Caitlin Long is not happy.
The Federal Reserve just rolled out its instant payment service called FedNow. This is open to select banks. The challenge is that a financial institution requires a master account with the Fed to be eligible.
Long's bank, Custodia, has been rejected on this. A lawsuit was filed over the master account.
It is tied to 8 other fintech firm, some involved in cryptocurrency. These firms have valid charters but are not allowed a master account.
Long wants access to the FedWire payment system. This handled $1 quadrillion in payments in 2022. FedNow is only going to add to the amount processed through the Fed's systems.
Amsterdam Bank
One of the things that Long upset if the fact that a European bank was able to backdoors its way in.
There are now 35 early adopters of the FedNow system. One is Amsterdam-based Adyen which received a bank license in Europe and was able to access the system, with the Fed's approval. Long is upset that a foreign firm is able to use what American firm cannot.
It is a situation that will likely lead to more lawsuits.
FedNow Limitations
FedNow is a misunderstood system by people in cryptocurrency. There are limitations which might be difficult to overcome.
Some are:
- a lack of interoperability,
- no cross border transactions
- a $500,000 transaction payment limit
There is also the question of cost.
The Fed charges a nominal fee per transaction for banks and credit unions to use the system. It is obvious that these entities will charge their customers (the public) for the features. The challenge is how much they will charge.
For ACH transactions, the Fed charges a fraction of a penny. The banks, in turn, mark it up 100 times.
Many have theorized that we are looking at a system that might end up being too expensive for the average user. It is likely something that Long is looking to address.
Bridge To Digital Assets
Custodia was set up to be a bridge between fiat currency and digital assets. It is looking to be fully recognized as a bank, complete with a master account to access all the Federal Reserve's services.
This is a huge market to tap into. Many of the arguments against cryptocurrency by the regulators is that lack of compliance.
Custodia seeks to offer services on the scale up to industrial scale standards. It wants to provide digital asset custody while adhering to all KYC and AML laws.
It is a move certainly Wall Street firms are also looking to provide. So why is Custodia being targeted.
With the behavior of Gary Gensler at the Securities and Exchange Commission (SEC), we know the answer.
Cryptocurrency Going To The Courts
The industry is fighting back. We know the situation with Ripple and the SEC.
It seems the courts are starting to lean with crypto. The financial system is looking to exclude fintech and newer players. The bridge between the two systems is going to be required for a while. It appears the system is trying to protect itself through the government.
This is something that could blow up in their face.
For now, Caitlin Long is focused upon the Fed and taking it on.
