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What is a payment system?

Mary Ellen Biery
March 18, 2025
Read Time: 0 min
ATM machine dispensing cash

Payment system types, trends, and fraud risks 

Understanding how payment systems function, the different types in use, and the associated risks is critical for financial institutions to be able to balance innovation with security.

Key topics covered in this post: 

What is a payment system?

Payment systems are at the heart of modern banking, enabling secure and efficient money transfers. Consumers often take for granted how seamlessly transactions occur, but the financial professionals responsible for payment processing and fraud prevention must navigate a rapidly evolving landscape. FedNow, the new instant payments infrastructure developed by the Federal Reserve, is a recent example of the changes banks and credit unions must adapt to in order to meet consumer expectations.

Understanding how payment systems function, the different types in use, and the associated risks is critical for financial institutions to be able to balance innovation with security.

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A payment system is the infrastructure that allows money to move between individuals, businesses, and financial institutions. It refers to the rules, institutions, people, markets, and agreements that make payment exchanges possible. 

Payment systems have three key components:

  • Participants (e.g., banks, credit unions, businesses, consumers)
  • Payment instruments (e.g., checks, debit/credit cards, wire transfers, digital wallets)
  • Clearing and settlement mechanisms for processing transactions accurately and securely

Payment systems are critical to the nation’s financial infrastructure and are vital to the financial stability of the U.S. economy. Because of this, the Federal Reserve plays an important role in monitoring and helping keep transactions moving through them. However, retail and wholesale payment systems are operated by public and private sector entities, which are responsible for communicating information about individual payment transactions and settling transactions.

Traditional payment systems

Traditional payment systems have been the foundation of banking for decades and remain widely used today:

  • Automated Clearing House (ACH) – Processes direct deposits and bill payments in batch transactions. Used for payroll, vendor payments, and person-to-person transfers. ACH transfers accounted for 34.2 billion transactions worth $86.59 trillion in 2021, according to the latest data from the Fed.
  • Wire transfers – Real-time, high-value electronic payments, often used for international transactions or large purchases. Commercial wire transfers from U.S. accounts reached 387.7 million transactions valued at $1,441.09 trillion in 2021.
  • Card networks (Visa, Mastercard, American Express, Discover) – Process payments between merchants, consumers, and financial institutions. Payment card networks in the U.S. handled 92.1 billion debit and prepaid transactions worth $4.3 trillion in 2021, another Fed report
  • Checks – Though declining, checks still account for some business and consumer transactions. Checks paid numbered 11.1 billion and check value was $27.44 trillion in 2021, according to the Fed. Business checks represent about three-quarters of all checks.

One way to think about a payment system is like a highway:

  • Banks and financial institutions are the toll booths verifying and approving payments.
  • The roadways represent networks like ACH or FedNow that transport funds between accounts.
  • Regulatory agencies, like the Federal Reserve or CFPB, act as traffic controllers, ensuring everything operates smoothly and securely.
  • Financial institutions are responsible for not only facilitating payments but also managing risks—including fraud, compliance, and operational challenges.

Real-time and emerging payment systems

As consumer expectations shift toward instant transactions, new payment technologies are gaining traction:

  • FedNow and The Clearing House’s Real-Time Payments (RTP) Network – These systems allow banks and credit unions to send and receive instant payments 24/7.
  • Blockchain-based payments – Systems like Ripple or stablecoins offer faster, decentralized transactions, though regulatory uncertainty remains.

Payment system vs. payment platform: What's the difference?

Female flower shop owner on the phoneWhile a payment system is essential for payment exchange, many people are increasingly familiar with popular payment platforms that allow individuals to transfer money directly to one another using bank accounts, debit cards, or stored balances. These consumer-facing services operate on top of existing payment rails (ACH, card networks, or real-time payments) for processing and clearing. The payment platforms add their own user interface, features, and fraud controls.

Payment platforms are not payment systems, since they don’t clear or settle payments on their own. Following the analogy above, if a payment system is the highway for moving money, a payment platform is a specific car or truck that drives on that highway.

Peer-to-peer (P2P) payment platforms

Common examples of payment platforms that enable P2P payment exchanges include:

  • Zelle – A bank-backed transfer service designed for P2P transfers between U.S. bank accounts. It is integrated directly into many financial institutions’ online banking systems.
  • Venmo & Cash App – Mobile-first platforms that allow users to send payments using stored balances or linked bank accounts/cards. They often use the ACH network for standard transfers or the RTP network for real-time transfers.
  • Apple Pay & Google Pay – Digital wallets that facilitate P2P payments and contactless transactions.

Most-used vs. emerging payment systems

While the ACH network is the dominant payment system for U.S. businesses and consumers, real-time payments are seeing rapid adoption. The FedNow Service reports that over 1,000 financial institutions are participating on the network, with adoption expected to increase significantly over the next few years.

P2P payments are among the fastest-growing payment methods. Zelle said in 2024 it processed 3.6 billion transactions worth over $1 trillion, while Venmo said total payment volume hit $1.68 billion, up 10% from 2023.

Regulations for payment systems

Financial institutions must comply with a complex web of regulations to ensure the security and legality of payment processing. Some of the most relevant include:

  • Regulation E – Governs electronic funds transfers (EFTs) and protects consumers from unauthorized transactions.
  • Regulation CC – Establishes rules for check clearing and funds availability.
  • Bank Secrecy Act (BSA) – Requires financial institutions to monitor and report suspicious transactions to prevent money laundering.

Who regulates payment systems?

Multiple agencies oversee payment systems in the U.S.:

  • Federal Reserve – Manages ACH, FedNow, and interbank payments. The Fed is concerned with the overall safety and soundness of the payments markets, the promotion of operating efficiency, and equitable access to payments systems.
  • Consumer Financial Protection Bureau (CFPB) – Regulates consumer payment protections under Reg E and related laws.
  • Office of the Comptroller of the Currency (OCC) & Federal Deposit Insurance Corporation (FDIC) – Supervise banks and credit unions for compliance and risk management related to payment systems.
  • National Automated Clearing House Association (NACHA) – Oversees ACH payments and develops rules and standards for the network.

The growing risk of payment fraud

With faster payments comes greater fraud risk. The Federal Trade Commission (FTC) reported that in 2024, U.S. consumers lost over $12.5 billion to fraud, a record high and a 25% increase over 2023.

Financial institutions must proactively protect themselves and their customers or members from evolving fraud threats tied to payment systems. Terri Luttrell, Abrigo Compliance and Engagement Director, says regulators expect financial institutions to employ adequate technology and human resources to manage evolving fraud scams and risks. She recommends investing in the following:

  • Updated hardware – Apply updates and patches in a timely manner, use multi-factor authentication (MFA) and biometric verification to prevent unauthorized access.
  • Advanced fraud detection – AI-driven fraud detection and monitoring solutions analyze transaction patterns to identify anomalies in all types of payments. Machine learning models continuously adapt to new fraud typologies, helping institutions mitigate hard-dollar losses.
  • Enhanced employee training – In addition to having adequate and qualified staff to investigate suspected fraud, financial institutions must ensure ongoing education and training across the institution. Frontline staff need to be able to recognize phishing attempts, deepfake scams, and synthetic identity fraud, along with variants as they emerge.

Customer or client awareness is also essential for preventing fraud. Providing fraud education through special seminars, newsletters, and digital campaigns can reinforce best practices for spotting scams and reporting suspicious activity to fight payment fraud.

Payments will continue to become faster and more focused on digital payment systems. Financial institutions have an obligation to their organizations and their clients to ensure fraud prevention strategies and efforts evolve alongside emerging threats.

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About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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