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FedNow - Full Speed Ahead?

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25 July 2023
Gareth Lodge

Celent have been talking about instant payments in the US for many, many years. Indeed, I was the very first person to speak at Nacha Payments on the topic, well over a decade ago. Our position is very clear – given the pace that instant payments are being adopted in every other country, there is clear demand, and it’s only a matter of time in the US for it takes off.

Uptake of Zelle proves this, but also highlights that wider, more rapid adoption is still an issue. While RTP from TCH has made progress – it recently passed 500m transactions processed – it is still far from ubiquitous.

Some banks have stated that they didn’t want to use services from TCH (despite the ownership being similar to EWS, Zelle, etc!) and would rather wait for what has become the FedNow service. July 20th saw the (very quiet) launch of FedNow, with a small selection of small banks.

Some in the industry have said it is too late (FedNowFinally being the phrase several clients have muttered). It could be argued though that it was fast – look at the progress of RTR in Canada or NPA in the UK, and the timelines look rather different.

What continues to surprise us more though is just how many people in the industry still don’t believe there is any need, nor understand what instant payments enable. Given that these points have been discussed at conferences for years, we’ve written about it extensively and regularly, vendors in the space are evangelising based on their global experience, it raises the question of what will actually take to change the mindset or uptake?

Proof points don’t seem to work. The fact the same people who say there is no need yet their bank offers Zelle generally are swept side. The success of UPI and Pix are written off as "blips", despite Pix volumes already exceeding card volumes.

It seems to be more fundamental, deep-seated belief.

The belief that the US is unique is the heart of much of it. National pride is laudable, but at the same time, drinking your own Kool-Aid has rarely proven wise. US payment systems, while stable and well used, are no longer at the leading edge of, well, anything. Comparative systems in other countries are years, if not decades, ahead as these countries have recognised they need to have modern, efficient payment rails to maintain their economies competitiveness. Oddly, US banks recognise that they need to modernise their own internal payment systems, so why do they not see the need to modernise the entire value chain?

Perhaps Henry Ford has the answer: “If I had asked people what they wanted, they would have said faster horses.”

Ford was offering far more than more horsepower, giving greater possibilities to those who saw how the world was changing. And change the world did. In the same way, instant payments are from "just" faster settlement. Please, please, please speak to us if you don't get this!

So, the call to arms is very clear - it's time for the US to look for more than just faster horses.