3 Ways FedNow is Different From Other Payments

The US is finally getting serious about real-time payments. Around the world, other countries have been using real-time payments for decades. Some since the early 2000s, others (in Asia especially) since the 70s and 80s.

Back in the States, we’ve only had one true real-time payment option—The Clearing House’s RTP—since 2017. That all changed in July 2023, when FedNow arrived as the newest real-time payment option in the US. It wasn’t expected to become the most popular right away and it took some time to roll out in full.

But FedNow has a few significant differences from other payment services that make it unique. Knowing these differences will help you understand where FedNow fits in the payment space and use it in the best way for your institution.

Here are three ways FedNow is different from other payment services.

1. FedNow’s real-time payment system is available for all financial institutions in the US

Before FedNow, financial institutions (FIs) needed to be part of The Clearing House network to use its RTP payment rail. That meant some FIs could offer customers true RTP, and others—like the major banks who own Zelle—could use the RTP rails to offer instant payments.

Now that The Fed launched its own real-time payment rail, instant payments are a real option for every FI in the country. That’s because every FI in the US has access to The Fed’s offerings. This is key to the design of FedNow, as they promise to help the over 9,000 existing FIs in the US adopt FedNow’s service.

Remember, that means true, instant payments that process and settle in real-time, 24/7/365. While payment options like cards, ACH transfers, and even payment apps like Venmo feel real-time, they actually take days to settle.

FedNow uses a Real-Time Gross Settlement payment rail, meaning it processes all transactions as they happen—no matter the time. No holding balances in an account or waiting for payments to clear. Money goes from one account right into another and funds are available immediately.

2. FedNow offers more than peer-to-peer transactions

Think of the most popular payment apps and how they’re used. Venmo, Paypal, CashApp, and even Zelle all see peer-to-peer transactions as their main use case. While they were created to meet that specific demand from consumers, FedNow goes a step further.

Thanks to The Fed’s infrastructure backing it, FedNow offers real-time payment for about as many payment types as you can think of.

Some common payment types FedNow offers other than peer-to-peer include:

• Consumer to business – paying bills and tuition or purchasing goods and services.
• Business to business – settling invoices, disbursing payroll, and paying back suppliers.
• Consumer to FI – paying outstanding debts, loans, and mortgages.
• Business to employee – paying gig workers instantly, payroll payments, and expense reimbursements.
• Me to me – send money from an account at one FI to another in real-time.

3. FedNow plans to promote better instant payment security

Real-time payment fraud has been rising as quickly as consumer demand for instant payments has. Fraudsters abuse instant settlement times to trick users into authorizing payments, leaving the victim on the hook for the loss. Regulation around this type of fraud is evolving, but FedNow is taking steps to start addressing it through its payment system.

FedNow suggests institutions take a holistic approach to fighting fraud by looking at all sides of a transaction. This helps FIs stay ahead of new scams by spotting the fraudsters hiding on either side of a transaction.

The Fed is also taking proactive steps to make FedNow safer, including:

• Using their FraudClassifier Model to name and spread awareness of common fraud schemes
• Providing FIs with negative lists and risk-based transaction value limits
• Offering message signing to validate transaction request messages
• Creating tools that allow FIs to report high rejections and signs of fraud

Since The Fed still relies on FIs to take the lead on fighting fraud, it’s important to know what fraud platforms are ready to respond to real-time scams.
 

Ways FedNow differs from popular payment systems

How is FedNow different from Zelle?

Zelle is co-owned by seven of the world’s biggest banks: Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo. That means Zelle is only available to customers using those banks or other FIs that partner with Zelle’s parent company, Early Warning Services.

FedNow is owned by the Federal Reserve, meaning it is available to every financial institution in the United States and, by extension, all their customers.

How is FedNow different from RTP?

The key difference between RTP and FedNow is The Clearing House operates RTP, while the Federal Reserve operates FedNow. So FIs who aren’t part of The Clearing House can’t offer RTP, but they can offer FedNow simply by integrating it.

How is FedNow different from ACH?

ACH payments do not settle in real-time the way FedNow payments do. ACH uses batch processing to settle payments throughout business hours, which excludes nights and weekends. FedNow processes all transactions instantly, as they happen, 24/7/365.

How is FedNow different from FedWire?

FedWire is similar to wire transfers or ACH payments—it processes transactions in batches only on weekdays from 9pm the prior day to 7pm the next day. FedNow doesn’t have that settlement lag time and processes every day, any hour.

How is FedNow different from PayPal?

PayPal acts as an intermediary between banks. Users need to connect their account and often have a balance in the service to make and receive payments from. FedNow makes transactions from account to account directly in real time.

Dive deeper into FedNow

As you can see, FedNow is a unique payment service. Its launch is a critical point in US payments history and takes the country one step closer to real-time payments everywhere.

But we’ve only scratched the surface of what FedNow can do and is planning to grow into. Learn more about this new payment rail with our guide on everything you need to know about FedNow.