(Kyle Campbell/American Banker)

The Clearing House’s real-time payments network and the Federal Reserve’s FedNow have won over hundreds of banks, but overall acceptance of instant settlement is still low, prompting bankers at the Clearing House’s annual conference this week to question the path to future growth.

Just over 1,050 financial institutions are active with the Federal Reserve FedNow service as of November 11, according to the central bank, and the Clearing House lists on its website 649 financial institutions that are enrolled in its real-time payments network. By comparison, there are more than 8,000 banks and credit unions in the United States.

The question comes at a time when global payments technology and infrastructure is rapidly evolving and banks are becoming more vocal about the importance of payment and money movement services to their bottom line.

Truist Financial, for one, doesn’t consider payments a separate business within the bank, but THE bank business, said Bill Rogers, president and CEO of Truist Financial, at this week’s convention in New York.

“Payments are the grease, the oil and the fuel that drives the economy, and I think we’ve all reinforced the knowledge that it’s payments that help grow deposits,” Rogers said. “These things are inextricably linked, and we know how important the stability of the depository platform is to all of our institutions.”

And many of these users are only equipped to receive instant payments and not set up to send them, leading to a proverbial chicken or egg dilemma.

Different financial institutions have different reasons for limiting their instant payouts to receive only. Navy Federal Credit Union, for one, has only enabled receiving capabilities for instant payments, Dietrich Kuhlmann, president and chief executive officer at the $180.8 billion-asset credit union, said at the conference.

“The reason we haven’t activated referral yet is because we’re waiting to get the right fraud engine in place so we can get in front of this fraud before it happens,” he said.

Sacramento, Calif.-based Golden 1 Credit Union is only set up to take instant payments, largely because of functionality limitations from one of its providers, Fiserv, Dustin Luton, senior vice president, said in an interview .

“We are currently unable to ship via FedNow. We are looking to be able to ship most likely sometime in 2025,” Luton said.

Ubiquitous adoption of instant payments will need widespread engagement across industries to “really catch on,” Navy Fed’s Kuhlmann said.

“These networks will take time to develop because, frankly, for this ecosystem to discover, everyone needs to be connected,” Kuhlmann said.

Will merchants push the adoption of Send?

Receiving capabilities are vital for financial institutions, said Tede Foreman, president of payments solutions at Jack Henry, but sending capabilities will also likely be expected by small businesses that need funds faster.

“We’re really (focused on) getting our financial institutions, both credit unions and banks, to allow receiving. We see those as table stakes, Foreman said, adding, “We’re actually seeing bigger deposits coming into the banks now.” and core credit union systems.”

Traders could be a key factor in driving the adoption of sending capability from their own financial institutions, said Jamie Walker, CEO of Elavan, a payment processing and merchant services subsidiary of US Bank.

“As US Bank rolled out real-time payments, we were one of the first and largest use cases as we started using this service to fund their merchants in real-time,” Walker said. “Today we serve more than 70,000 merchants and their financing has been a huge advantage for these customers.”

Square, which is a point of sale and the card processing division of Blockis the largest sender of real-time transactions to credit unions using Columbus, Ohio-based Corporate One Federal Credit Union’s technology to connect to payment networks, said Melissa Ashley, president and CEO of the corporate credit union.

Elavon’s Walker expects instant payments to become vital to small businesses in the next four to five years. “It’s going to become the expectation of our merchants … to get those funds faster. Today, it is very much an added value for US Bank customers.”

Ultimately, the sender of the funds will end up dictating which instant payment rail, either FedNow or The Clearing House’s RTP, is used, said foreman Jack Henry.

“We encourage (our customers) to use both (networks). Interoperability is ultimately where we’d like to see it all go, so they can trade,” Foreman said. “We don’t really run one set or the other. We’re building into our faster payment center intelligent routing and least-cost routing, so we’ll know whether or not a merchant or biller has the ability to accept FedNow or RTP.”

Foreman said Jack Henry’s 1,700 customers are split evenly between RTP and FedNow.

Corporate One also has credit union customers on both paylines and encourages others to do the same. “They don’t control the user experience where the fund comes from.”

What is the Fed’s role in selling real-time payments?

The Fed has an important coordinating role to play in the widespread adoption of instant payment settlement technologies through its FedNow payments system, according to Fed Governor Christopher Waller, chairman of the central bank’s internal payments committee.

Waller said getting enough uptake for a system to benefit from a network effect is beyond the capacity of a private sector entity such as the RTP network, which is run by The Clearing House and owned by a consortium of big banks .

“The role we’re playing with FedNow is to help with that coordination problem by using our existing connections with those thousands of institutions,” Waller said in a speech at this week’s TCH conference. “And that approach is consistent with my overall view of the appropriate role of government to narrowly address issues such as coordination that cannot always be effectively addressed by the private sector alone.”

Industry, on the other hand, is better suited to the experimentation and risk-taking necessary to determine what kinds of products are viable, Waller said.

Absent from Waller’s remarks were any specific praise for instant payments or the selling point for FedNow. Instead, during a question-and-answer session with Rodgin Cohen, senior president of law firm Sullivan & Cromwell, Waller expressed skepticism about the rush to a faster settlement of payments.

“What I’ve tried to emphasize in my discussions with international counterparts is that you want faster, cheaper and safer, all three. It’s not just the first two, and that’s where I want the discussion to go,” Waller said. “Unless you can always think of making it cheaper and faster and throw the fuse.”

Waller said having multiple systems to perform the same tasks — namely FedNow and RTP for instant payments — is its own form of safety precaution, as the systems can serve as backups to each other should they either go out.

In discussing the government’s role in payments, he noted that it is important that public networks are not used as a tool to reduce market costs by undercutting private systems. He also said the government shouldn’t give a blank check to systems that don’t actually fill a gap in the market, pointing to the Fed’s decision to shut down its FedGlobal ACH cross-border system last year.

“We created Global ACH 20 years ago because of this ‘need’ for better global payments. I invested a lot of money in it, built it and nobody used it. Well, I finally closed it. I mean, we “I’m not going to drive this thing for decades and nobody uses it,” he said. “At the end of the day, we can’t build systems and if nobody uses them, keep paying for them and running them. At some point, you have to cut the cord and call her.”

Some in the audience of the speech felt that Waller’s offhand comments — whether he meant them or not — underscored the standard by which future cuts will be implemented.

Aaron Klein, a senior fellow in economics at the Brookings Institute and an advocate for faster payments, said the remark appeared to set the stage for the shutdown of FedNow, which has been little used since its launch last summer.

“Waller is planting the seeds to take down FedNow. He said if we build a payments system and no one uses it, we should shut it down. Today, FedNow fails that test,” Klein said. “Lays the groundwork to end FedNow, which is currently a big Fed flop.”