PitchBook News - Why are money transfers so slow?

If you've ever wondered why it still takes multiple business days for a bank transfer to be completed in the US, you are not alone.

Tech advancements in the last few decades have led to the development of computers that fit in our pockets, tools that can modify genes, and AI that can generate endless forms of new content. Yet, the issue of facilitating electronic payments in real time remains to be solved.

This isn't because the technological prowess for doing so doesn't exist. In fact, over 80 countries have already introduced some form of an instant payments scheme.

And in July 2023, the Federal Reserve launched its FedNow Service, bringing a new instant payment rail to the US. This was a highly anticipated moment for the payments industry, as FedNow represents the first new payment rail operated by the Fed in over 50 years.

But in the US, sending payments in real time isn't new.

In 2017, The Clearing House launched its Real Time Payments (RTP) Network, which, like FedNow, also settles payments instantly and operates 24/7, 365 days a year. Instant wire transfers through FedWire have also existed for decades, and push-to-card capabilities have been introduced by leading networks like Visa and Mastercard.

This means that FedNow will have to compete with many money-movement options for utilization and long-term adoption. We also can't forget about traditional payment means, such as by cash, check, card, or the Automated Clearing House.

Whether FedNow will take significant share from other payment rails remains to be answered, but observing the trends of other payment schemes suggests it will not be substitutive for now.

 

Click to see the full, two-decade chart in the research.