Real-time payments (RTP) is a hot topic in the US financial sector. Since 2017, when The Clearing House (TCH) launched its RTP system (TCH-RTP), the US has been gradually adopting technology that allows instant transfers of money between bank accounts. However, the US is still lagging behind other countries that have implemented RTP more widely and quickly. Why is that?
One of the main reasons is the sheer size and diversity of the US banking system, which means it takes more time to hit a similar percentage of adoption than in other countries. Another reason is the uncertainty created by the Federal Reserve’s decision to launch its own RTP system, FedNow. The Fed announced FedNow in 2019 and finally launched it in July 2023.
Many banks and credit unions were reluctant to join the TCH-RTP network before knowing more about FedNow’s features and pricing. It is risky to invest in a system that might become obsolete or incompatible with FedNow. Additionally, the extent to which the Federal Reserve will take measures to hold back TCH-RTP’s growth was not yet clear (and maybe it still isn’t). With all of this in mind, many banks and credit unions took a “wait and see” attitude, which slowed the adoption of RTP in the US.
Now that FedNow is up and running, things seem to be changing. According to David Watson, CEO of TCH, the launch of FedNow has actually boosted the demand for TCH-RTP. He claims that TCH-RTP’s network has added 130 new members since July, reaching a total of 456 financial institutions. He expects this number to keep growing as more banks and credit unions realize the benefits of TCH-RTP for their customers and their operations.
FedNow’s website reports that its network has 360 members so far. However, there is some overlap between the two networks, as about 100 institutions have joined both systems. This represents 21 percent of TCH-RTP members and 28 percent of FedNow’s members. These institutions may be hedging their bets or testing both systems to see which is better suited to address their customers’ needs.
It would be interesting to know how these dual members are using each system, and whether they prefer one over the other for some transactions. Unfortunately, FedNow does not provide any statistics on its website about the volume and value of transactions processed by its system. TCH, in contrast, publishes this information on a quarterly basis. According to its latest report, TCH-RTP handled 64 million transactions worth $34 billion in Q3-2023, which represents an increase of 11 percent in transactions and 18 percent in value compared to Q2-2023.
These numbers suggest that TCH-RTP is gaining popularity among its users. We cannot say for sure how it compares to FedNow without seeing FedNow’s data. We can only hope that FedNow will soon start to share statistics and performance indicators as well.
The competition between FedNow and TCH-RTP is likely to continue and intensify in the coming months and years. This could be good news for consumers and businesses, as they may benefit from lower fees, better services, and more innovation in the RTP space. For example, TCH has recently added secure token exchange and document exchange capabilities to TCH-RTP.
Although the competition looks likely to benefit consumers at present, there are some concerns about whether FedNow will compete on equal terms with TCH-RTP, or whether it will use its regulatory power and influence to gain an unfair advantage over its competitor. For example, FedNow has extended its participation fee waiver for 2024. Since this waiver is ultimately paid by US taxpayers, it could be seen as an unfair way to undercut TCH’s pricing and attract more members. Moreover, the Treasury Department, which handles a large volume of payments for government agencies and programs, has joined FedNow but not TCH-RTP. This could create a bias in favor of FedNow and reduce the incentive for other institutions to join TCH-RTP.
Since the launch of FedNow, the adoption of TCH-RTP has also intensified. As non-compatible networks, TCH-RTP and FedNow must compete for bank adoptions. At the moment, TCH-RTP has a larger network and offers more services than FedNow. But FedNow might still win out — even if it shouldn’t.
Nicolás Cachanosky
Dr. Cachanosky is Associate Professor of Economics and Director of the Center for Free Enterprise at The University of Texas at El Paso Woody L. Hunt College of Business. He is also Fellow of the UCEMA Friedman-Hayek Center for the Study of a Free Society. He served as President of the Association of Private Enterprise Education (APEE, 2021-2022) and in the Board of Directors at the Mont Pelerin Society (MPS, 2018-2022).
He earned a Licentiate in Economics from the Pontificia Universidad Católica Argentina, a M.A. in Economics and Political Sciences from the Escuela Superior de Economía y Administración de Empresas (ESEADE), and his Ph.D. in Economics from Suffolk University, Boston, MA.
Dr. Cachanosky is author of Reflexiones Sobre la Economía Argentina (Instituto Acton Argentina, 2017), Monetary Equilibrium and Nominal Income Targeting (Routledge, 2019), and co-author of Austrian Capital Theory: A Modern Survey of the Essentials (Cambridge University Press, 2019), Capital and Finance: Theory and History (Routledge, 2020), and Dolarización: Una Solución para la Argentina (Editorial Claridad, 2022).
Dr. Cachanosky’s research has been published in outlets such as Journal of Economic Behavior & Organization, Public Choice, Journal of Institutional Economics, Quarterly Review of Economics and Finance, and Journal of the History of Economic Thought among other outlets.