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FEDNOW DELIVERS THE JOLT THE US PAYMENTS LANDSCAPE SORELY NEEDS
December 20, 2023
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Announced on July 20, the Federal Reserve’s (the Fed’s) FedNow Service is a new instant-payment infrastructure allowing eligible US depository institutions of all sizes to provide instant-payment services to individuals and businesses. Although signing up is optional, the service is available to more than 10,000 US financial institutions operating within the Fed’s network, complete with a clearing service for financial institutions to provide immediate, real-time, end-to-end payments continuously between bank accounts.

FedNow is far from being the first American real-time payment system, with the likes of the Clearing House Payment Company’s Real-Time Payments (RTP) platform (used by federally insured US depository institutions) and Zelle (used within the RTP network) proving hugely popular, in addition to private-sector offerings, such as Venmo and Cash App, that enable instant money transfers between mobile-application accounts. But those services mostly do not enable instant bank-account-to-bank-account transfers, unlike FedNow. Many regard the Fed’s new offering as an essential upgrade to its existing Fedwire Funds Service, a real-time gross settlement (RTGS) system that enables participants to initiate fund transfers. Unlike the latter, the FedNow instant-payment service allows participants to send and receive money in their bank accounts via checks, deposits and mobile payments 24 hours a day, 7 days a week and 365 days a year (including holidays).

With demands for speed and convenience in monetary transactions growing astronomically, FedNow may seem long overdue, considering that similar infrastructures have been thriving in many other parts of the world in recent years. Despite being less than three years old, for instance, Brazil’s Pix processes around $260 billion of instant payments every month, one-third of which are retail point-of-sale (POS) transactions. It has been used by nearly 150 million Brazilians—approximately 70 percent of the total population—and is offered by a whopping 800 banks and fintech (financial technology) firms nationwide. The United Kingdom’s Faster Payments System (FPS), meanwhile, processed 379.4 million payments in June—18 percent more than 12 months previously; the payments amounted to £315 billion for the month—20 percent more than a year earlier.

“Through financial institutions participating in the FedNow Service, businesses and individuals can send and receive instant payments in real time, around the clock, every day of the year,” the platform’s official website states. “Financial institutions and their service providers can use the service to provide innovative instant payment services to customers, and recipients will have full access to funds immediately, allowing for greater financial flexibility when making time-sensitive payments.”

Participating banks and credit unions are expected to integrate the FedNow service into their mobile-banking apps and websites, making it easy and secure for their customers to send instant payments.

The Fed has also been quick to quell the notion that FedNow represents a stepping stone towards a digital currency, an eventual replacement for physical cash, despite speculation regarding such a scenario widely circulating. “The FedNow Service is not related to a digital currency,” the Fed states on its website. “The FedNow Service is a payment service the Federal Reserve is making available for banks and credit unions to transfer funds for their customers. It is like other Federal Reserve payment services, such as Fedwire and FedACH. The FedNow Service is neither a form of currency nor a step toward eliminating any form of payment, including cash.”

Among the biggest likely beneficiaries of FedNow will be small American businesses that often lack access to traditional banks’ funding. The cash-flow challenges that result from these limits can be hugely threatening to such businesses’ survivals, and access to instant payments can significantly shorten the time to realise cash flows into their bank accounts. With many businesses relying on tailored inventory-management systems, such as just-in-time (JIT) (whereby goods are sourced from suppliers only as and when they are needed), it is hoped that the instant-payment initiative can be a true godsend for many enterprises.

Indeed, with access to funds becoming increasingly important for businesses, households and consumers alike, FedNow is likely to prove a winner. Businesses need cash flows without delays, while workers need their wages and salaries to be accessible in their bank accounts on the same days they are paid. Mortgage payments can also be completed instantly, so homeowners do not have to wait days for online payments to clear or even longer if paid by check.

But as with most innovative payment systems, FedNow is not without its own set of risks; most pertinent is the likelihood of fraud being committed. With companies such as Zelle registering customer claims of fraudulent activity last year numbering well into the hundreds of thousands, many of which have been irrevocable and non-refundable, there is considerable concern that payment-related fraud will similarly surface on the FedNow platform in the same numbers. Although the new services offer clear fraud-mitigation defences, the responsibility for recourse ultimately lies with participating financial institutions. “As they prepare for the FedNow Service, participating institutions will want to evaluate their own fraud management approach and consider taking steps to help protect themselves and their customers,” is the official FedNow position.

In June, rating agency Moody’s Investors Service identified several challenges facing FedNow just before its launch, including the potential losses faced by some payment players that “rely heavily” on card interchange fees as a primary revenue source. Moody’s noted that the constant, round-the-clock availability of FedNow will probably require users to invest more in technologies and headcounts to monitor money movements closely and guard against potential cyberattacks. And with payments moving more seamlessly via FedNow, the rating agency warned there could be an increased possibility of bank runs in light of the fast withdrawals observed during the series of bank failures earlier this year.

The June 26 report from Moody’s additionally noted that while FedNow may give smaller banks extra technological resources to compete with larger rivals, it may also erode financial institutions’ revenue if consumers and businesses prefer using the new payment system over credit and debit cards, as merchants pay banks and credit unions interchange fees when cards are used. “FedNow could reduce the revenues of payment firms and banks that rely heavily on debit and credit card interchange fees,” the report stated. “Banks would also lose the interest that banks and credit unions earn on ‘float,’ the money that is in practice earned during the time a bank takes to register a deposit or withdrawal.”

Evidence suggests the service faces a lack of widespread adoption, with only 35 banks and credit unions signing up to be equipped with FedNow’s instant-payment infrastructure as early adopters, along with the U.S. Department of the Treasury’s Bureau of the Fiscal Service. A further 16 service providers are now set up to support payment processing for banks and credit unions. But this number is only a small fraction of the thousands of lenders eligible for the service.

Nonetheless, early participants remain convinced that it is only a matter of time before mass adoption transpires. “The momentum and interest we’re seeing in the FedNow Service in the weeks after launch reflects the noteworthy support from early adopters and underscores the changing U.S. payments landscape,” said Kenneth C. Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow’s program executive. “We anticipate widespread adoption, and ubiquity will build over time, bringing the benefits of instant payments to communities nationwide and improving the way households, businesses and governments send and receive payments.”

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Source: The Dinarian ⚡ Claude AI

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The Stellar Development Foundation (SDF) is deeply committed to helping ensure that the highest security standards are available for projects building on the Stellar network. Last year SDF launched the Soroban Security Audit Bank, an initiative to provide projects access to auditing experts and tooling that are proven to help prevent hacks by catching potential bugs, inefficiencies, and security flaws before contracts go live. Through the Soroban Security Audit Bank, we’re empowering teams building on Soroban with comprehensive security audits from leading audit firms, enhanced readiness support, and robust tooling, significantly elevating the ecosystem’s safety and efficiency.

Since launch, the Soroban Security Audit Bank has successfully conducted over 40 essential audits, deploying over $3 million to support security of the smart contracts on Stellar. Check it out!

 

Ecosystem Success Stories: How the Soroban Audit Bank Drives Security Forward

By making automated formal verification available to developers, in addition to allocating significant budget for securing many of the top DeFi protocols built on top of Stellar, SDF has established a new security standard in the Web3 ecosystem. Mooly Sagiv, Co-Founder of Certora
SDF has been a strong partner as we’ve worked with teams across the Stellar ecosystem. SDF’s Audit Bank initiative allows for a smooth and streamlined review process, and is a clear reflection of the Stellar ecosystem’s enhanced commitment to security. Robert Chen, CEO of OtterSec
 

Leading projects within the Soroban ecosystem have highlighted the impact of the Audit Bank

Finding a good auditor is difficult, expensive, and high-stakes. The Audit Bank streamlines the process and supports ecosystem projects with security review at critical growth milestones. Markus Paulson, Co-Founder of Script3
The audit firms we worked with deeply understood the full ecosystem and the underlying protocols used. Their expertise and the tools from the Audit Bank strengthened our security and supported user and investor trust. Esteban Iglesias Manríquez, Co-Founder of Palta.Labs

What's New in 2025: Enhanced Audit Support for Soroban Builders

Teams building financial protocols, high-dependency data services, high-traction dApps funded by the Stellar Community Fund are able to request an audit and will typically be matched with a reputable audit firm within two weeks. We recently restructured the program for this year to enhance audit efficiency and incentivize accountability, and rapid and complete vulnerability remediation:

  • Complimentary Initial Audit: Projects will need to contribute 5% of the audit cost upfront, but this co-payment amount is eligible for a full refund, provided that critical, high, and medium vulnerabilities identified are swiftly remediated within 20 business days of receiving the initial audit report (learn more).
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  • Advanced Security Tooling: Projects can enhance their security self-serve through complimentary or discounted access to specialized tooling, which provide vulnerability detection and formal verification capabilities (see full list of available tooling). These tools are encouraged to capture ‘easy-to-spot’ issues prior to audit as well as a final check post-audit to increase the effectiveness and thoroughness of audits.
  • Enhanced Audit Readiness Support: Projects receive structured preparation support, including the implementation of best practices and security standards based on the STRIDE threat modeling framework. This ensures project teams are thoroughly prepared, optimizing audit efficiency and minimizing delays.

Get Started Today

If you're already funded through the Stellar Community Fund, meet the criteria and ready to secure your smart contracts, check your email for an invitation to submit an audit request–if you haven’t received one, contact [email protected].

If you haven't built on Stellar yet, we encourage you to start your journey with the Stellar Community Fund to become eligible for future security audits and ecosystem support. For any broader questions on the program, contact [email protected].

Also, we’re organizing an exciting series of workshops–join us for the kick-off on Soroban Security Best Practices on Friday, May 30, 2025 at 2 PM ET on @StellarOrg. Together, we're shaping a secure and resilient future for smart contracts on Stellar.

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Santander mulls stablecoin, crypto offering

Bloomberg reported that Banco Santander is mulling introducing euro and dollar stablecoins, or potentially making a third party coin available to clients, citing sources. This move aligns with broader crypto ambitions, as its digital bank, Openbank, has reportedly applied for a European cryptocurrency license under the Mica Regulations and may enable retail access to digital assets.

Systemically important banks embrace stablecoins?

Major banks are now moving from observers to participants in this expanding market. Should Santander confirm plans to launch a stablecoin, it will be the fourth global systemically important bank (G-SIB) to do so. Societe Generale’s FORGE subsidiary launched the EURCV euro coin in 2023. Deutsche Bank is a partner in ALLUnity, another stablecoin initiative with plans to launch this year, subject to regulatory approval. And Standard Chartered is part of a joint venture in Hong Kong that intends to introduce a stablecoin.

Santander’s involvement could extend beyond an individual initiative. The bank is a shareholder in The Clearing House, where the Wall Street Journal reported that US banks are exploring the potential to create a joint stablecoin. If a US initiative took that route it could involve nine more G-SIBs including Bank of America, Barclays, BMO, BNY Mellon, Citi, HSBC, JP Morgan, TD Bank and Wells Fargo.

Apart from these initiatives, our research shows that more than 20 other banks have been involved in stablecoin projects.

Until recently stablecoins were mainly used to settle cryptocurrency transactions and by residents in countries with volatile domestic currencies. During the last year stablecoin infrastructure has been expanding, especially for mainstream cross border payments. Plus, President Trump issued an executive order prioritizing stablecoins. One of the administration’s motivations is this increases demand for US Treasuries, lowering the interest rate the government pays on the Treasury bills.

Santander as an early digital assets mover

Santander’s stablecoin consideration builds on years of blockchain experience. The bank was an early Ripple investor and previously used Ripple’s permissioned network for payments (not XRP), while also embracing permissionless blockchain activities including issuing a digital bond on Ethereum in 2019. This dual approach led to collaborations with other major players – alongside Societe Generale FORGE and Goldman Sachs, Santander participated in the European Investment Bank’s first digital bond, also on Ethereum. Currently, the bank’s most significant digital money initiative involves Fnality, the wholesale blockchain-based settlement network, where Santander ranks among 20 institutional backers and is part of the early adopter group alongside Lloyds Bank and UBS.

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