The future of instant payments

What is FedNow?

Cryptocurrencies have revolutionized the world of finance by offering a new financial system and completely different; freer, more inclusive, without borders and without central entities making decisions about money.

FedNow aims to replace cryptocurrencies and central bank digital currencies as an instant, fee-free payment method.

One example of the crypto revolution is the attempts by governments around the world to curb its popularity and useeither with its own digital currencies, the CBDC (Central Bank Digital Currencies) or with tools such as FedNow.

FedNow is a system of instant digital payments developed by the U.S. Federal Reserve, with the objective of facilitating instantaneous (real-time) transfers 24 hours a day, seven days a week.

How FedNow works

This system works by interconnecting the proprietary systems of all banks participating in FedNow. This enables fast and secure transfers, as it does not rely on traditional clearing and settlement processes, accelerating the flow of money.

FedNow is a radical departure from traditional payment systems, offering an efficient and affordable solution that allows you to send money instantly. Beyond instant transfers, FedNow has the potential to drive e-commerce by offering instant transactions between buyer and seller.

One of the Federal Reserve’s goals with FedNow is to prevent citizens from using cryptocurrencies or CBDCs themselves, in an effort to keep the bulk of the economy and finance, within traditional channels, managed by its monetary policies.

Advantages of FedNow

One of the main advantages of FedNow is that it offers banks a departure from traditional payment systems (legacy), so they can offer more agile and competitive services, being able to face modern fintech companies, which have much faster digital channels.

For users, its main advantage is the ability to make payments and, especially micropayments, instantly, securely and with almost no commissions. Thanks to FedNow, there is no need to wait for days to confirm that the money from a transfer reaches its recipient, which can be useful in emergency cases where money needs to be sent immediately.

On the other hand, it is worth noting that in Europe we have had a similar system for many years, called Instant Payment System that allows transfers in real time.

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