What real-time payments are and how U.S. rails work

Real-time payments are electronic transfers between bank accounts that make funds available within seconds, operate 24 hours a day and provide immediate confirmation to sender and recipient. In the United States, the two primary instant-payment rails are The Clearing House’s RTP network and the Federal Reserve’s FedNow Service.

For treasury teams, the operational effect is more precise payment timing and immediate confirmation of receipts. The same finality that enables that certainty also means payment details, funding and approvals must be checked before a transfer is submitted.

What defines a real-time payment

Also called instant payments, real-time payments are a category of bank-payment service rather than a single network. J.P. Morgan describes their core features as individual processing instead of batch processing, near-immediate funds availability, year-round operation and final, irrevocable settlement.

That differs from ACH, which J.P. Morgan says typically processes over several business days. The American Bankers Association notes that Zelle can give customers immediate credit while ordinarily settling later through ACH. In some cases, Zelle transactions settle through RTP when both banks can use that network. A prompt customer-facing credit therefore does not necessarily show that interbank settlement occurred in real time.

How the process works

1. The payer initiates a transfer through a bank’s digital or business-banking channel, providing recipient details and the amount.
2. The sending bank verifies the payment details and available funds.
3. A real-time payment network processes the individual instruction.
4. The recipient gains access to the funds and both sides receive confirmation, generally within seconds.

RTP and FedNow

RTP is the name of a specific U.S. network, not a catch-all term for every real-time payment. The Clearing House says its RTP network began processing in 2017. J.P. Morgan and U.S. Bank identify FedNow as the other primary U.S. instant-payment rail; U.S. Bank says the Federal Reserve launched it in 2023.

The settlement arrangements differ. The ABA says RTP uses a shared prefunded joint account, while FedNow is linked to a participating bank’s master account at the Federal Reserve. Both rails are described by U.S. Bank as providing immediate availability and confirmation around the clock.

Business and treasury uses

Real-time payments can be used for supplier payments, transfers between company accounts or subsidiaries, contractor and gig-worker payouts, emergency payroll, refunds, insurance claims and account-to-account transfers, according to The Clearing House, J.P. Morgan and U.S. Bank.

The Clearing House says RTP supports ISO 20022 data for real-time reconciliation. U.S. Bank says ISO 20022 payment and remittance data can reduce manual collection. These data capabilities can be relevant where a business needs payment information to accompany a confirmed receipt.

Finality and geographic scope

J.P. Morgan and U.S. Bank describe real-time payments as irrevocable. Businesses using them need pre-submission controls that validate the beneficiary, amount, available funds and required approvals, because finality follows completion of the payment.

Instant-payment systems also operate outside the United States, including India’s Unified Payments Interface, the United Kingdom’s Faster Payments System and Brazil’s Pix, according to J.P. Morgan. The bank says most real-time payment networks serve individual countries, regions or currency areas.

Frequently asked questions

What is the difference between the RTP network and FedNow?

They are the two primary U.S. instant-payment rails identified in the supplied sources. The Clearing House’s RTP network began processing in 2017, while U.S. Bank says the Federal Reserve launched FedNow in 2023. The ABA says RTP uses a shared prefunded joint account for settlement, while FedNow is linked to a participating bank’s master account at the Federal Reserve.

Are real-time payments the same as Zelle?

Zelle and real-time payments are not necessarily the same. The ABA says Zelle can provide customers with immediate credit while ordinarily settling later through ACH. It may settle through RTP in real time when both banks can use that rail.

Sources

• Always Ready. The RTP ® Network, Trusted by Financial Institutions ... — www.theclearinghouse.org
• Instant payments: Understanding real-time payment networks — www.jpmorgan.com
• Real-Time Payments — www.aba.com
• Instant Payments: RTP ® Network and FEDNOW ® Service — www.usbank.com