The RTP Gold Rush: Predictions for the Launch of FedNow

The long-awaited real-time payments (RTP) system in the United States, FedNow, is set to launch soon, as reported by Forbes. As the availability of instant money transfers has the potential to impact various sectors, from financial institutions to small businesses, it’s important to examine the implications of this launch. Rocio Wu, a fintech and innovation expert, explores the potential outcomes and predicts the future of RTP adoption in the US. Here are ten key predictions that emerge from the launch of FedNow:

• Consumer use cases will drive the adoption of RTP, creating a domino effect similar to other countries’ experiences. While many believe that the focus will be on business-to-business (B2B) payments, consumer-driven transactions, such as digital wallet funding, early wage access, insurance payouts, and instant refunds, will initially dominate.
• Achieving mass network connectivity will be a slow process, likely taking close to a decade. The fragmented nature of the US banking landscape, with thousands of banks and credit unions, poses a challenge. However, major players, including J.P. Morgan, Wells Fargo, and Adyen, have already expressed their readiness to participate.
• FedNow will replace cash and checks but not credit cards. While checks account for a small percentage of payment volume, ACH payments have reduced their usage. Cash usage has declined as credit card usage continues to increase steadily.
• Account-to-account (A2A) payments for person-to-business (P2B) use cases will grow slowly but consistently. Merchants are attracted to A2A payments due to their cost-effectiveness and instant availability. Poland and the Netherlands serve as successful examples of A2A payment adoption.
• FedNow will serve as an incremental improvement rather than a paradigm shift in the US payment infrastructure. While it may not create new digital wallet super apps like in other countries, it will enhance existing products and services, driving efficiency and competition.
• Interoperability will be crucial for the success of QR codes. While QR codes are popular in Asia and parts of Latin America, widespread adoption requires seamless scanning across various payment apps and banks. Visa’s recent launch of Visa+ aims to power interoperable payments across P2P apps.
• Digital wallets will become a battleground in e-commerce and at the point of sale. China leads in digital wallet adoption, followed by India. In the US, major digital wallet brands like PayPal, Google Pay, and Apple Pay, along with newcomers like Shopify’s Shop Pay and Cash App Pay, compete for market share. A2A payments will likely surpass debit and credit cards as the main funding source for digital wallets.
• Authorized push payment (APP) fraud will increase, necessitating both public and private sector responses. Fintech startups are establishing data consortiums to prevent fraudulent activities. It remains to be seen how FedNow will address APP fraud.
• Consumers and small businesses are willing to pay more for faster and cheaper payments. Real-time payments infrastructure benefits these two groups the most. FedNow plans to enhance overall payment experiences and increase competitiveness.
• FedNow will facilitate cross-border money movement. Integration between real-time payment systems in different countries has already spurred increased cross-border transactions. The US is exploring cross-border payment pilots, and with FedNow, more players are expected to leverage regional RTP schemes.

While these predictions provide insights into the potential outcomes of the FedNow launch, only time will reveal the true impact of real-time payments in the US. The adoption and evolution of RTP will shape the future of payments, benefitting consumers, businesses, and the overall economy.