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- FedNow is expected to be launched in July and could affect the use of Ripple and stablecoins.
- It is also introducing tools to combat fraud.
Ripple, Stellar Lumens, and stablecoins are known for their fast transaction properties while eliminating middlemen from the process. In July, the US Federal Reserve’s FedNow would be launched and could pose a huge competition to these digital networks. FedNow seeks to make USD settlements faster and cheaper across financial institutions. This payment network would foster instant transactions between residents of the US on a peer-to-peer (P2P), business-to-business (B2B), and business-to-consumer (B2C) basis.
For the first time, it will allow almost any financial institution to settle payments with other institutions instantly. This feature will eliminate the usual ‘three to five business days’ timing of legacy payment settlements. As a result, it will give payees who rely on cash flows reliable, intraday access to cleared funds.
Crypto enthusiasts have been criticizing traditional banks on the grounds of their inconvenient location and banking hours. According to them, accessing money should not be limited in any way, and senders should be able to facilitate transactions without facing the risk of chargebacks. Interestingly, the Fed’s payment network addresses all these concerns.
FedNow could cripple the effectiveness of stablecoins
FedNow would only serve customers who are in good standing with qualified financial institutions in the US. Regardless, the majority of US residents and wealthy USD users abroad would be connected by FedNow.
As the clearinghouse for the world’s reserve currency and reference rate for the vast majority of global trade, the Federal Reserve is the world’s preeminent central bank. Per Pareto’s principle, FedNow might only connect 20% of the world’s population on a peer-to-peer basis but it may still connect 80% of the world’s peer-to-peer electronic payments.
The cheaper transaction fee of crypto that makes it largely patronized is also under threat as FedNow promises lower costs than almost any blockchain. It is reported that financial institutions would be charged a de minimus $25 monthly access fee by the federal reserve. This is just a fraction of the cost of running single nodes on most public blockchains. FedNow will charge just 4.5 cents per transaction for payments up to $100,000 paid by the sender and 1 cent per transaction request paid by the requester.
Even better, this fee schedule accounts for the complete transfer in fiat, with no on/off-ramping through any crypto exchange. FedNow eliminates all fiat-crypto fees, risks, and delays. With very few exceptions, FedNow offers cheaper payments than almost any public blockchain. It is also secured by the world’s most valuable ledger: the books of the Federal Reserve, which secure transactions worth quadrillions of dollars annually.
FedNow is also introducing a maximum limit on transaction sizes (initially proposed at $500,000 per account, per day), and also be equipped with the ability to flag down accounts suspicious of illegal activities. There are other FedNow features in development including Alias-based payments. This would prevent the need to remember an account or routing number. It will also support APIs and bulk payment applications like payroll.
The successful implementation of this could cripple the effectiveness and the use of Ripple, Stellar Lumen, and stablecoins within its region of operation.
