Part III - Unblocking and Unlocking

What needs to be true

For FedNow to take off, many things need to be true. Below are my top five:

• Bank incentives
• Consumer, merchant, and B2B adoption
• Ideally interoperability
• Access for non-bank PSPs
• Communication

Bank incentives

FedNow is fundamentally a service to banks. It is not mandatory. That is, banks will be the primary gateway to FedNow and will choose if/how to supply these services. As we discussed in Part II, connecting to real-time payment rails, RTP and FedNow, is no small task. Banks need a business case to shift. Many allude to the cannibalization of card payment revenue as a hindrance to bank real-time payment adoption. This argument makes sense on its face. Visa and Mastercard payments in the US alone total over $2 trillion per quarter, about 75 times RTP volume.[^1] The provision of card payment services is highly profitable for banks in comparison with RTP services. Banks’ card processing fees totalled ~$140 billion in 2021.[^2]

However, FedNow and RTP are most likely to tackle P2P and B2B use cases, dominated today by OCT (discussed in Part I) and ACH and checks over offline or online merchant card acceptance. It is never too frequent to remind readers that an estimated 40% of all B2B payments in the US are still made via check.[^3] Cool cool cool. As a quick comparison across payment types (these numbers are directionally correct but outdated since COVID), while cards dominate by volume of transactions, ACH and check dominate by value of transitions - accounting for ~90% of all noncash payment value in the US.

Source: Federal Reserve Payments Study (FRPS) 2019 and 2020[^4]