Back in August, the Federal Reserve Bank made an announcement they were developing a new, round-the-clock, real-time payment and settlement service, called the FedNow℠ Service, to support faster payments in the United States.

Interesting they trademarked it too, huh?

Here’s a fundamental problem: the current Fed inter-bank system doesn’t work on weekends, and takes several days to settle a transaction.

Folks who live paycheck-to-paycheck often need access to their money sooner than the current, anachronistic system can provide. That’s a major reason Americans spend tens of billions every year on overdraft fees, payday lending, and check-cashing services.

This is a major obstacle for people trying to save and accumulate wealth. Economic inclusion is a major theme for 10XTS.

A new system of real-time payments would help avoid such expenses — but to the detriment of the bank’s service fee-driven bottom lines.

Now leaving blockchain and cryptocurrency out of it, the technology is already available. Instant payment systems are up and running in many countries around the world.

But US-based services like Venmo and Paypal rely upon the existing payment infrastructure.

This is where things start to get disconcerting.

China’s president, Xi Jinping, called on his nation to “seize the opportunity” and take a “leading position” in the development of blockchain technology.

This means they will create a programmable, digitized fiat Yuan currency gateway for direct integration into a sovereign-backed banking system.

I can tell you, as a financial technology nerd, a directly programmable currency data layer eliminates huge layers of intermediaries and the overall, inherent inefficiency, security risks, and time lag.

Will the sovereign risks of China overshadow the financial industry’s profit imperative to reduce operating costs?

I dunno, very much so for the United States, but probably not so much for a lot of other nations — which jeopardizes the US Dollar as a global reserve currency far more than Facebook’s Libra.

Big Banks Already Building Their Own

The Fed took many years to make the decision to create their own. But commercial banks have already invested $1 billion into their own instant payment platform called Clearing House, which launched in 2017.

I am pretty sure they’re not happy about where the Fed is going with this — because they probably built their system under the assumption that the Fed would not build its own soon enough, and would adopt theirs.

I’m not a deep expert here with banking and payment rails, but I think its a prudent worry a government as a direct competitor has an advantage in the payments marketplace.

Oh, and last time I checked, the government doesn’t like competition.

{don’t drone me bro}

Using the old Henry Ford quip about asking your customer what they want resulting in a faster horse, I don’t think the iterative approach to interconnecting legacy information systems will work in this new Space Race of totally digital government currency.

The Fed aims to launch the new FedNow℠ system in 2023 or 2024, but China is ready to go shortly.

Being able to directly program instant cash accounts into digital systems will literally wipe out massive swaths of compliance and risk-related overhead costs.

Auditors should be messing in their drawers over this. It’s going to matter in a big way here very soon.

About Michael Hiles

Founder CEO of 10XTS. Developing enterprise software and information architecture since 1979. Managing director of Founder Institute Cincinnati. Bourbon, coffee, Legos, things that explode. Husband & daddy.

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