The Federal Reserve’s Role in Developing Real-Time Payment Services in the United States

By: Justin Moore, RBFL Student Editor

Real time payment systems provide a valuable method of payment that enables businesses and consumers to make and received payments within seconds.[1] With widespread adoption of a real-time payment system among banks, recipients of payments will be able to access their funds almost immediately after the sender initiates payment. More than twenty countries already use real-time payment services, including the U.K., Singapore, and Australia.[2] Meanwhile, banks in the United States still rely on the deferred net settlement (“DNS”) system, where banks settle by “netting out” the dollars coming to and from their account holders at a given time, usually at the end of the business day.[3] Using DNS, account recipients generally have to wait over a day to access transfers in cash or tolerate transaction limits set forth by banks to avoid settlement risk.[4]

To catch up with other countries, the Federal Reserve Board (the “Fed”) announced that the Federal Reserve Banks will develop a round-the-clock real-time payment system: the FedNow Service.[5] The Service–which the Fed expects to be available to banks in 2023 or 2024–aims to provide individuals and businesses with more flexibility to manage their money and make time-sensitive payments.[6] If FedNow launches, it would co-exist with RTP, a U.S. real-time payment service developed by The Clearing House (“TCH”)–a private company consisting of some of the world’s largest banks.[7]

To date, there have been no legal challenges to the Fed’s legal authority to create a real-time payment service[8] and no cognizable claim against the Fed’s authority seems likely to prevail.[9] Most of the controversy surrounding FedNow focuses on whether the Fed or private actors–such as TCH–should lead the charge in bringing real-time payment services to the United States.

TCH’s rollout of RTP has been slow-moving,[10] especially before the announcement of FedNow,[11] and its reliance on the private sector alone has left the United States without any real-time payment services as other advanced countries have rolled out real-time payment services to their banks with the help of their central banks.[12] The lack of a widely adopted real-time payment service has left middle and low income individuals in need of immediate cash to resort to risky, expensive alternatives, such as payday lending or check-cashing services.[13] Additionally, small businesses – especially during times of crisis – need to quickly manage cash to address unexpected costs.[14] Implementing a Fed-operated service would speed up the rollout of real-time payment services to banks across the country. FedNow’s use the ISO 20022 messaging and other globally accepted standards, for example, will encourage future private real-time payment services–which would want their services to be interoperable with FedNow–to adopt similar standards, making real-time payments more connected across the country.[15] Moreover, relying on only one service runs the risk of having a single point of failure in the instant payment infrastructure.[16] In other words, if RTP were to crash, then no one in the United States would have access to any instant-payment service.

Especially amid a global pandemic, U.S. businesses and individuals see even more of a need for quick transfers of cash. Given RTP’s questionable rollout to smaller banks and individuals and businesses need to make quick, reliable transfers, a Fed-operated system could spark widespread adoption of real-time payment services in the U.S. and serve as a platform for future innovation in real-time payments.

[1] Service Details on Federal Reserve Actions to Support Interbank Settlement of Instant Payments, 85 Fed. Reg. 155 (Aug. 11, 2020) (“The FedNow Service will be available to banks in the United States and will enable individuals and businesses to send instant payments any time of day, any day of the year through their bank accounts.”).

[2] FIS, Flavors of Fast Report 30-42 (2019),

[3] Id. (“At the end of each daily cycle, the three banks “net out” the total dollar amounts flowing to and from their respective accountholders on that retail platform, and then each make or receive a single payment on the books of the Federal Reserve to cover the day’s transactions.”).

[4] Id.; Stefan Lembo Stolba, Here’s What You Need to Know About Zelle, Experian (Apr. 10, 2020), [] (showing a table that contains the daily and monthly transfer limits a popular payment app, Zelle – Citizens Bank, for example, has a daily limit of $1,000 and a monthly limit of $5,000).

[5] Federal Reserve announces plan to develop a new round-the-clock real-time payment and settlement service to support faster payments, Bd. of Governors of the Fed. Reserve Sys. (Aug. 5, 2019, 1:30 PM), [] (“The Federal Reserve Board on Monday announced that the Federal Reserve Banks will develop a new round-the-clock real-time payment and settlement service, called the FedNow℠ Service.”).

[6] Id. (“The Board anticipates the FedNow Service will be available in 2023 or 2024.”); see The Fed. Reserve, Announcing the FedNowSM Pilot Program,, [] (last visited Oct. 25, 2020) (discussing the Federal Reserve’s creation of a pilot program to allow financial institutions, service providers, and payment processors test out the FedNow service before launch.).

[7] Id. at 52.; Philip Rosenstein, Fed’s New Real-Time Payment System Targets Interoperability, Law360 (Aug. 6, 2020, 12:54 PM), (“FedNow will exist alongside a private real-time network launched in 2017 by The Clearing House, a private company owned by some of the world’s biggest banks. Known as RTP, or Real Time Payments . . . .”).

[8] Conti-Brown & David A. Wishnick, Private Markets, Public Options, and the Payment System, 37 Yale J. on Reg. 380, 410 (“To date, no courts have applied the substantive provisions of the MCA’s constraints on Fed payment system operations.”).

[9] Id.

[10] See Conti-Brown, supra at note 402 (“While over fifty percent of bank accounts in the United States are held at banks that nominally participate in RTP, public reports suggest that nearly all transactions on the system in 2018 were test and demo transactions, and that ‘[a]doption through most of 2019 was rather tepid.’”) (quoting Steve Murphy, The Clearing House Is About to Triple the RTP Single Transaction Limit, Payments J. (Jan. 24, 2020)).

[11] Daniel Keyes, TCH’s real-time payments growth puts it in competition with the Fed, Mastercard, and Visa, Business Insider (Sept. 14, 2020, 9:00 AM), (“Rapid expansion should be a major initiative for TCH because it’s racing against serious competitors in the fast payment space. . . . The US Federal Reserve is set to introduce [FedNow] in 2023 or 2024 . . . .”)

[12] FIS, supra note 2.

[13] Lael Brainard, Member, Fed. Reserve Bd. of Governors, FedNow Service Webinar: The Future of Retail Payment in the United States (Aug. 6, 2020) (“An instant payment infrastructure ensures the funds are available immediately, which could be especially important for households on fixed incomes or living paycheck to paycheck, when waiting days for the funds to be available to pay a bill can mean overdraft fees or late fees that can compound, or reliance on costly sources of credit.”).

[14] Daniel Keyes, Real-time Payments Are Seeing Rapid Uptake During the Pandemic, Business Insider (May 29, 2020, 10:39 AM), (“Some firms need to pay suppliers in advance to get products during the pandemic, while consumers may have needed to quickly move their stimulus funds, Ledford said, per PaymentsSource.”)

[15] Id. (“To support these goals, the service will use the widely accepted ISO 20022 standard and adopt other industry best practices, that would remove barriers to interoperability, in order to avoid unnecessary and burdensome incompatibilities, to the extent the existing private-sector service also uses publicly available, widely accepted standards.”).

[16] Service Details on Federal Reserve Actions to Support Interbank Settlement of Instant Payments, 85 Fed. Red. 155 (Aug. 11, 2020) (“[L]imited competition . . . could create a single point of failure in the nation’s instant payments infrastructure.”).

View all posts