The Clearing House prepares to share the stage with FedNow

The Federal Reserve’s real-time payment option, FedNow, is scheduled to launch between May and July, trailing The Clearing House’s RTP rail by over five years, during which time RTP has been the primary source of real-time settlement in the U.S. 

Ahead of FedNow’s launch, TCH is focused on interoperability rather than competition. “We want to make sure they don’t run into the same problems,” said Rusiru Gunasena, head of the RTP network.

RTP has shared specifications with FedNow to ensure alignment between the two networks, and has engaged with FedNow on technical issues, according to Gunasena. The Federal Reserve did not return a request for comment by deadline. 

Payments veteran Rusiru Gunasena is leading real-time pay expansion at TCH.

FedNow has been controversial, with proponents arguing real-time payments need more competition to lower costs, and critics saying the RTP rail can lower costs on its own through greater adoption.

Many banks and credit unions may be biding their time to see how the competition shapes up before adopting real-time payments, but consumers are already on board, Gunasena said. 

“Banks that are in a wait-and-see mode with instant settlement will be surprised about how much consumers already know about real-time payments. They run the risk of these consumers going down the road to another provider,” such as a standalone P2P app, Gunasena said.

Financial services adoption in the new year is already showing signs of life. The Bancorp Bank this week partnered with business lender NorthOne to provide real-time settlement through the RTP network. 

NorthOne, which just raised $67 million, is in the midst of building a financial platform for small businesses, with real-time payments acting as the centerpiece of a cash flow management platform. 

“There’s a lot of opportunity for businesses to have more real-time money flow,” said Tytan Bensoussan, CEO and co-founder of NorthOne. “One of the drumbeats of our users has always been ‘can you move money faster?’ But they are still often using traditional rails.”

TCH in the next year will try to bring more financial institutions onto the RTP network and boost adoption for Request for Pay, which pairs real-time billing with real-time payment. It’s part of a schedule at TCH that also includes welcoming new CEO David Watson from his former post at Swift in February; and preparations to work alongside FedNow and other international instant payment schemes.

An early move was a January 1 update that included a warranty for the billers to manage fraud risk, which is designed to make RfP more attractive for billers to offer to consumers. “This was based on feedback that we got from banks,” Gunasena said. 

Gunasena, who has more than two decades of experience in payments and retail technology development, joined TCH in August 2022 following a role as head of the JHA PayCenter at Jack Henry. Part of his work at Jack Henry included migrating nearly 200 banks and credit unions to the RTP network. 

The RTP network recently passed 300 participants. That leaves a total of more than 10,000 banks and credit unions that are not on the network. Since most large banks are members, about two thirds of all demand deposit accounts in the U.S. and 85% of insured deposit accounts have access, according to TCH. TCH also has distribution deals with bank technology companies Fiserv, Jack Henry, Finastra and Shazam for quick onboarding. 

RTP charges a set rate for all participants for payments the institutions originate, or $0.045 for credit transfers sent, and $0.001 for a RfP. FedNow plans to waive fees for up to 2,500 credit transfers per month for the program’s first year, with a $0.045 charge thereafter. 

About 45 million transactions went through the RTP network during the third quarter of 2022, and TCH reports 16 consecutive quarters of more than 10% growth. 

TCH is also working with clearing networks in Europe to test real-time settlement for cross-border transactions and to ensure it is following local processing rules. 

“The challenge in connecting globally is more about compliance and local regulations than technology,” Gunasena said. “We’re not looking to reinvent RTP in other places. It’s more about looking at what’s there and making sure we connect in an interoperable way.” 

Software developers, particularly those that cater to banks and technology firms with corporate clients that are anxious to streamline treasury finance and supply chains, will also welcome more options for real-time payments. 

RTP and the introduction of FedNow are going to have a significant impact on the payments market, particularly giving payments software a boost, said Asaf Darash, CEO of Regpack, which develops merchant onboarding technology. 

“Software and software actions are measured in milliseconds, which is not something that regular human action can relate to,” Darash said. “Yet these speeds are needed due to the number of actions done for what most people will consider a ‘simple action’ in software.” 

Payment processing and authorization are still behind progress in other areas of software development, Darash contends. With payments being a relative missing link, ubiquitous real-time processing and settlement will remove a major pain point for other business software deployments, according to Darash.

For software-as-a-service products, payments often remain stuck in a “pending state” for a few hours, even though the underlying software provides instant access, Darash said, adding software companies rely on “trust” and are usually reluctant to restrict access until a payment settles. 

“Real-time payments will solve all this entanglement and will allow all businesses to focus on bringing higher-value services to their clients rather than dealing with the ins and outs of the payment world,” Darash said.