This is an excerpt from The Future of US Digital Payments 2025: ACH & Beyond.
It’s been an exciting few years watching the launch and take off of instant payments in the US after many years of discussions about the US being ‘behind’. With the start of RTP in 2016 and the introduction of FedNow in 2023, the infrastructure is now in
place to truly get us off and running. However, growth has been slow in terms of adoption by banks and transaction volume. After all the discussions and industry push for the US to have this infrastructure and how the US has lagged behind others, why is adoption
taking so long? Is it the established usage of current rails - Wire and ACH specifically - that are impacting this growth, or is it something else?”
Background
ACH and Wire have both been in operation in the US for many decades and as is the case with instant payments, the US has two key providers: The Clearing House and the Federal Reserve. Domestically, wires are traditionally used as a wholesale product—primarily
for high-value payments between banks. They’re also used for other significant transactions, such as home purchases or funding large deals.
ACH, on the other hand, is the system with the largest transaction volume in the US, handling over 30 billion payments annually. ACH primarily serves the retail system, handling payments like bill pay, payroll, and other use cases. Both of these payment
types have developed extensive infrastructure over the years – not only within financial institutions but also within corporations and their payment service providers.
The wire schemes are Real-Time Gross Settlement (RTGS) systems, meaning each transaction settles individually (though CHIPS uses a liquidity net settlement approach), whereas ACH is a batch processing system, where most transactions settle over a day or
more, with some transactions settling during same-day ACH windows. While this makes ACH closer to real-time, it still falls short. One key difference with instant payments is the rule that ensures funds are made available to the end recipient in near real-time,
within seconds or minutes. Neither ACH nor Wire offers this feature.
The use cases
At first glance, it may seem that existing rails like Wire and ACH cover all payment use cases, but the reality is more complex. While many use cases do move across these rails, there would be significant benefits for both senders and recipients if these
transactions were processed through instant payment systems. Instant payments provide easier liquidity management, immediate access to funds, and lower costs (when compared to a wire transfer). However, moving use cases and the associated payments over to
new rails isn’t always a straightforward process.
For other use cases like splitting a bar tab, the US has created industry solutions that address this gap. These include Zelle, a real-time payment messaging network owned by EWS, which, while not offering real-time bank settlement, functions similarly by
making funds available to end users immediately. Other examples are PayPal and Venmo, which are wallet-based solutions that allow individuals to make real-time payments.
While these existing solutions help address the demand, there are still strong reasons why it could be beneficial to move payments to instant rails. Notably, the bank settlement synching with the customer settlement mitigates the credit risk that exists
in current models. Additionally, these systems are secure and backed by bank funds, allowing for higher transaction limits (RTP at $10 million and FedNow moving to $1 million).
As with any new rail, new use cases will likely emerge that we haven’t yet anticipated. For example, during the Covid-19 pandemic, the urgent need for instant emergency fund transfers became a significant issue - an example of a problem that these new rails
can solve instantly. Another example is the gig economy, where instant payments can allow workers to be paid immediately after each transaction (e.g., an Uber driver) rather than waiting for the usual payday cycle.
So, what’s the issue?
While there are clear benefits to moving payment use cases to these new rails, there is also a substantial cost. To implement this effectively, banks and industry providers need to consider significant modernisation of their technology stacks, as well as
adjustments to their procedures and policies. In the current environment, this isn’t an easy request. With everyone focused on return on investment, it’s challenging to make a strong business case for bearing these costs while adoption remains low. However,
without more banks adopting these changes and making necessary investments, the growth in adoption will continue to be slow.
Banks and other providers should explore ways to invest in these rails at a lower cost. Many providers offer services in this space. For example, cloud-native solutions are designed not only to handle these rails but also to accommodate future growth. With
a multi-cloud solution providing resilience and high performance, a technology provider removes the burden of banks having to build their own infrastructure for connecting to these rails. It also allows banks to separate the modernisation of their banking
systems from the actual connection, insulating them from future changes and allowing them to focus on their core business.
Conclusion
While existing rails today handle many payment types and use cases, the new instant payment rails will bring substantial benefits, both for new use cases and for improving efficiencies in existing systems. That said, as with any product, when driving innovation,
it’s tempting to stick with the familiar - what you ‘have today’. ACH and Wire do provide that sense of security, which can act as a distraction for banks as they work to build their business cases for these new payment rails. Ultimately, however, demand and
competition will push both consumers and businesses toward the real-time payment world. We will see payments evolve across all rails, including FedNow and RTP.