Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Could FedNow Outperform Virtually All Existing Cryptocurrency Projects?
Protos | Protos Staff | Apr 3, 2023
The US Federal Reserve created FedNow to make USD settlement faster and cheaper between financial institutions. The system will offer 24/7 operating hours plus a full-featured back-office suite.
- Scheduled to launch by July 2023, FedNow vastly improves upon traditional interbank settlement systems like FedWire or ACH systems. It offers superior costs, scale, features, and intraday finality. FedNow almost completely obviates the need for a US central bank digital currency (CBDC) and it will accomplish all of this without any blockchain.
See: Alt-M Analysis: Where the U.S. Feds CBDC Proposal Goes Wrong
- Peer to peer payments: FedNow will enable instant USD settlement between US residents on a P2P, B2B, and B2C basis, irrespective of bank office hours. It will allow financial institutions to settle payments with each other instantly and eliminate the three to five business days timing of legacy payment settlements.
- FedNow will connect the majority of US residents (limited to customers in good standing with qualified US financial institutions) and many wealthy USD users abroad, soon encompassing hundreds of millions of people. It may connect 80% of the world's peer-to-peer electronic payments and could outperform almost all existing cryptocurrency projects.
- Cheaper Payments: FedNow promises to reduce transaction costs and offer cheaper payments than most public blockchains.
- The Federal Reserve will charge most financial institutions a monthly access fee of $25, which is a fraction of the cost of running a single node on most public blockchains.
- For payments up to $100,000, FedNow will charge 4.5 cents per transaction paid by the sender plus 1 cent per transaction request paid by the requester.
- FedNow eliminates all fiat-crypto fees, risks, and delays, and it is secured by the books of the Federal Reserve, which secure transactions worth quadrillions of dollars annually.
See: BoC: New Retail Payment Regulations Coming –> Fintechs Need To Get Ready…
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Scalability: FedNow's centrally managed database allows for highly scalable transaction processing, which is an advantage of an entirely centralized approach to digital payments.
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The Federal Reserve settles trillions of transactions every year and has limitless data and throughput capacity via government-managed data centers.
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In contrast, most public blockchains constrict data to as little as a few megabytes every hour. Scalability remains an issue for any digital asset that prioritizes decentralization, but FedNow is 100% centralized and, therefore, scalable with nearly limitless throughput.
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