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FedNow: the future of US instant payments. An investor's deep dive

DHF Capital S.A.

In a move set to revolutionize the American payment landscape, the Federal Reserve recently announced the launch of the FedNow Service in July 2023. FedNow aims to enable financial institutions, irrespective of size or location, to offer nationwide instant payment services around the clock, every day of the year. But what exactly is FedNow, and how will it reshape the way we make payments? Let's explore the key features of FedNow, address common questions about the service, and understand its significance in supporting instant payment services in the United States for you as an investor.

A new era of instant payments

At its core, FedNow represents an interbank instant payment infrastructure, catering to banks, credit unions, and eligible financial institutions that maintain accounts with the Federal Reserve. These accounts enable these institutions to hold reserves, and through FedNow, they can seamlessly transfer reserves between each other for various interbank payment needs. What does this mean for you?

The standout feature of FedNow is its 24/7/365 operation, ensuring that financial institutions can clear and settle retail payments instantly at any time, including weekends and holidays. This real-time functionality sets FedNow apart from other interbank systems, making it an ideal solution for facilitating instant retail payments. Your money becomes quicker and therefore more active.

Supporting instant retail payments

FedNow's primary purpose is to support instant retail payments, allowing consumers and businesses to transfer funds at any time, from anywhere, with immediate availability to the recipient. Imagine the convenience of sending money to a friend in need late on a Saturday night or making an urgent payment to a merchant outside regular banking hours. FedNow makes that possible.

The existing interbank payment systems in the United States are not ideally suited for instant retail payments. While systems like Fedwire offer real-time gross settlement (RTGS) capabilities, they lack the seamless 24/7 operation required for instant payment services. FedNow bridges this gap by providing the necessary infrastructure for instantaneous fund transfers at any time, thus supporting the rapid growth of instant payment services.

FedNow and your financial institution

Are you transferring money as an individual and not as a company? Then you won't have direct access to FedNow. The service will enable financial institutions to offer instant payment services to their customers. When you're a business owner, this new service gets a lot more interesting. Banks and credit unions can leverage FedNow to clear and settle retail transactions promptly, ensuring funds are instantly available to both merchants and customers.

By eliminating the delays and interbank exposures associated with traditional interbank transfers, FedNow empowers financial institutions to provide seamless, immediate, and secure payment options to their clientele. What does this mean for you as an investor? It means that money flows faster, without you to wait for the opening or closing of banks, anytime or anywhere.

FedNow vs. Fedwire

It's worth noting that FedNow will complement rather than replace Fedwire. While FedNow focuses on supporting instant retail payments, it has a maximum value limit of $500,000 per transaction. Larger dollar-denominated RTGS transfers, often required by financial institutions, will continue to be processed through the Fedwire Funds Service.

With FedNow, the Federal Reserve is taking a proactive approach to support the growth of instant payment services in the United States. While individuals won't directly interact with FedNow, they'll experience its benefits through their financial institutions' instant payment services. As instant payments gain popularity both domestically and internationally, FedNow ensures the United States remains at the forefront of cutting-edge payment technologies and customer convenience.

Protect and grow your wealth with DHF Capital

At DHF Capital S.A., we believe in safeguarding and enhancing our client's wealth with personalized wealth management solutions. Our Collateral Pool at DHF Property Group reflects our dedication to prioritizing our client's financial objectives. As instant payments pave the way for new financial opportunities, we invite you to explore how DHF Capital S.A. can support and protect your wealth for a prosperous future. Every week we keep you posted with keen insights, updates, and must-reads about the world of finance!

DHF Capital S.A.

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