Happy Birthday, FedNow!
3 ways FedNow has changed real-time money movement in the U.S. during its first year.
Tomorrow, July 20, marks one year since the launch of FedNow. It’s been a big first year for the Federal Reserve’s game-changing real-time payment system (RTP), which has already surpassed The Clearing House’s RTP network’s participation.
While we awaited FedNow’s arrival in the first half of last year, expectations were high. Some wondered if the U.S.’s real-time money movement (RTMM) infrastructure was ready for such a shakeup, but FedNow has been embraced by consumers and businesses alike. When we checked in on FedNow’s progress a few months ago, we noted that, as expected, FedNow’s launch was forcing banks and financial institutions’ hands in innovating their payment infrastructures.
The chatter around FedNow hasn’t died down, and its revolution of America’s payments landscape is far from complete. As we celebrate FedNow’s first birthday, here are the three biggest ways the service has changed RTMM in the U.S. since its inception:
Change #1: Digital Transactions Are Growing Faster Than Ever
This one isn’t a surprise: digital payments in the U.S. were on the rise prior to FedNow’s launch, surpassing $10 trillion in 2023 and on pace to hit $30 trillion by 2030. Earlier RTP rails like Zelle and The Clearing House’s Real-Time Payments Network helped serve a portion of the 80% of U.S. consumers looking to leverage faster payment methods to pay businesses. FedNow has made that wish accessible to more consumers than ever before.
Both an uptick in real-time transactions and the continued growth of digital transactions overall were certainly expected, but FedNow opened the floodgates for RTMM in the U.S. in a way that some may not have seen coming. In 2023, 74% of consumers and 86% of businesses said that they had used faster or instant payments. That increased usage means digital transactions are now flowing in at an unprecedented rate; one service partner reported experiencing a full quarter’s worth of transaction volume in a single week. With real-time transactions in the U.S. expected to grow over 30% annually until 2028, there are no signs of slowing down.
Change #2: It’s Opened Opportunities for Businesses (As Long As They’re Ready For It)
Real-time payments are simpler, easier, and more accessible to consumers. For digital businesses, that’s good news—it results in more customers completing more transactions. But RTMM’s benefits extend deeper. Real-time payments allow U.S. businesses to streamline transactions across borders, drastically expanding their customer bases. This streamlined experience is great for eCommerce companies, which can now offer both U.S.-based and foreign customers a more streamlined transaction process.
It’s a no-brainer on the surface, but embracing RTMM is a multi-faceted task that’s intimidated some businesses. Consumers want speed, but they also need security. Simply offering a RTP option isn’t enough; businesses need comprehensive, effective fraud solutions that don’t interfere with the friction-free RTP experience. It’s a roadblock that has caused some businesses to hesitate to adopt RTMM, but the alternative route is a dead end: businesses who are slow to invest in RTMM infrastructure could miss out on $89 billion over the next three years.
FedNow launched last July with 35 participating institutions. Now, that number has risen to at least 700, with an additional 1,000+ working through onboarding. Adoption is coming in waves, and the laggards risk being swept away by their competitors who invested earlier in building around RTMM.
Change #3: It’s Incited an Arms Race Between Fraudsters and Fraud Prevention Teams
Real-time transactions are instant and irrevocable, meaning institutions can’t review a transaction or recover funds if the transaction is later found to be fraudulent. Consumers love those features in the context of simple, seamless transactions; likewise, they make real-time transactions the perfect target for fraudsters. We’ve seen new fraud trends and tactics, like increasingly targeted scams and human-like bot behavior, aimed at exploiting the speed of real-time transactions. The result has been a grueling back and forth between evolving fraudsters and adapting fraud prevention teams.
In their corner, fraudsters have armies of sophisticated, genAI-powered bots that can overwhelm defenses, plus an array of tools for crafting uncannily convincing social engineering scams, including hyper-realistic deepfake videos and audio. They’re not shying away from deploying their weapons, either: bot attacks have increased 102%, and deepfake videos rose a whopping 704% in 2023. The increasing accessibility of tools like these (such as the infamous $1,700 FraudGPT subscription) means attacks will only become more frequent and pervasive.
Fraudsters’ firepower feels overwhelming, but fraud prevention teams haven’t backed down from the fight. We’ve seen modern solutions weed out sophisticated fraud that traditional solutions couldn’t spot (including NeuroID, which can detect bots with 99.5% accuracy). Other products have entered the market to combat deepfakes, falsified documents, and more. The battle is still ongoing, and it’s unclear if either side has the upper hand at the moment. But RTMM is here to stay, and innovative solutions like behavioral analytics are key to defending it.
FedNow’s successful first year has proved why the rise of the RTMM was inevitable in the U.S. The service’s impact will only become more apparent as more consumers and businesses gain access to it. Real-time transactions are set to become a pillar of how American businesses and consumers send and receive money; let’s talk about how behavioral analytics can help your business embrace it.