(Kyle Campbell/American Banker)

The Clearing House Real-Time Payments Network and the Federal Reserve’s FedNow have won over hundreds of banks, but overall acceptance of instant settlement is still low, leading bankers at this week’s Clearing House to challenge this path for future growth.

Just over 1,050 financial institutions are in compliance with Federal Reserve rules. FedNow Service as of November 11, according to the central bank, and The Clearing House lists on its website 649 financial institutions enrolled in its real-time payments network. For comparison, there are more than 8,000 banks and credit unions in the United States.

This question comes at a time when global payments technology and infrastructure are evolving at a rapid pace and banks are becoming increasingly vocal about the importance of payment and money transfer services to their bottom lines. .

Truist Financial, for example, does not view payments as a separate business within the bank, but THE activities of the bank, Bill Jones, chairman and CEO of Truist Financial, said at The Clearing House’s annual convention this week in New York.

“Payments are the grease, oil and fuel that drive the economy, and I think we’ve all strengthened our knowledge that payments are what helps generate deposits,” Jones said. “These things are inextricably linked, and we know how important depository platform stability is to all of our institutions.”

And many of these users are only equipped to receive instant payments and aren’t set up to send them, leading to the proverbial chicken-or-egg dilemma.

Different financial institutions have different reasons for limit their instant payments to receive only. Navy Federal Credit Union, for its part, has only enabled receiving capabilities for instant payments, Dietrich Kuhlmann, president and CEO of the $180.8 billion-asset credit union, said during the conference.

“The reason we haven’t enabled sending yet is because we’re waiting until we have the right anti-fraud engine to be able to detect this fraud before it happens,” he said. declared.

Golden 1 Credit Union, based in Sacramento, Calif., is also set up only to receive instant payments, largely due to feature limitations of one of its providers, said Fiserv senior vice president Dustin Luton , in an interview.

“We cannot currently send through FedNow. We hope to be able to send most likely sometime in 2025,” Luton said.

Ubiquitous adoption of instant payment will require widespread buy-in across all industries to “really take off,” said Navy Fed’s Kuhlmann.

“Developing these networks is going to take time, because frankly, for this ecosystem to take off, everyone needs to be connected,” Kuhlmann said.

Will merchants push the adoption of “Send”?

Receiving capabilities are vital for financial institutions, said Tede Foreman, president of payment solutions at Jack Henry, but sending capabilities will likely also be expected by small businesses that need funds more quickly.

“We’re really pushing hard to get our financial institutions, both credit unions and banks, to enable receipt. We view that as table stakes,” Foreman said, adding, “We see in made higher deposits enter banks and credit unions’ core systems.

Traders could be a key driver in promoting the adoption of sending capability by their own financial institutions, said Jamie Walker, CEO of Elavan, a payment processing and merchant services subsidiary of US Bank.

“As US Bank rolled out real-time payments, we were one of the first and largest use cases when we started using this service to fund our merchants in real-time,” Walker said. “We now serve over 70,000 merchants and their financing has been a huge benefit to these customers.”

Square, which is a point of sale and Block’s card processing divisionis the largest sender of real-time transactions to credit unions using technology from Columbus, Ohio-based Corporate One Federal Credit Union to connect to payment networks, said Melissa Ashley, president and director general management of the corporate credit cooperative.

Elavon’s Walker expects instant payments to become essential for small businesses over the next four to five years. “Our merchants will now expect to obtain these funds more quickly. Today, this represents real added value for the American bank’s customers.”

Ultimately, who sends the funds will end up dictating which instant payment rail, whether it’s FedNow or The Clearing House’s RTP, is used, Jack Henry’s foreman said.

“We encourage (our customers) to go for both (networks). Interoperability is ultimately where we would like to see everything happen, so they can trade,” Foreman said. “We’re not really driving one set or the other. We’re integrating our faster payments center, intelligent routing and least cost routing, so we know if a merchant or biller has the capacity to accept FedNow or RTP.”

Foreman said Jack Henry’s 1,700 customers are split evenly between RTP and FedNow.

Corporate One also has credit union customers on both payment channels and encourages others to do the same. “They don’t control the user experience as to where the funds are coming from.”

What is the Fed’s role in selling real-time payments?

The Fed has an important coordinating role to play in the widespread adoption of instant payment settlement technologies through its FedNow payments system, according to Fed Governor Christopher Waller, chairman of the central bank’s Internal Payments Committee,

Waller said getting enough adoption for a system to benefit from a network effect is beyond the capabilities of a private sector entity, such as the RTP network, which is managed by The Clearing House and owned by a consortium big banks, Waller said.

“The role we play with FedNow is to help solve this coordination problem using our existing connections with these thousands of institutions,” Waller said in a speech at this week’s TCH conference. “And this approach is consistent with my overall view of the appropriate role of government in narrowly addressing issues such as coordination that cannot always be effectively addressed by the private sector alone.”

Industry, on the other hand, is better suited to the experimentation and risk-taking necessary to determine what types of products are viable, Waller said.

Waller’s remarks were absent any specific praise for instant payments or a sales pitch for FedNow. Instead, in a question-and-answer session with Rodgin Cohen, senior chairman of the law firm Sullivan & Cromwell, Waller expressed skepticism about the rush to clear the payments more quickly.

“What I’ve tried to emphasize in my discussions with my international counterparts is that you want solutions that are faster, cheaper and safer, in all three cases. It’s not just about the first two , and that’s where I want the discussion to go,” Waller said. “If you can’t always think about making things cheaper and faster and throwing away security.”

Waller said having multiple systems in place to perform the same tasks — namely FedNow and RTP for instant payments — is its own form of security measure, because the systems can serve as backups to each other. others in the event of a breakdown.

In discussing the government’s role in payments, he stressed that it was important that public networks were not used as a tool to reduce market costs by undercutting private systems. He also said the government should not give a blank check to systems that don’t actually fill a gap in the market, pointing to the Fed’s decision to shut down its cross-border FedGlobal ACH system last year.

“We started Global ACH about 20 years ago because of this ‘need’ for better global payments. We put a lot of money into it, built it, and no one used it. Well , we finally shut it down. I mean, we’re not going to run this thing for decades, and no one uses it,” he said. “At the end of the day, we can’t. not just build systems, and if no one uses them, just keep paying for them and keep them running. At some point you have to cut the cord and put an end to this.”

Some audience members felt that Waller’s off-the-cuff comments — whether he meant it or not — described the standard by which future gradual reductions would be adopted.

Aaron Klein, a senior fellow in economic studies at the Brookings Institution and an advocate for faster payments, said the remark appeared to set the stage for the shutdown of FedNow, which has seen little use since it went online last summer.

“Waller is sowing the seeds for the elimination of FedNow. He said that if we build a payments system and no one uses it, we should shut it down. Today, FedNow fails that test.” , Klein said. “It sets the stage for ending FedNow, which is currently a great failure of the Fed.”