023. The FedNow Service has started publishing quarterly statistics, which show that while volume is still lower than the RTP network, the average payment amount is much higher at $22,000.
Account-to-account use cases with corporate and brokerage transactions appear to explain the difference at a network level, which may or may not be predictive of individual financial institution experiences.
Let’s Get This Settled
A less obvious, but even more key difference between FedNow and RTP is their operational models – that is, how they settle.
FedNow is a public-sector initiative by the Federal Reserve that aims to provide a nationwide instant payment infrastructure built on settlement through either the participant or their correspondent institution’s Fed Master Account.
RTP, on the other hand, is a private-sector initiative by The Clearing House that settles in real time via a joint prefunded settlement account where funding agents can provide liquidity management. The funding model is not as important on the Receive side, where dollars are flowing into the institution. Where it matters is with Send. If the institution is a net sender, then intraday overdraft, prefunding, and changes to daily cash management processes all come into play.
Community financial institutions may find the process of liquidity management via their Fed Master Account or that of a Bankers’ Bank or corporate credit union to be the key factor in their instant payments Send preference.
Hooking Up
Another big difference between the two networks rests in how participants can connect to FedNow and RTP.
With FedNow, a financial institution can allow multiple sending processors to initiate transactions to the service, all settling to the same Master Account. The Fed has even put limits and fraud controls in place that allow the participating institution to control all the processors.
With this ability to support multiple sending processors, FedNow also offers fraud mitigation options at the network level. Some of the options include setting limits at the institution level, and maintaining a negative list applicable across processors.
The RTP infrastructure limits participants to a single processor, which can create complications with a technology stack built on best-of-breed software. This means institutions need to rely on their processors to provide negative list support rather than the network, something available through JHA PayCenter™.
It Depends on Your Needs
Our best recommendation right now is to Receive on both networks as you build out your complete payments strategy. Because unless you know exactly where you’re going, understanding how to get there will be very challenging. As you set your strategy, prioritize your accountholders first, let risk and compliance set the pace, and think beyond the digital platform.
While both FedNow and RTP offer instant payment capabilities, they differ in their operational models and specific features. You’re going to have to do your homework before you know which Send options will meet your financial institution’s needs for increased deposits, lower cost of funds, and increased non-interest income.
Wish I had a magic wand, but there it is. You’ve got homework to go with your fruit salad.
If you’re unsure where to start your payments strategy, Jack Henry™ can help you develop one. Our Payments Strategy Planning Service offers a product- and vendor-agnostic engagement framework that caters to the entire strategy development cycle – from understanding the payments landscape to facilitating analysis and team discussion.
Please reach out to your Jack Henry account executive or request more information here.
.svg)
