Why aren't more banks sending real-time payments?

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The push to get financial institutions on board with real-time settlement has several layers — the choice to join FedNow, RTP or both being one decision. Many are also choosing to only receive instant payments, rather than also send funds.

The RTP network reaches 67% of bank accounts in the U.S., and just over 50% of these accounts are at a financial institution that supports sending real-time payments, according to The Clearing House. More than 400 institutions support FedNow. The Federal Reserve, which operates FedNow, did not provide comment, but experts say that a substantial number of these institutions likely support only receiving funds in real time.  

It's not that banks perceive sending funds to be riskier than receiving them. The main reason for this disconnect is the technology work required to support both send and receive — and it's a compromise that shuts financial institutions out of some products that use real-time payments. 

"The networks and banks that have already spent money on [supporting real time payments] will realize they need to do more to get a return on investment," said Gareth Lodge, a senior analyst at Celent. 

For example, FedNow participants that do not support send impair the ability of their customers to match payments to available funds to mitigate overdraft risk. And a financial institution must support sending a real-time payment to receive a request-for-payment for their customers.

Request for payment is considered a key real-time payment product, since it enables banks to offer consumers more control over their bill payment windows, or the ability to make an emergency payment to avoid a late fee. 

"And given that few others can support send, those that do will have a potential competitive advantage," Lodge said. 

Why would a bank not support sending a real-time payment?

Given this disadvantage, it would seem an obvious choice to support sending real-time payments, regardless of the difficulty. 

The strategic decision to offer send capabilities is made by each financial institution, said Gregory McSweeney, a spokesman for The Clearing House. "Offering send capabilities is a little more complex," McSweeney said, adding that many financial institutions join RTP as receive only so their customers can benefit from receiving instant payments. 

"Receiving is relatively passive," said Reed Luhtanen, executive director of the U.S. Faster Payments Council. "There is work to be done but it's about the back office and how to place the funds into the appropriate account." 

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Supporting send requires a financial institution to construct an interface to support sending funds in real time, as well as technology that can instruct payment networks on how a transaction is to be processed. "That's a bigger lift for financial institutions," Luhtanen said.  

If financial institutions decide to include instant settlement as an option for customers, they need to make sure their front-end technology and core banking platform are ready for instant payments. The deeper the dive into real-time payments, the more work that needs to be done. 

Both U.S. real-time networks have directories of dozens of technology companies whose products facilitate different components of real-time payments. As adoption for real-time payments increases, costs for this technology are expected to come down, but it may take a year or more given the thousands of financial institutions in the U.S. that still do not support faster payments for either sending or receiving.  

There are also differences among financial institutions in making connections to accounting programs, which complicates real-time processing given the lack of time to process an instant payment, said Booshan Rengachari, CEO of Finzly, a payment processing technology company. 

"There really isn't a common application programming interface to do this," Rengachari said. 

What banks and credit unions say about send

The financial institutions contacted for this story mostly positioned the choice to deploy send for real-time payments as a manner of customer need. 

"The key benefit for the credit union and our members on both sides — send and receive — is cost efficiency," said Ryan Barringer, a vice president at Star One Credit Union, an early adopter of FedNow for both send and receive. 

The credit union, which has $9.8 billion assets and about 126,000 members, offers a product called Instant Pay, which is built on the FedNow system. Star One does not support RTP. 

"Compared to other money-transfer tools like wires and checks, Instant Pay is cheaper, faster and more secure," Barringer said. 

Kansas City-based UMB Bank currently supports the send function on the RTP rail, and anticipates supporting the receive function on the RTP rail by mid-2024, said Uma Wilson, executive vice president and chief information and product officer for UMB Bank, in an email. UMB also anticipates being on the FedNow system at some point in the future. "We're well-positioned to meet that growing demand," Wilson said. 

In an email, Mike Thomas, head of instant payments for U.S. Bank, said the bank has supported send and receive on RTP since 2017, and piloted FedNow send capabilities in 2023. It plans a formal rollout of send for FedNow in the next month. 

It's easier to test operational readiness for receive as opposed to send, which makes supporting send a longer process, according to the bank, Thomas said. But the bank doesn't feel that is an option to support only receive. 

"Delivering send and receive capabilities for both rails is critical to enabling a simple instant payment service," Thomas said.