One year after the launch of the U.S. government’s real-time payments system, FedNow, it is time to reflect on the predictions made regarding its impact on the financial landscape. The initial predictions included the idea that FedNow would lead to a domino effect of real-time payments adoption, especially in consumer use cases, and that it would replace cash and checks, but not credit cards. It was also predicted that interoperability would be crucial for any QR code renaissance and that digital wallets would become a key battleground in e-commerce.
A year on from its launch, it is evident that FedNow has made significant progress in terms of adoption, with close to 900 financial institutions live on the platform, a sharp increase from the initial 35 a year ago. However, mass network connectivity is still a work in progress, given the fragmented nature of the U.S. banking system. Despite this, the early adoption rates are promising, and it is hoped that full connectivity may be achieved sooner than originally anticipated.
FedNow has shown promise in consumer use cases, facilitating account-to-account payments, digital wallet funding, and earned wage access. However, there is still a long way to go in terms of mass domestic adoption, which is essential for fueling increased international money movement. In comparison to countries like Brazil, where real-time payments have seen significant adoption due to structural differences and merchant incentives, the U.S. market faces challenges related to the existing payment infrastructure and incentive structures for both merchants and banks.
Banks have concerns about potential revenue losses from other payment methods as a result of adopting FedNow, such as wire and credit card interchange fees, which may be cheaper with real-time payments. However, the demand for faster payments is evident, as indicated by the success of platforms like Zelle. Security remains a crucial issue with the rise in authorized push payment fraud, necessitating collaborative efforts between government agencies, financial institutions, and startups to combat fraud effectively.
Digital wallets have become a focal point in e-commerce and point-of-sale transactions, with tap-to-pay technology expected to level the playing field for offline payments. Improvements in infrastructure, such as enabling tap-to-pay functionality on Apple devices for non-Apple wallet systems, are expected to enhance the customer shopping experience and boost loyalty. Overall, the evolving landscape of real-time payments presents opportunities for fintech startups to innovate and collaborate with financial institutions to address challenges and improve the adoption of real-time payments.
