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Fed Says FedNow Early Adopters Pave Path to Instant Payments
April 10, 2023
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Three months until the U.S. payments ecosystem changes forever.

In July, the long-awaited FedNow service launches, and its real-time rail will speed up money movement between accounts, transform bill payments and bring instant payments to a variety of use cases yet to be imagined.

As 1st Source Bank Vice President of Cards, Payments & Strategy Jim HuntFinzly founder and CEO Booshan Rengachari; and Federal Reserve SVP, Head of Payments Industry Relations Connie Theien told PYMNTS, collaboration has been, and will be, critical in the months and years ahead.

“This is a ‘first to market’ for all of us,” said Hunt. “There’s no path to follow – and we’re building this as we go.”

Getting Ready to Launch

At a high level, said Theien, the FedNow service will encompass end-to-end instant payment clearing and settlement, along with features that will help participants with reporting and liquidity management, risk management and fraud management.

“It’s a full-featured service that can deliver value on day one,” Theien noted, “but we’ve also designed the infrastructure so that we can enhance the services in an agile and iterative way … it’s our vision of a ‘Cadillac’ of infrastructure.”

Theien detailed that the ongoing pilot program, with a roster of more than 120 participants, has reached what Theien termed a “critical milestone,” where the Fed has opened the window, stretching into mid-June, for the formal certification of participants. The processors and financial institutions that aim to go live on day one are working through testing requirements and validation exercises.  

“We’ll spend late June into early July,” she said, “doing production environment validation with that group.”

Partnerships are key, said Theien, as FIs identify the critical processors and service providers they need in order to fill the gaps in legacy systems and back office functionality in order to embrace faster payments.

To that end, and in one example of those partnerships, 1st Source Bank and Finzly have been working together during the pilot program. Finzly announced earlier this year that it now offers FIs (and their developers) access to the FedNow Service via API

The Need for Immediacy

For 1st Source Bank, said Hunt, “the most important day-one consideration was the recognition that we needed a partner. We were not going to build this ourselves,” he said of the move to real-time payments. By linking with third-party providers to hit the ground running this summer, said Hunt, “being an early adopter of FedNow presents an opportunity to set ourselves apart from our competition.” 1st Source’s clients, he said, are looking for a variety of services, but there’s one over-arching theme, said Hunt: “The need for immediacy surrounds us every single day.” 

And for the FIs that don’t meet those expectations — well, they risk losing clients.   

FIs are, of course, aware of the benefits of connecting to instant payment systems like FedNow. But, as Rengachari explained, they face challenges in getting there, especially as banks move beyond batched payments.  

“One of the key obstacles banks find,” he told PYMNTS, “is that their core infrastructure is not 24/7.” Many FIs power their operations with mainframes that were built decades ago, and they need workarounds in order to get their back-end operations ready for FedNow.

“What’s important,” said Rengachari, “is how fast we can go ‘live’” as banks gear up to more fully participate in the digital economy. 

Banks need to adopt and embrace the changes to the payments ecosystem, which are occurring with more speed and frequency than before.

“You need to have agile partners,” noted Rengachari.  

Finzly, he said, helps FIs launch new payments infrastructure in a matter of minutes, so that the FI has an operating system ready to start processing instant payments.  

For the FIs themselves, the enhanced connectivity means that they don’t have to juggle the different “languages” such as ISO 20022 tied to payments’ messaging, and can instead focus on delivering the best service to their end users.   

With FedNow functionality in place, he offered up the example where a bank’s client, an insurance firm, wants to disburse payments in real time. 

With a few clicks, Rengachari said, an API call goes out to the bank, and the bank delivers the payment, instantly.

“That’s the embedded, connected, real-time experience that we will be seeing as the adoption of real-time payments comes more fully into the picture,” predicted Rengachari. 

Other use cases will emerge, he said, where gig economy workers will find value in getting paid several times a day — or government assistance, in times of natural disasters, can be sent instantly to individuals and families who desperately need that aid. Theien said that the real estate and auto industries will benefit from real-time loan disbursements

Business payments, especially, are ripe for a digital and instant overhaul, said Rengachari. “It’s good for the cash flow for both the sender and receiver,” he said. Hunt concurred that the new payment rail will be most heavily used by commercial clients. 

Consumers also will find value in moving money between deposit accounts, and even between financial ecosystems, with speed.

“One [use case] that excites us,” he said, “is request for payment — we think that’s a game-changer.”

Looking Ahead

Looking ahead, Theien said that the “tipping point” for getting a significant number of FIs on board with FedNow will likely be reached quickly. 

It took 10 years to get that critical mass in place with ACH, she said, and roughly four years with Check 21. 

The investment and testing being done by pilot program participants like Finzly and 1st Source, she said, will make it easier for other organizations to follow suit. 

“The whole industry is going to benefit from the heavy lifting that these pioneers have done,” said Theien. “None of this would have been possible without the in-the-trenches collaboration.”

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Musk Turns On Starlink to Save Iranians from Regime’s Internet Crackdown

Elon Musk, the world’s richest man and a visionary behind SpaceX, has flipped the switch on Starlink, delivering internet to Iranians amid a brutal regime crackdown.

This move comes on the heels of Israeli strikes targeting Iran’s nuclear facilities, as the Islamic Republic cuts off online access.

The former Department of Government Efficiency chief activated Starlink satellite internet service for Iranians on Saturday following the Islamic Republic's decision to impose nationwide internet restrictions.

As the Jerusalem Post reports, that the Islamic Republic’s Communications Ministry announced the move, stating, "In view of the special conditions of the country, temporary restrictions have been imposed on the country’s internet."

This action followed a series of Israeli attacks on Iranian targets.

Starlink, a SpaceX-developed satellite constellation, provides high-speed internet to regions with limited connectivity, such as remote areas or conflict zones.

Elizabeth MacDonald, a Fox News contributor, highlighted its impact, noting, "Elon Musk turning on Starlink for Iran in 2022 was a game changer. Starlink connects directly to SpaceX satellites, bypassing Iran’s ground infrastructure. That means even during government-imposed shutdowns or censorship, users can still get online, and reportedly more than 100,000 inside Iran are doing that."

During the 2022 "Woman, Life, Freedom" protests, Starlink enabled Iranians to communicate and share footage globally despite network blackouts," she added.

MacDonald also mentioned ongoing tests of "direct-to-cell" capabilities, which could allow smartphone connections without a dish, potentially expanding access and supporting free expression and protest coordination.

Musk confirmed the activation, noting on Saturday, "The beams are on."

This follows the regime’s internet shutdowns, which were triggered by Israeli military actions.

Adding to the tension, Israeli Prime Minister Benjamin Netanyahu addressed the Iranian people on Friday, urging resistance against the regime.

"Israel's fight is not against the Iranian people. Our fight is against the murderous Islamic regime that oppresses and impoverishes you,” he said.

Meanwhile, Reza Pahlavi, the exiled son of Iran’s last monarch, called on military and security forces to abandon the regime, accusing Supreme Leader Ayatollah Ali Khamenei in a Persian-language social media post of forcing Iranians into an unwanted war.

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In the wake of hurricanes and earthquakes, Starlink has provided critical internet access to affected communities, enabling emergency communications and coordination.

Similarly, during the Ukraine-Russia conflict, Musk activated Starlink to support Ukrainian forces and civilians, ensuring they could maintain contact and access vital information under dire circumstances.

The genius entrepreneur, is throwing a lifeline to the oppressed in Iran, and the libs can’t stand it.

Conservative talk show host Mark Levin praised Musk’s action, reposting a message stating that Starlink would "reconnect the Iranian people with the internet and put the final nail in the coffin of the Iranian regime."

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GENIUS Act lets State banks conduct some business nationwide. Regulators object

The Senate passed the GENIUS Act for stablecoins last week, but significant work remains before it becomes law. The House has a different bill, the STABLE Act, with notable differences that must be reconciled. State banking regulators have raised strong objections to a provision in the GENIUS Act that would allow state banks to operate nationwide without authorization from host states or a federal regulator.

The controversial clause permits a state bank with a regulated stablecoin subsidiary to provide money transmitter and custodial services in any other state. While host states can impose consumer protection laws, they cannot require the usual authorization and oversight typically needed for out-of-state banking operations.

The Conference of State Bank Supervisors welcomed some changes in the GENIUS Act but remains adamantly opposed to this particular provision. In a statement, CSBS said:

“Critical changes must be made during House consideration of the legislation to prevent unintended consequences and further mitigate financial stability risks. CSBS remains concerned with the dramatic and unsupported expansion of the authority of uninsured banks to conduct money transmission or custody activities nationwide without the approval or oversight of host state supervisors (Sec. 16(d)).”

The National Conference of State Legislatures expressed similar concerns in early June, stating:

“We urge you to oppose Section 16(d) and support state authority to regulate financial services in a manner that reflects local conditions, priorities and risk tolerances. Preserving the dual banking system and respecting state autonomy is essential to the safety, soundness and diversity of our nation’s financial sector.”

Evolution of nationwide authorization

Section 16 addresses several issues beyond stablecoins, including preventing a recurrence of the SEC’s SAB 121, which forced crypto assets held in custody onto balance sheets. However, the nationwide authorization subsection was added after the legislation cleared the Senate Banking Committee, with two significant modifications since then.

Originally, the provision applied only to special bank charters like Wyoming’s Special Purpose Depository Institutions or Connecticut’s Innovation Banks. Examples include crypto-focused Custodia Bank and crypto exchange Kraken in Wyoming, plus traditional finance player Fnality US in Connecticut. Recently the scope was expanded to cover most state chartered banks with stablecoin subsidiaries, possibly due to concerns about competitive advantages.

Simultaneously, the clause was substantially tightened. The initial version allowed state chartered banks to provide money transmission and custody services nationwide for any type of asset, which would include cryptocurrencies. Now these activities can only be conducted by the stablecoin subsidiary, and while Section 16(d) doesn’t explicitly limit services to stablecoins, the GENIUS Act currently restricts issuers to stablecoin related activities.

However, the House STABLE Act takes a more permissive approach, allowing regulators to decide which non-stablecoin activities are permitted. If the House version prevails in reconciliation, it could result in a significant expansion of allowed nationwide banking activities beyond stablecoins.

Is it that bad?

As originally drafted, the clause seemed overly permissive.

The amended clause makes sense for stablecoin issuers. They want to have a single regulator and be able to provide the stablecoin services throughout the United States. But it also leans into the perception outside of crypto that this is just another form of regulatory arbitrage.

The controversy over Section 16(d) reflects concerns about creating a regulatory gap that allows banks to operate interstate without the oversight typically required from either federal or state authorities. As the two Congressional chambers work toward reconciliation, lawmakers must decide whether stablecoin legislation should include provisions that effectively reduce traditional banking oversight requirements.

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If you find value in my content, consider showing your support via:

💳 PayPal: 
1) Simply scan the QR code below 📲
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Dubai regulator VARA classifies RWA issuance as licensed activity
Virtual Asset Regulatory Authority (VARA) leads global regulatory framework - makes RWA issuance licensed activity in Dubai.

Real-world assets (RWAs) issuance is now licensed activity in Dubai.

~ Actual law.
~ Not a legal gray zone.
~ Not a whitepaper fantasy.

RWA issuance and listing on secondary markets is defined under binding crypto regulation.

It’s execution by Dubai.

Irina Heaver explained:

“RWA issuance is no longer theoretical. It’s now a regulatory reality.”

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- Issuers need capital, audits, and legal disclosures

- Regulated broker-dealers and exchanges can now onboard and trade them

This closes the gap that killed STOs in 2018.

No more tokenization without venues.
No more assets without liquidity.

UAE is doing what Switzerland, Singapore, and Europe still haven’t:

Creating enforceable frameworks for RWA tokenization that actually work.

Matthew White, CEO of VARA, said it perfectly:

“Tokenization will redefine global finance in 2025.”

He’s not exaggerating.

$500B+ market predicted next year.

And the UAE just gave it legal rails.

~Real estate.
~Private credit.
~Shariah-compliant products.

Everything is in play.

This is how you turn hype into infrastructure.

What Dubai is doing now is 3 years ahead of everyone else.

Founders, investors, ecosystem builders:

You want to build real-world assets onchain.

Don’t waste another year waiting for clarity.

Come to Dubai.

It’s already here.

 

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🙏 Donations Accepted 🙏

If you find value in my content, consider showing your support via:

💳 PayPal: 
1) Simply scan the QR code below 📲
2) or visit https://www.paypal.me/thedinarian

🔗 Crypto – Support via Coinbase Wallet to: [email protected]

Or Buy me a coffee: https://buymeacoffee.com/thedinarian

Your generosity keeps this mission alive, for all! Namasté 🙏 Crypto Michael ⚡  The Dinarian

 

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