Instant payments are a 2025 priority for financial institutions

When in the summer of 2023, the Federal Reserve launched its FedNow Service, its first new U.S. payments rail in over 50 years, banks and credit unions felt compelled to jump into the payments discussion. The Clearing House’s Real-Time Payment (RTP) Network has been operational since 2017, but FedNow’s participation enables even more financial institutions to explore instant payment capabilities for both commercial and consumer use cases.

In reality, instant payment adoption rates remain relatively tepid—particularly with the FedNow payment rail. Many institutions remain hesitant to implement these services, and even those equipped for instant payments have yet to develop monetization strategies due to a variety of reasons.

Given the rapid evolution of the instant payments landscape, the window for proactive adoption is narrowing. To remain competitive, financial institutions must act swiftly and develop their instant payment capabilities.

The current state of instant payments

Over the past year-plus, the deployment of instant payment services made notable progress with an increasing number of banks adopting emerging payment rails. According to the Federal Reserve, more than 900 financial institutions have joined the FedNow Service since its launch, while just over 600 institutions have adopted the RTP Network in its six plus years of operation.

However, these financial institutions represent 65% of U.S. demand deposit accounts (DDAs), with FedNow catering primarily to community financial institutions and RTP gaining traction with some of the nation’s largest banks and their customers. Both services have achieved significant milestones, with combined daily payment volumes regularly exceeding one million transactions.

Despite these advancements, approximately 8,100 banks and credit unions, representing 85% of the U.S. market, have yet to adopt any instant payment solution. Moreover, many of the institutions that have implemented instant payments remain in a “receive-only” mode and are approaching other payment flows like Send and Request for Payment very cautiously.

Perceptions of fraud stunting adoption

Fraud concerns has become a major deterrent for the broader adoption of instant payments, with the new common phrase “faster payments equal faster fraud.”  These concerns are not unfounded, particularly given the rise of “authorized sender fraud” on platforms like Zelle.

Despite anxieties over fraudulent activity, current fraud rates on RTP and FedNow are significantly lower compared to traditional payment systems such as Automated Clearing House (ACH), wire transfers and checks. Fraudsters tend to target older, more established payment rails that handle higher transaction volumes, making instant payments a less attractive target.

Furthermore, many instant payments are processed in tokenized API environments, which offer greater security compared to legacy methods. While improvements in fraud prevention and risk management are still needed, the early risk associated with instant payments is manageable through strong access management and customer education.

Market demand is another barrier to adoption

Another major hurdle for adoption is a perceived lack of market demand. Many financial institutions are adopting a fast follower approach, waiting for a significant first mover to generate momentum and demonstrate substantial evidence of demand before committing to implementing enhanced instant payments solutions. However, this strategy could prove risky as many use cases may not have room for multiple players and early movers could gain significant market share

Data on transaction volumes and growth rates for instant payments, as well as alternative faster payments solutions, suggest that foundational demand already exists. Institutions that delay adoption may find themselves at a competitive disadvantage, struggling to meet customer expectations.

Instant payments are being rapidly incorporated into a variety of use cases, with some evolving from proof of concept to essential capabilities in less than 18 months. Notable use cases include government disbursements, digital wallet funding and earned wage access. Fifth Third Bank’s partnership with Mazooma which enables real-time withdrawals in the iGaming and sports betting industries, is just one recent example of the commercial applications of instant payments.

Additionally, instant payments can offer internal operational benefits, such as improved reconciliation and reduced error rates, thanks to the detailed transaction data they provide. Instant payments can also enhance liquidity management and reduce operational costs by minimizing the need for manual intervention, a benefit that traditional payment methods cannot match.

Instant payments will become a fixture

Instant payments are becoming a permanent fixture in the financial services ecosystem. While adoption may be initially slow, they will accelerate over time when compelling use cases gain traction. Walmart’s partnership with Fiserv to offer an instant payment option for its eCommerce channel is expected to accelerate a shift from card-based payments.

Financial institutions must consider the competitive advantage of offering instant payments, especially as customer demand for faster, more secure payment solutions continues to grow. For example, the adoption trajectory of same-day ACH closely mirrors that of RTP, with both systems reaching similar transaction rates in 2023. As the U.S. payments landscape continues to expand, instant payments will remain a key growth driver.

As 2025 unfolds, financial institutions must take stock of existing payment capabilities, understand customer needs and gaps, assess technology blueprints, evaluate the cost of payment processing and develop appropriate strategies for instant payments. The window of opportunity is closing, and those that fail to act could face significant challenges in maintaining their competitive edge.

Prakash Natarajan is Managing Director of Payment Strategy for SRM.