Market demand is pointing today’s payment rails toward immediate payments. Although The Clearing House’s RTP Network is furthest along that path and picking up speed, it faces a major challenge, as well as a future competitor.

The Federal Reserve recently announced that its FedNow service will be ready to launch in 2023, and will include core clearing and settlement functionality, request-for-payment (RFP) capability, and tools enabling payment inquiries, reconcilements and exceptions.

RTP already provides those benefits 24/7, but despite recently accelerating the onboarding of new banks, the network still reaches less than 60% of demand-deposit accounts (DDAs).

Eric Wade, product strategy manager at Paychex, which provides human resources, payroll and benefits outsourcing to corporate clients, said he “absolutely loves” the RTP service, but in terms of ubiquity, “We’re not there yet.”

That means corporates must validate upfront whether payees’ banks are connected to the network, and if not, a less timely payment type must be used. One alternative is NACHA’s same-day ACH payment service, which is already used by all banks and recently increased the number of payment windows to three daily from just one. It is also pushing March 19, the last payment window, to 4:45 p.m. from the current 2:45 p.m., but that still means Paychex must cut off that service at 3:00 p.m. ET to send orders to its bank.

“That’s OK for a lot of East Coast clients, but it’s pushing it for those on the West Coast,” Wade said.

Jeff Rayis, director of treasury and financial management at Michigan State University, said that another RTP advantage is the level of data it provides. The receiver of a payment, for example, can query the payment issuer electronically through their bank intermediaries right away — immediacy that isn’t possible over the ACH network that processes transactions in batches.

RTP’s immediacy would enable urgent payments, such as emergency student loans, and its RFP functionality would facilitate collecting and tracking tuition payments, Rayis said, adding that electricity and gas utilities, cable companies, and other service providers and their customers could similarly benefit.

Rayis said that gig-economy and other workers are increasingly demanding to be paid right away for their work, noting that Taco Bell advertises same-day payroll payments — facilitated by RTP — as a carrot to attract employees. In a recent survey, according to Wade, 31% of Paychex’s clients favored running payroll on the same day as their check date.

Same-day ACH payments can help on that front, but their early daily cutoff and restriction to banking hours often makes same-day payments impossible, compared to always-on RTP.

Michigan State students often use credit unions or community banks, and that is currently a problem for RTP because many of those institutions are not yet RTP-enabled. In fact, regional and community banks’ concern about large bank competitors owning TCH prompted the development of FedNow. Wade anticipates host banks — Paychex uses PNC — to route payments through the most appropriate network when FedNow begins operation, providing ubiquitous reach, although that may take several years.

Zelle, the U.S.–based digital payments network, recently began settling and clearing payments via the RTP network. So now corporates using the service, which enables payments via email or cell phone number, will not have to store and transmit customers’ bank account information, increasing security. Rayis sees that development as an indication that the RTP network will reach ubiquity on its own.

“The bank’s clients will likely drive the change to RTP/RFP before the Fed gets something delivered,” Rayis said.

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