Competition in the instant payments space is stiff, but the Federal Reserve’s instant payment network, FedNow, continues to gain traction.
FedNow, which turned two years old on July 20, reported a whopping 1,200% year-over-year increase in transaction volume, growing from 97,424 settled payments in the first quarter of 2024 to 1,310,017 in the quarter ending March 31, 2025.
At its one year anniversary last July, the Fed had enrolled more than 850 financial institutions into FedNow and had at least 1,000 more in the pipeline. But as of July 7, more than 1,400 financial institutions—including large and small banks and credit unions—were participating in the FedNow Service.
Community banks and credit unions make up more than 95% of the platform’s total participants.
That all sounds impressive until you look at data recently reported by competitors RTP and Zelle.
The RTP network, which is operated by The Clearing House and owned by multiple large banks, makes FedNow’s transaction volume look tiny by comparison. RTP handles more than 1 million daily transactions and, in fact, set a new single-day record for payments volume at nearly 1.6 million transactions on Jan. 31.
The RTP network currently reaches 70% of demand deposit accounts in the United States, meaning that millions of consumers and businesses are benefiting from instant payments through the 850 financial institutions connected to the network.
Tim Scholten, founder and president of the credit union and community bank consultancy Visible Progress, told Tyfone that FedNow adoption is growing but slowly.
Why?
With current ACH payments, the delay gives banks a chance to return anything suspicious or that has insufficient funds the next day, Scholten said. The person can also say they did not authorize the transaction and have it returned back to their account.
“Return activity and fraud appear to be increasing. This is true for same day ACH as well but with a smaller window for the bank to respond,” Scholten said.
With FedNow and RTP, banks have one shot at ensuring the screen for proper approval, NSF, and fraud. And it needs to happen instantly.
“Then the bank sending the funds needs good technology to handle all these factors before they are ready to send payments real-time,” Scholten said. “The technology to do this well is being implemented as more businesses and consumers press for [instant payments]. Banks and CUs are slowly adopting as customer demand increases.”
One of those soon-to-be FedNow adopters is Nutmeg State Financial Credit Union in Rocky Hill, Connecticut. The $703 million-asset credit union is not yet a member of FedNow but plans to soon begin with receiving payments and then will launch the ability to send payments.
“Receiving payments are a great use case for earned wage access—think of the service industry who can be paid as soon as a job is complete,” Robin Del Vecchio, Nutmeg State’s SVP of Technology & Operations, told Tyfone. “No longer do they have to wait for a Friday payday—if the job is complete on Monday, they can receive their payment on Monday.”
Del Vecchio said credit unions have been slow to adapt to FedNow, but Nutmeg State wants to provide access to funds early and can do that through FedNow Receive.
“This will provide a competitive advantage by offering a solution that does not require yet another App—like Venmo, Zelle or Cash App,” she said.
Speaking of Zelle, 178 new financial institutions have gone live with or signed up to bring the popular money transfer service to their customers during the fourth quarter of 2024 and the first quarter of 2025.
With the addition of those new banks and credit unions, there will be more than 2,300 financial institutions on the Zelle Network—95% of which are community banks and credit unions.
One Florida-based credit union CEO who requested anonymity told Tyfone their institution had the argument last year on FedNow vs Zelle.
While FedNow is cheaper and a lot of vendors are trying to force institutions into it, nobody is using it, they said.
“Our members want Zelle today. Will this change in three or four years? Probably. But it doesn't matter if FedNow is cheaper if other financials don't use it and our members can't send money to other people.”
Matt Selke, president and CEO of the $152 million-asset Georgia Heritage Federal Credit Union in Savannah, Georgia, said he too is on the fence.
“I wish more financials would join Fednow, yet I would be a hypocrite because we won't be doing it until more folks sign up for it,” Selke said. “It’s a real Catch-22.”
Scholen said the reality is that not all deposits clear real-time. So FIs need to understand that and use holds on deposits where there is risk of return.
“Today this process is mostly human-driven at the branch level,” he said. “Until FIs can be more confident that the funds they hold and the transactions they process are good funds, there will be friction with FedNow and RTP adoption.”
One way in which FedNow can differentiate itself is by staying at the forefront of technology.
For example, the first-ever QR code payment was recently sent over FedNow in a test that involved Star One Credit Union, Payfinia and Matera.
Payfinia, an independent payments company and CUSO, is the fourth largest originator on the FedNow network.
“More consumers and businesses are requiring immediacy in their digital payment experiences. Financial institutions need to partner with service providers that have built solutions with security, user experience and efficiency in mind, and have proven performance metrics associated with users sending instant payments,” said Keith Riddle, general manager of Payfinia.
Portland, Oregon-based Tyfone is a leading provider of consumer and commercial digital banking services for community financial institutions. At Tyfone, we believe that as credit unions strive to attract a wider membership base through their lending products, adopting cutting-edge digital banking technologies remains crucial.
