The Federal Reserve intends to create a real-time payments system for banks to send money between themselves. The offering will be operational sometime after 2023, and available for transactions up to $25,000.
And this has worried a few people cautiously holding their crypto bags. On Twitter, derivatives trader Tone Vays argued that while it might not affect Bitcoin, it could spell bad news for altcoins focused on payments—XRP, Litecoin and Bitcoin Cash. But the reality is the system is nothing new, and will have little to no effect on the crypto industry.
The payments system, called FedNow, aims to bring traditional banks into the 21st century, with such revolutionary changes as working on weekends and taking fewer than five days to process. Things that are standard practices for other financial businesses. For example, challenger banks like Venmo offer instant transactions between Venmo users and for withdrawals to traditional banks.
The Federal Reserve refers to services like Venmo, however, as “closed loop” systems, since both parties involved in the transaction must be on the same platform to do business. By contrast, FedNow aims to provide a system that any bank throughout the U.S. can use. “FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers," said Federal Reserve Board Governor Lael Brainard.
Even still, FedNow will offer little more than is already available within the United States. The Clearing House, owned by Citigroup, Bancorp, JP Morgan and a number of other banks, launched a faster payments system back in 2017, offering real-time payments. Indeed, before FedNow could even begin to complete with crypto-based payment systems, it must first duke it out with The Clearing House.
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What’s more, real-time payment and settlement services among banks are nothing new on the international scene—in fact, such a system has been in place in the U.K. for the past decade. The U.K.’s Faster Payments Scheme (FPS), launched in 2008, allows financial institutions in the country to make instant transfers of up to £250,000 among participating banks.
The U.K.’s FPS hasn’t stifled crypto in any way, and neither will FedNow, primarily because the real appeal for cryptocurrencies as payments relies on cross-border transactions. Crypto companies such as Ripple Labs are keenly aware of this. Ripple, in fact, has built a multi-billion-dollar business using cross-border payments as the chief use case for its token XRP.
Interestingly, instead of being threatened by the Fed’s efforts, Ripple has been actively helping the bankers develop a faster payments system since at least 2015. And Ripple’s global head of infrastructure innovation, Dilip Rao, seemed curiously excited by the Fed’s announcement on Twitter, prompting some to speculate about Ripple’s potential involvement in FedNow.
Rao has since put those rumors to bed, cautioning eager XRP holders not to “read any more into” his comments. But if Ripple, which ostensibly stands the most to lose from a Fed-driven payment system, is at the very least not bothered by it, then that tells you all you need to know.