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.
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, 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.
Before joining Coinbase, Kasumovich was a Deputy CIO at One River Asset Management from January 2021 to March 2023. His tenure at One River was preceded by a seven-year stint as a Strategist at Tse Capital Management LP, where he led research and strategy focusing on global FX, bonds, and equities. Additionally, he has been a Partner at Semanteon Capital since December 2020 and continues to hold this position.
Kasumovich’s expertise also extends to advisory roles. He was a Member of the Board of Advisors at Predata from January 2018 to June 2022. His academic contributions are notable as well, having served as a Visiting Scholar at the International Monetary Fund from July 2012 to June 2013.
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.
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, he argues, 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, like the PayPal subpoena, that add friction to using USD stablecoins for simple payments. The integration of stablecoins with the banking system is crucial for their broader utility, as exemplified by the need for transaction recipients to engage with traditional financial systems.
Kasumovich critiques FedNow’s positioning as a mainstream application, noting its institutional-only access and the lack of direct user engagement. He points out the slow adoption rate among banks and suggests that this hesitance is an advertisement for the consolidation of financial services. Additionally, he addresses the misconceptions about FedNow, clarifying that it is not a tool for transaction monitoring, not a risk to financial stability, and not a central bank digital currency.
Kasumovich concludes by affirming that the move towards instant settlement in payments is inevitable and beneficial for users. He views FedNow as a validation of this shift, despite its current limitations and the complexities surrounding its implementation and adoption.
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