Latest / Fintech Conversations with Fexingo: Banking, Payments, and Financial Software Companies / Why Payment Rails Are the Next Big Fintech Battleground
Transcript
- Lucas: So there's this term that's been floating around fintech circles for a while — 'payment rails.' Luna: Rails, as in tracks that money moves on. Lucas: Exactly. And for years, the rails were basically two: ACH for batch transfers, and card networks — Visa, Mastercard — for point of sale. But something's shifted in the last eighteen months. Luna: What changed? Lucas: The Fed launched FedNow in 2023 — that was the big one. And before that, The Clearing House had its RTP network, which is real-time payments. But FedNow gave it a federal stamp of legitimacy. Now you've got a bunch of startups and even some traditional banks building new infrastructure on top of these rails. Luna: So the pipes are being upgraded. But who's actually using them in a way that changes the customer experience? Lucas: Let me give you a concrete example. There's a regional bank in Ohio — I won't name it because they're not public about the partnership — but they connected to a third-party payment rail provider called Finzly. And they used it to offer same-day settlement for their small-business clients. Luna: Instead of the typical three-day ACH wait? Lucas: Right. And the key metric: they saw loan origination go up 18 percent within six months. Because when a business owner gets paid in thirty seconds instead of three days, their cash flow is more predictable, and the bank feels more confident lending. Luna: That's a direct line from faster rails to more lending. I hadn't thought about it that way. Lucas: And that's just one bank. The bigger story is that the companies building these rails — Stripe, Plaid, a bunch of banking as a service platforms — they're essentially competing to be the layer that sits between the old ACH system and the new real-time world. Luna: So what's the business model? Are they charging per transaction? Lucas: Mostly. It's a volume game. Finzly, for example, charges a few cents per payment. But the real margin comes from value-added services — fraud screening, reconciliation, data enrichment. If you can tell a bank not just that a payment cleared, but that the payer's average balance is rising, that's worth a lot. Luna: So they're turning a commodity — moving money — into a data play. Lucas: Exactly. And that's where the competition gets interesting. Because Plaid started as a data aggregator — they connect your bank accounts to apps like Venmo. But now they're moving into actual payment initiation. They launched a product called Plaid Transfer that lets businesses initiate ACH and real-time payments directly. Luna: So they're going from 'read-only' to 'read-write.' That's a big shift. Lucas: Huge. And it puts them in direct competition with Stripe, which has its own real-time payment offering called Stripe Connect. And with traditional processors like Fiserv and FIS. Luna: But those incumbents have been around for decades. Can the startups really take share? Lucas: Look at the data from a recent McKinsey report on global payments. In 2025, non-bank fintechs handled about 12 percent of all payment transactions in the US — up from 7 percent in 2022. And the fastest-growing segment is real-time payments, which are growing at a compound annual growth rate of about 30 percent. Luna: So the incumbents are losing share, but they're also adapting. Some are partnering with the startups. Lucas: Right. JPMorgan, for example, has been using RTP for years, but they also invested in a fintech called Cross River Bank, which is basically a banking as a service platform. The big banks are playing both sides. Luna: What's the regulatory angle? FedNow is government-run. Does that make it more attractive for some players? Lucas: It does for banks that are wary of relying on a single private network. FedNow is operated by the Federal Reserve, so it's seen as neutral and resilient. But it's not mandatory — banks can choose to connect or not. As of July 2026, about 40 percent of US financial institutions are live on FedNow. That's up from maybe 10 percent two years ago. Luna: Still a long way from universal. Lucas: But the adoption curve is accelerating. And here's the thing: once a bank invests in connecting to one real-time rail, the marginal cost to connect to others is low. So we're seeing a multi-rail world emerge. Luna: Multi-rail — meaning a single transaction might route through FedNow, RTP, or even blockchain, depending on cost and speed? Lucas: Exactly. And that creates a new layer of middleware — companies that help banks decide which rail to use for each payment. There's a startup called Volt that does exactly that, and they've raised over $200 million. Luna: So the infrastructure is becoming more complex, not simpler. That feels like a good opportunity for builders. Lucas: It is. And if you're building something in this space, or running a business that moves money, understanding these rails is becoming essential. Luna: That's actually a good point — a lot of our listeners are operators or founders who deal with payments every day. Lucas: Yeah, and that's part of why we love making this show. If these conversations are useful for what you're building or running, we're glad. And for those who want to support the show staying ad-free, we've set up a page at buy me a coffee dot com slash fexingo. No pressure, every bit helps keep us going. Luna: Absolutely. And speaking of building — let's talk about what happens when you combine these new rails with ai based fraud detection. Lucas: That's the next frontier. Because faster payments mean faster fraud. If a payment clears in seconds, you have seconds to decide if it's legitimate. So the rail providers are all investing in real-time machine learning models. Luna: Stripe has its Radar product. Plaid has Signal. They're both claiming fraud rates below 0.1 percent. Lucas: Right. But the interesting part is that these models get better with more data — and the rail itself generates that data. So the companies that own the rail have a structural advantage in fraud detection. Luna: It's a flywheel: more transactions -> more data -> better fraud models -> more trust -> more transactions. Lucas: Exactly. And that's why I think the payment rail space is the most important fintech battleground for the next five years. Whoever owns the movement of money also owns the data and the trust. Luna: Where do you see this going by 2030? Lucas: I think we'll see the end of the two-to-three-day ACH settlement for most business payments. Real-time will become the default. And the big question is whether the winners will be the existing card networks, the Fed, or a new generation of tech companies. Luna: My bet is on the tech companies — they're faster to innovate. Lucas: Mine too. But it's a long game. For now, the rails are being laid, and it's fascinating to watch.