Banks Will Extend Real-Time Payments To Send In 2025

The Rise of Real-Time Payments in the US

Real-Time Payments to Increase in 2025

According to John Byl, SVP and product development manager at Mercantile Bank of Michigan, 2025 is expected to be a year where banks that have tried real-time payments in receive-only mode will take the next big step – sending payments.

Rise of Real-Time Payments Networks

The first real-time payments system was launched by The Clearing House (TCH) about seven years ago. It recently announced that it had processed a total of more than one billion payments by Jan 31, 2024. TCH covers more than 70% of the demand deposits in the US, and its network has been processing a significant number of transactions.

FedNow and RTP

The Federal Reserve launched its own real-time payments network, FedNow, a year ago and has signed up over 1,000 financial institutions and is adding new participants at a good clip. The two services have very different maximum transaction limits. RTP increased the limit to $10 million, while FedNow has a default credit transfer limit of $100,000 and a maximum of $500,000.

Increased Demand for Real-Time Payments

Erika Baumann, director of the commercial banking & payments practice at Datos Insights, a financial tech consultancy, expects payment software providers to offer solutions that work for both RTP and FedNow. She also predicts that the volume, both number of transactions and value, will be concentrated at the largest banks – the top five banks by number of accounts hold more than 246 million accounts, according to the Federal Reserve.

Banks Taking a Wait-and-See Approach

Many banks have approached real-time payments cautiously, starting with receiving payments, which is low risk. "Everybody’s chosen to receive and now they’re taking a wait and see approach to the origination side of things and are watching to see what others are doing," said John Byl.

Challenges and Risks

Sending payments runs the risk of getting the recipient or the amount wrong, and since the payment is real-time, it is difficult, or impossible, to recover misdirected funds. The biggest challenge in sending real-time payments is the risk of fraud, which can be prevented by having the appropriate systems in place.

Conclusion

As real-time payments become more widespread, it is expected to revolutionize the way payments are made. With the rise of real-time payments, customers will be able to send and receive money instantly, making transactions faster and more convenient. However, there are challenges and risks associated with real-time payments, such as fraud and misdirected payments, which must be addressed by financial institutions.

FAQs

Q: What is the current state of real-time payments in the US?
A: Real-time payments are becoming increasingly popular, with The Clearing House (TCH) processing over one billion payments by January 2024.

Q: What are the differences between RTP and FedNow?
A: RTP increased the limit to $10 million, while FedNow has a default credit transfer limit of $100,000 and a maximum of $500,000.

Q: What are the challenges of real-time payments?
A: The biggest challenge is the risk of fraud, which can be prevented by having the appropriate systems in place. There is also the risk of getting the recipient or the amount wrong, and since the payment is real-time, it is difficult, or impossible, to recover misdirected funds.