One year after the launch of the U.S. government’s FedNow real-time payments system, it is time to reflect on the predictions made about its impact. It was anticipated that FedNow would lead to a domino effect of RTP adoption, with consumer use cases being the driving force. While progress has been made, mass network connectivity is still a distant goal, with nearly 900 financial institutions currently live on FedNow out of the thousands in the country. However, the early adoption rate is a promising sign that full connectivity may be closer than initially expected.
FedNow has seen most transactions fall under consumer use cases, such as account-to-account payments and funding of digital wallets. While the system has started to replace cash and checks, it has not led to a shift in credit card usage. However, the potential for increased international money movement is still waiting on mass domestic adoption of FedNow. Merchant and bank incentives will play a crucial role in driving this adoption, with cost savings and improved efficiency being key factors.
Brazil’s Pix system provides insights into successful RTP adoption, with higher merchant incentives and lower processing times driving adoption. In the U.S., merchant incentives are lacking, as cost alone is not enough to encourage adoption of FedNow. Banks also face revenue concerns, as the cheaper RTP option may cannibalize revenue from other payment methods. However, there are opportunities for fintech startups to assist financial institutions with challenges like fraud prevention and integration.
Security concerns, particularly around authorized push payment fraud, are a significant challenge for RTP systems. Crime rates associated with APP fraud have risen in countries where RTP systems are prevalent, prompting the development of tools and initiatives to combat fraud. Tap-to-pay technology could potentially level the playing field for offline point-of-sale payments, making real-time payments more convenient for consumers and merchants alike. However, issues like dispute management and instant refunds still need to be addressed.
Overall, there are opportunities for fintech startups to collaborate with financial institutions to address challenges and drive adoption of FedNow. By focusing on fraud prevention, instant reconciliation, ERP integration, and interoperability between payment systems, startups can help orchestrate a smooth implementation of real-time payments. As the landscape of payments continues to evolve, the role of fintech in facilitating this transition will be critical in shaping the future of financial transactions.
