Instant payments and real-time payments explained

By Matt Richardson, Head of Treasury Product Solutions | Published January 2024

Whether settling with a vendor, concentrating cash, facilitating customer refunds or enabling a customer to make a purchase, payment innovations make it possible for business transactions to happen in the blink of an eye.

But with instant payment rails like The Clearing House’s RTP® and the Federal Reserve’s newly released FedNow, how can an organization parse all the available payment technologies to find the one that delivers the reliability, security and speed it demands?

It begins with understanding how each technology works. Business leaders can then make better decisions regarding banking partners and build a relationship with one that's ready to keep their business invested in the future of payments.

The marketing hype is everywhere — technology will make things faster and everyone's lives easier. It's an exciting message, especially in the business world where time and money go hand-in-hand. The speed at which businesses pay, get paid and facilitate transactions dictates everything that impacts their bottom lines, from credit terms and vendor relations to cash flow.

While physical checks remain in use, new digital payment methods are increasing the speed at which people, businesses and financial institutions move money. The early 1970s laid the groundwork for today's ACH (automated clearing house) payments system. In 2017, The Clearing House's RTP® network created the first system of truly instant payments for corporate treasury departments. And with the 2023 launch of FedNow, businesses are now curious to assess the latest instant payment system.

But these aren't the only players in the payments space. While payment platforms like PayPal®, Venmo®, Zelle® and others are more commonly associated with everyday person-to-person transactions, trends indicate many businesses are adopting them for customers' ease of use and to pay their vendors and employees.

The number of competing systems available can make payments seem complex if businesses aren't up to speed on how each tech works.

The payments landscape is vast, but that doesn't mean it has to be complicated. You can break down current technologies into two categories: true "real-time" payments and "fast" payments.

Transactions that happen in true real-time offer immediate clearing and settlement. For this, businesses can either use RTP® from The Clearing House or FedNow from the Federal Reserve. Other payment systems can't provide this level of immediacy — their settlements occur after the fact, sometimes days later, slowing down the finality of payment.

RTP® and FedNow have a few key features that set them apart from fast payment solutions:

Speed
True real-time payments settle in seconds.

Security
These platforms can mask critical account information through tokenization and direct account exchanges, keeping businesses and their vendors' banking information secure.

Accessibility
Always-on, 24/7 availability of RTP® and FedNow means money moves when it needs to move.

While people might use the term "real-time payments" to describe fast payment technologies, it's misleading. Sending and receiving money using ACH or other payment platforms like PayPal®, Venmo® or Zelle® can make payments seem instantaneous, but with those, there's always a delay in the transaction’s finality.

Here's how fast payment technologies stack up:

Speed
Businesses are at the mercy of the platform, and settlement delays can occur, impacting cash flow.

Security
ACH often requires sharing confidential banking information, and other payment platforms may mask sensitive information but can still potentially leave companies exposed to fraud.

Accessibility
ACH transactions are processed at set times throughout the day, and payment apps can experience network outages at any time.

Businesses are already using many of the payment technologies discussed. According to the Citizens 2023 Payment Trends Survey, businesses use an average of five payment methods in their daily operations.

If a business's current payment mix doesn't include real-time payments, they could join the rising tide of businesses eager to adopt the tech. While only 62% of surveyed businesses report using RTP® or other instant payments, 61% of non-users are "very likely" to use these payment technologies.

With RTP® and FedNow as the only players in the true real-time payments space, knowing how they compare can help businesses decide which to adopt.

• Key functions. Both offer options to send money, request a payment and request a return of funds.
• Transaction settlement and funds availability. Both platforms are instant.
• Revocability. Both platforms offer the security and certainty of irrevocable payments.
• Always on. Both operate on a 24-hour basis.

• Ownership. The Clearing House owns RTP®, and the Federal Reserve owns FedNow.
• Transaction limits. RTP® boasts a much higher per-transaction limit of $1 million, with the potential to increase soon. FedNow has a default per-transaction limit of $100,000, although financial institutions can request a boost to $500,000.
• Adoption. As of December 2023, 481 banks and credit unions use RTP®, including 50 of the largest payment originators in the U.S. Plus, RTP® has express onboarding available through several technology partners. FedNow is new, and adoption is still growing.

These features — especially transaction limits — could make one real-time platform the winner for some companies.

As more businesses explore real-time payments, choosing a treasury partner who knows the space inside and out is important. Citizens launched its investment in RTP® in 2019. Today, we continue to see the platform as the most versatile and secure option for commercial treasury customers who trust us with their finances.

While RTP® and FedNow have many shared capabilities, Citizens is committed to RTP® and the broad reach that it enjoys (65% of checking accounts in the U.S.). We will monitor FedNow as it continues to grow.

Beyond the wide adoption and generous transaction limits of RTP®, Citizens also values the system's continued development. We participate in The Clearing House's RTP® committees, collaborating with other financial institutions and The Clearing House to continuously improve our promise — today and beyond.

As companies become ready to explore the two payment services that offer real-time transactions (RTP® and FedNow) and other forms of instant payments, Citizens Treasury Relationship Managers can help. By learning about a business's needs — from speed and security to cost and convenience — Citizens can identify corporate payment solutions that meet and surpass expectations.