The FedNow Service: An Overview
The FedNow Service, established by the Federal Reserve, is an innovative instant payment system designed to accommodate depository institutions of various sizes throughout the United States. This service enables these institutions to offer real-time payment solutions to their customers. It went live on 20 July 2023.
Instant Payment Solutions for Businesses and Individuals
Businesses and individuals connected to financial institutions participating in the FedNow Service can execute and receive payments instantly, at any time, on any day of the year. This system empowers financial institutions and their service providers to offer cutting-edge instant payment services. As a result, recipients benefit from immediate access to their funds, providing enhanced financial agility, especially for urgent payment needs.
Marcel Kasumovich’s Perspective
Marcel Kasumovich, Deputy CIO at Coinbase Asset Management, recently shared a LinkedIn post discussing the Federal Reserve’s FedNow Service, its current state, and its implications for the future of payments, particularly in relation to cryptocurrency.
FedNow Service Adoption Challenges
Despite the FedNow service being live for over three months, Kasumovich points out that its accessibility is limited, with less than 400 out of over 10,000 U.S. depositor institutions adopting it.
Cryptocurrency Efficiency and Regulatory Mainstreaming
Kasumovich highlights the efficiency of cryptocurrency payment rails, exemplified by the $4 billion daily volume of Circle’s USD stablecoin, USDC. He notes that the current supply of USDC could support an annual activity of $1.5 trillion, approximating 10% of VISA’s annual activity. This efficiency is what initially attracted traders to stablecoins as a banking alternative.
The post also touches on the need for cryptocurrencies to enter the regulatory mainstream to achieve larger scale. He mentions regulatory actions that add friction to using USD stablecoins for simple payments and emphasizes the integration of stablecoins with the banking system as crucial for their broader utility.
FedNow Critique and Conclusion
Kasumovich critiques FedNow’s positioning as a mainstream application and addresses misconceptions about its capabilities. Despite its current limitations and complexities surrounding its implementation and adoption, he affirms that the move towards instant settlement in payments is inevitable and beneficial for users.
Hot Take: The Future of Instant Payments
As you consider your options for instant payments through services like FedNow or cryptocurrency solutions like stablecoins, it’s important to weigh both their current limitations and potential benefits. The future of instant settlement in payments is inevitable and can be beneficial for users despite initial challenges in implementation and adoption.
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