Posted: June 02, 2026 | Updated: June 04, 2026 at 3:18 PM
Traditional banks shut shop on Saturdays, Sundays, and public holidays. This is an inherent hurdle to merchants that operate 24/7; they are forced to manage their cash flow and payment batches around these holidays. Most merchants have their transactions processed by a method called batch processing. Batch processing is a method in which transactions are grouped and processed in a single batch.
SMBs have always relied on Automated Clearing House (ACH) for payment processing. However, increasing customer expectations, such as 24/7 online ordering and services, force the business to cover operational costs with out-of-pocket expenses.
Having money trapped in processing is the biggest bottleneck for a business. They have to rely on operational reserves to meet the rent and weekly payroll. Newtek Bank’s decision to integrate FedNow and RTP comes at a time when SMBs are suffering from operational delays caused by batch processing.
By adopting instant payments, SMBs can ensure that operational cash reserves are replenished reliably, preventing them from going bankrupt due to day-to-day expenses.
FedNow and RTP are the two biggest payment rails in the United States. RTP, introduced by the Clearing House, is a private, real-time payment network launched in 2017. It is owned by a consortium of some of the largest banks in the United States. On the other hand, FedNow is a real-time payment network launched in 2023 by the Federal Reserve. It was designed to make instant payments accessible to thousands of smaller regional banks across the United States.
To understand the impact of these two entities on the payment system, we first have to understand how payments actually work. There are two distinct processes involved in a payment, i.e., authorization and capture of funds. Consumer apps, such as Venmo or Zelle, authorize payments instantly, but the funds are captured over time. The fund settlement is not instant. On the other hand, FedNow and RTP authorize and capture funds simultaneously. This means the funds are credited to the merchant’s account instantly.
Till now, FedNow and RTP were not interoperable. Interoperability is the ability of two systems to communicate directly with one another. RTP was the first entity in the United States to establish instant settlement of funds. This marked a milestone in the banking system for merchants. However, small merchants often feel priced out or are hesitant to join private networks run by competing banks. To achieve widespread inclusion, the Federal Reserve launched FedNow in 2023, with the main aim of connecting small regional banks to the instant fund settlement ecosystem.
Settlement is the final step in a financial transaction, in which the funds are irrevocably transferred from the sender’s account to the receiver’s account. In traditional wire transfers, payment settles instantly. Now you might wonder, if payments can already be settled instantly, why do we require a completely different payment network?
Although wire transfers are settled instantly, they are limited to Federal operating hours, i.e., they typically close at 06:00 PM EST. Moreover, wire transfers are not processed on Federal holidays. This creates a hurdle for businesses because they have to operate every day. Payments being blocked on certain days and after specific hours every day means the merchant has to schedule their payment-processing requests precisely, which is often not possible due to the highly unpredictable nature of income.
These guardrails provide all-time, instant fund settlement. 24/7/365 settlement means funds will be settled instantly, regardless of whether they are filed on a public holiday or outside business hours. For the receiver, these funds are considered “good funds.” Good funds are money that has fully cleared and is immediately available for the recipient to withdraw, spend, or invest without risk of a bounced transfer.
You know by now that FedNow and RTP are the two major fund settlement methods for merchants. Newtek Bank’s strategy of integrating these two payment networks is a dual-rail strategy that combines the two major payment rails available to merchants.
A dual-rail strategy is a bank’s decision to integrate and support both the RTP and FedNow networks simultaneously. Since most banking networks and merchants rely on either FedNow or RTP, Newtek Bank’s strategy is to cater to every merchant, regardless of their choice. This makes it extremely powerful in the payment space.
Newtek Bank ensures that any SMB client can reach their full potential by removing restrictions on payment methods. Merchants can now accept payments via FedNow or RTP, which offers unlimited opportunities. But this also means that Newtek Bank holds the opportunity to monopolize the payment game in their favor.
Smart payment routing ensures payments reach the receiver’s bank via the correct instant rail, without hurdles. This positions Newtek Bank as the ultimate operational partner that SMBs adopt to gain an edge over competitors.
Cash flow velocity is the speed at which money moves into, through, and out of a business. Old banking systems force merchants to slow the velocity of cash flow. Businesses have to hold cash reserves for 3 to 5 days before incoming payments are even settled into the merchant’s account, and even use that money.
Float is the time between when a payment is initiated and when it is actually settled in the recipient’s account. You can simply understand it as the time between the customer initiates the payment and when you are actually able to spend the money. On the other hand, a key concept for merchants is liquidity. It is the amount of money readily available for the merchant to spend.
Instant payments drastically reduce your float time, which means that funds flow faster into your bank account, and you do not have to wait for fund settlement to meet operational expenses. An increase in liquidity means that the merchant is not forced to take out credit lines to meet their day-to-day operational expenses. While businesses previously used float to their advantage to delay payments, merchants today demand faster, instant settlement of funds.
Traditionally, merchants had to schedule and plan their payment processing strategies so that ACH payments and fund settlements were completed by the time the payment was expected. But with FedNow and RTP, merchants can release payments as needed, since funds settle instantly.
This strategy is called Just-in-Time (JIT) funding. It is a strategy in which a business holds onto its cash reserves until the exact moment a bill is due, rather than paying the dues in advance, anticipating their clearance on the expected dates. The newer payment guardrails also reduce the Days Payable Outstanding (DPO). DPO refers to a financial metric that indicates how long a company takes to pay its invoices from trade creditors.
Instant payments allow merchants to take advantage of early-bird discounts while paying vendors. They no longer have to worry about banks closing on weekends or public holidays. Since both FedNow and RTP rely on the ISO 20022 data, the merchant can obtain a unique invoice number to cross-reference every payment they receive, preventing confusion.
Instant payments also have human and HR benefits which are particularly useful in the gig economy. Earned Wage Access (EWA) is a benefit that allows employees to access a portion of their accrued wages before the traditional payday. Businesses need to finalize and fund their payroll accounts 3 to 5 days before payday. This was important to ensure the payment aligned with ACH processing times.
On the other hand, disbursements refer to payments made by a business to individuals, such as payroll, expense reimbursements, or insurance claims. Instant payments allow companies to hold payroll until Friday, since funds can be settled at any time. This gives merchants more flexibility and breathing room, allowing them to extend operational liquidity for a few more days each week. For businesses relying on gig workers, the ability to offer immediate payouts is a competitive advantage.
These instant transactions are irrevocable, as we defined earlier. Irrevocable transactions are payments that, once set, cannot be canceled, reversed, or recalled by the sender’s bank. This is crucial because it requires meticulous review of the receiver before initiating the payment, because the merchant has no immediate remedy. On the other hand, Authorized Push Payment (APP) fraud is a scam where a criminal tricks a legitimate business employee into voluntarily sending an instant payment to a fraudulent account. Since these payments are irrevocable, the funds once initiated for the transaction can no longer be recovered.
The greatest advantage of instant payments is speed. However, speed is also the biggest risk associated with instant payments. Since funds are settled in seconds, there is very little margin of error. Transactions on the FedNow and RTP networks are permanent and irrevocable. If a business has sent money through this payment network, there is little to no way for them to recover if it results in a loss.
This irrevocability of transactions, as a characteristic of instant payments, has led to a rise in APP fraud. The scammer hacks vendor email accounts and requests payment from the merchant into a separate bank account via instant-settlement payment rails. Since the business has technically authorized the payment, even though it was made under false pretenses, the bank is generally not liable to reimburse the lost funds. This leaves SMBs to deal with risks alone; they must absorb all losses from fraudulent transactions.
FedNow and RTP have successfully eliminated the gap in the payment processing landscape. With Newtek Bank offering combined payment rails, it has successfully captured SMBs and their payment infrastructure. Instant payments shift banking from a delayed administrative process into a real-time strategic advantage. Businesses that adapt early will out-maneuver competitors who are still waiting for checks to clear.
RTP is the older instant payment settlement institution established and operated by big, private banking institutions. On the other hand, FedNow was launched in 2023 by the Federal Reserve to provide wider access to the instant payment settlement infrastructure for smaller banks.
No. Both forms of payment settle funds instantly, but wire transfers have a big disadvantage: they are not processed on weekends and federal holidays.
No, the transactions made through instant payment settlement infrastructure, such as FedNow and RTP, are strictly irrevocable. Once initiated, these transactions cannot be reversed or recovered.
No. Zelle is a consumer application that updates instantly, but the actual settlement of funds between the banks still happens via delayed ACH batch processing.
Yes, you need software compliant with the ISO 20022 standard, the common platform for both FedNow and RTP, to process instant fund settlement through these payment rails.
