With a few clicks on your remote, you can instantly stream a new movie from the comfort of your couch. For a small fee, you can instantly transfer funds from your Venmo balance to your bank account.
Instant gratification is part of everyday life in 2022, whether you’re selecting same day delivery from Amazon, ordering takeout from your favorite restaurant or using the latest app to enable money movement.
If “instant” is so easy to access in other aspects of life, why is it largely absent in business-to-business and business-to-consumer payments? Fintechs like Dwolla are working to bridge that gap with a payment API and suite of faster payment offerings. But fintechs alone can’t usher in a new era of payments.
With FedNow and RTP, the Federal Reserve and The Clearing House, respectively, are working to reimagine payments that deliver with speed and convenience.
FedNow vs. RTP: What’s the Difference?
| RTP | FedNow |
|---|---|
| Sent via the RTP® network Operator, The Clearing House. | Sent via the FedLine network Operator, the Federal Reserve. |
| Reaches 61% of U.S demand deposit accounts. | Anticipated to reach 100% of banks and credit unions in the U.S. |
| RTP uses ISO 20022, a global standard for payment message specifications to ensure interoperability across U.S. financial institutions and increase adoption. | FedNow will use ISO 20022, a global standard for payment message specifications, to ensure interoperability across U.S. financial institutions and increase adoption. |
| 24/7/365 availability. | 24/7/365 availability. |
| Dwolla currently offers. | Dwolla intends to offer. |
The Federal Reserve, the United States’ central banking service and governing body behind the FedNow Service, describes its offering like this:
“The FedNow Service is a new instant payment service that the Federal Reserve Banks are developing to enable financial institutions of every size, and in every community across the U.S., to provide safe and efficient payments in real time, around the clock, every day of the year.”
FedNow is set to launch in 2023, giving businesses and individuals the ability to send and receive instant payments through participating financial institutions.
The Clearing House, a banking association and payments company dating back to 1853, launched RTP, a real-time payment system, in 2017. The Clearing House operates the RTP® network, a payment rail currently reaching 61% of U.S. demand deposit accounts (DDAs).
FedNow and RTP will operate on different payment rails (FedNow uses the FedLine network and RTP uses the RTP network), but can both be offered by banks and payment service providers like Dwolla.
Unlike RTP, which pulls funds from a bank’s designated RTP account, banks using FedNow will leverage the existing FedLine network, which connects financial institutions and payment processors to the Federal Reserve’s infrastructure, services and applications such as ACH, wire transfers and Federal Reserve accounts.
Like RTP, FedNow will use ISO 20022, a global standard for payment message specifications, to ensure interoperability across U.S. financial institutions and increase adoption.
The Evolution of Faster Payments
The United States’ central banking system is aware of how the U.S. lags behind Europe, India and other countries in faster payments capabilities and is working to be a part of the solution. The Federal Reserve sees an opportunity to capitalize on the demand for real-time payments, not just for consumers, but for businesses, too.
In 2015, the Federal Reserve brought together more than 300 businesses, consumer groups, technology providers and others to identify and evaluate faster payments systems in the U.S. Dwolla was elected to the Faster Payments Task Force steering committee and, in 2016, submitted a proposal detailing our findings and recommendations around faster payments.
One of those proposals submitted to the Federal Reserve came from The Clearing House. In 2017, The Clearing House launched RTP. In the second quarter of 2022, the RTP network processed 41.2 million transactions worth $18 billion, representing a 12% increase in transaction volume over the first quarter of the year.
A 2021 Federal Reserve survey found nine in 10 businesses expect to be able to make and receive faster B2B payments—including instant payments—within three years.
“Businesses’ appetite for faster payments has clearly accelerated due to growing acceptance of digital commerce during the pandemic,” says the Federal Reserve’s Chief of Customer and Industry Engagement Shonda Clay.
“Businesses are calling for consumer-to-business and business-to-business payments that facilitate quicker access to funds, the ability to post payments immediately and automatically, and timely notification of payments,” Clay says.
How Dwolla Fits In
To visualize how a real-time payment from a business to a consumer works, consider Ualett (pronounced wallet), a mobile application used to pay independent driver-contractors. Ualett uses RTP to make funds available to drivers within minutes, not hours.
For business-to-business payments, CargoSprint, a digital platform for the cargo industry, uses RTP to enable instant payments between freight forwarders and cargo facilities.
Dwolla intends to offer FedNow and RTP on our platform. We want our clients to be able to access the faster payments solution that works best for them and their end users. Both real-time payment systems will be offered in conjunction with our ACH product, giving our customers the choice of speed and control for their users.
Hear Dwolla’s SVP of Technology discuss a world with frictionless payments. If instant payments are on your product roadmap, contact Dwolla and talk through your use case and where account-to-account payments can enhance your product.
