Real-Time Payments (RTP) Explained: How Instant Transfers Work

Real-time payments allow money to move instantly between bank accounts — 24 hours a day, 7 days a week, 365 days a year. Unlike ACH, which batches transactions and settles next-day, or wire transfers, which require bank hours and cost $15–$35, real-time payment (RTP) rails deliver funds in seconds with immediate finality.

The US was late to real-time payments. The UK launched Faster Payments in 2008. India's UPI handles over 10 billion transactions per month. Brazil's PIX became the most-used payment method in the country within three years of launch. The US now has two real-time rails: The Clearing House RTP Network (launched 2017) and the Federal Reserve's FedNow (launched July 2023). Understanding how these systems work — and how they differ — is essential for anyone building or working in payments.

What Are Real-Time Payments?

Real-time payments are electronic fund transfers that meet three criteria:

1. Immediate availability: The recipient can access the funds within seconds of the payment being initiated.
2. 24/7/365 processing: The system operates around the clock, not just during banking hours.
3. Immediate finality: The payment cannot be recalled or reversed by the sender. Once it's sent, it's final.

This third criterion — finality — distinguishes real-time payments from ACH. An ACH debit can be returned up to 60 days later for unauthorized transactions. A real-time payment is irrevocable. This is a feature (recipients can trust the funds immediately) and a challenge (there's no "undo" for mistakes or fraud).

Real-Time Payments vs. "Fast" Payments

Not all instant-seeming payments are real-time. Venmo shows an instant balance update when a friend pays you, but the underlying ACH settlement happens later. Zelle appears instant between enrolled accounts, but the speed comes from participating banks pre-funding trust accounts — it's not true central bank settlement in real time for all transfers.

True real-time payment systems settle across central bank accounts in real time. The money actually moves — it doesn't just appear to move.

The Clearing House RTP Network

The Clearing House (TCH) is a private banking association owned by the largest US commercial banks: JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and others. TCH has operated payments infrastructure since 1853 (it originally cleared paper checks).

The RTP Network launched in November 2017 as the first new core payment rail in the US in over 40 years. It was built specifically for real-time, data-rich, 24/7 payments.

How RTP Works

RTP uses a credit-push model — the sender initiates the payment, pushing money to the recipient. There are no ACH-style debit pulls on RTP. This design choice significantly reduces fraud: you cannot pull money from someone else's account without them initiating it.

RTP's core specs:

• Processing: Real-time, 24/7/365
• Maximum transaction: $1,000,000 (raised from $100,000 in 2020)
• Settlement: Immediate, across TCH's central settlement accounts
• Messaging format: ISO 20022 (rich data standard, much more information than ACH or card payments)
• Participants: 500+ financial institutions as of 2024, covering ~90% of US demand deposit accounts

The RTP Transaction Flow

1. Sender's bank receives the payment instruction from the sender (via mobile app, online banking, or direct API).
2. Sender's bank validates the payment and sends a credit transfer message to TCH's RTP platform.
3. TCH RTP validates the message format, checks the receiver's bank routing, and debits the sending bank's prefunded settlement account.
4. RTP sends the payment message to the receiver's bank.
5. Receiver's bank validates the message, credits the recipient's account, and sends a confirmation back through RTP.
6. RTP sends the confirmation back to the sender's bank.
7. Sender sees "payment confirmed." Recipient sees funds available in their account.

Total elapsed time: typically 3–5 seconds.

RTP's Key Innovation: Request for Payment (RFP)

RTP introduced a feature card networks don't have natively: Request for Payment (RFP). A biller (like a utility company or a lender) can send a payment request to a consumer's bank, which presents it to the consumer as "Acme Electric is requesting $87.43 by October 15." The consumer approves it, and funds transfer immediately.

RFP is the RTP-native alternative to ACH debit — it's pull-like behavior without giving the biller direct debit authority over your account.

FedNow: The Federal Reserve's Real-Time Rail

For decades, the Federal Reserve operated only FedACH — no real-time settlement infrastructure. The Fed launched FedNow on July 20, 2023, providing a government-operated alternative to TCH's RTP.

Why FedNow Matters

The US has thousands of small community banks and credit unions. When TCH launched RTP in 2017, big banks could connect quickly. Small institutions — many of which don't maintain TCH settlement accounts — had slower access.

FedNow levels the playing field. Because every US bank and credit union already maintains a Federal Reserve account (a requirement for Fed member banks, and accessible to non-members through the Fed's services), FedNow settlement works natively for any participating institution without needing a new private settlement account.

FedNow Specs

• Processing: Real-time, 24/7/365
• Maximum transaction: $500,000 (default; institutions can set lower limits)
• Settlement: Through Federal Reserve master accounts (immediate finality)
• Messaging format: ISO 20022
• Participants: 900+ financial institutions by mid-2024 and growing
• Connection: Via the Fed's existing FedLine network infrastructure

FedNow vs. RTP

In practice, both systems will coexist. Large banks likely connect to both to maximize reach. A payment from a JPMorgan customer to a community credit union might route through FedNow because that's where the credit union participates. The end user typically doesn't know or care which rail carried the payment.

Step-by-Step: What Happens in a Real-Time Payment

Let's trace what happens when Sarah (US Bank customer) pays $500 rent to her landlord (Fifth Third Bank customer) via RTP:

1. Sarah opens her bank's mobile app and enters $500, her landlord's email/phone (which maps to their account via a directory lookup).
2. US Bank (her bank) validates the payment — checks her balance, confirms the recipient is in the RTP directory.
3. US Bank sends an ISO 20022 credit transfer message to the RTP network.
4. RTP/TCH debits US Bank's prefunded settlement account for $500, credits Fifth Third's settlement account.
5. RTP routes the payment message to Fifth Third.
6. Fifth Third receives the message, credits the landlord's account.
7. Fifth Third sends a payment acknowledgment back through RTP.
8. US Bank confirms to Sarah: "Payment delivered."
9. Landlord receives a push notification: "$500 received."

Elapsed time: approximately 3–5 seconds.

The money has actually moved — it's not a promise, a hold, or a pending item. The landlord can spend that $500 immediately.

RTP vs. ACH vs. Wire: The Full Comparison

For more on ACH and how it differs from real-time systems, see How ACH Payments Work.

Global Real-Time Payment Systems

The US is not a leader in real-time payments by adoption — it's catching up to systems that have been operating for years elsewhere.

Faster Payments (United Kingdom)

Launched in 2008, the UK's Faster Payments Service (FPS) was one of the world's first real-time bank transfer systems. UK residents can send up to £1 million instantly between accounts at any time. Faster Payments processes over 4 billion transactions per year. It's the backbone of UK mobile banking and has essentially eliminated checks for most consumer transactions.

The Pay.UK organization manages Faster Payments. The New Payments Architecture (NPA) — the next-generation replacement — is being developed with ISO 20022 messaging.

UPI (India)

The Unified Payments Interface, launched by the National Payments Corporation of India (NPCI) in 2016, is arguably the most successful payment innovation of the past decade. UPI processed over 13 billion transactions in a single month (March 2024), far exceeding any other retail payment system.

UPI is designed for mobile-first markets: users transact via Virtual Payment Addresses (VPAs like name@oksbi), no bank account number required. Settlement is real-time. P2P transfers carry zero fees. Merchant payments carry minimal interchange.

India effectively skipped the credit card era through a combination of government mandate and excellent product design.

PIX (Brazil)

Launched in November 2020 by Banco Central do Brasil, PIX became Brazil's most-used payment method within two years. The Brazilian central bank mandated participation by all financial institutions with over 500,000 customers — instantly solving the network effect problem that kills most new payment systems.

PIX handles over 4 billion transactions per month, is free for individuals, and has replaced checks, bank slips (boletos), and cash for a large share of Brazilian transactions.

SEPA Instant Credit Transfer (Europe)

SEPA Instant (SCT Inst) enables real-time euro transfers across 36 European countries in under 10 seconds. A 2024 EU regulation required all eurozone banks to offer SEPA Instant at the same price as standard SEPA Credit Transfer — effectively mandating free, instant bank transfers across the eurozone.

This is a significant policy move: the EU is legislatively nudging payments away from card rails toward instant bank-to-bank transfers. Visa and Mastercard are watching closely.

Real-World Use Cases for Real-Time Payments

Gig Economy Worker Pay

Delivering food, driving for rideshare, or doing contract work means waiting days for a bank transfer eats into workers' cash flow. RTP and FedNow enable employers to pay workers instantly after each shift or delivery. Companies like Lyft have used same-day and instant pay options as recruiting tools. This is one of the highest-value use cases for real-time rails.

Emergency Disbursements

Insurance companies paying claims, government agencies disbursing emergency benefits, or employers making urgent expense reimbursements — all benefit from instant finality. A hurricane victim who needs to pay for a hotel tonight cannot wait for a check to arrive.

Real-Time Bill Payment

Traditional bill pay has timing risk: submit a payment on the due date via ACH, it doesn't settle for a day, you get a late fee. RTP enables genuine same-day, same-hour bill payment. With FedNow and RTP, a payment initiated at 11:45pm on the due date settles before midnight.

Business-to-Business (B2B) Payments

Supplier payments, contractor invoices, and cash management between business accounts all benefit from real-time settlement. A business receiving an RTP payment doesn't need to factor in float or check-clearing delays when making operational decisions.

Key Takeaways

• Real-time payments settle in seconds, operate 24/7, and are irrevocable — unlike ACH (reversible, batch) or traditional wires (slow, expensive).
• The US has two RTP rails: The Clearing House RTP Network (2017, private, bank-owned, $1M limit) and FedNow (2023, Federal Reserve, $500K limit). Both use ISO 20022 messaging.
• The transaction flow: Sender's bank → RTP network → Receiver's bank, all within seconds. Settlement happens across prefunded or Fed accounts simultaneously.
• RTP vs. ACH vs. wire: Real-time for urgent and 24/7 needs, ACH for cheap recurring payments, wires for large one-time transfers. Each has its place.
• Global context: The US is late to real-time payments. The UK (Faster Payments, 2008), India (UPI, 2016), and Brazil (PIX, 2020) all moved faster and achieved higher adoption rates.
• Key use cases: Gig worker pay, emergency disbursements, instant bill payment, and B2B supplier payments are driving RTP adoption in the US.
• The trend is clear: Real-time, 24/7, low-cost A2A payments are gaining ground on card networks and ACH for use cases where speed and finality matter.

Related Reading

• How ACH Payments Work — The complete guide to ACH credits, debits, same-day processing, and how ACH compares to real-time rails
• How Payment Networks Work: Visa, Mastercard, UPI, and More — Global payment infrastructure, including the real-time networks that are challenging card dominance
• How Visa Processes a Transaction in Milliseconds — Inside VisaNet and how card authorization works at scale
• BNPL Explained: How Buy Now Pay Later Works — How fintech credit products layer on top of payment rails

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