Payment rails are the infrastructure that enables the transfer of money between banks, payment service providers, and other financial institutions. For businesses, choosing the right payment rail depends on factors like speed, cost, geography, and customer satisfaction.
FedNow and UPI are two prominent examples of modern payment rails. FedNow is a real-time payment service developed by the Federal Reserve, while UPI is a widely used instant payment system in India. Lightspark aims to move past these traditional payment rails by introducing the 'Money Grid,' a global, open payments network built on Bitcoin.
The Payment Rail Landscape
Payment rails are crucial for transferring money between parties. However, current systems can be slow, fragmented, and costly, often leading to inefficiencies and higher transaction fees for businesses and consumers alike.
Understanding FedNow and UPI
How FedNow Works
The FedNow Service is an instant payments system developed by the Federal Reserve, offering 24/7/365 processing. It enables immediate fund availability, with transactions often completed in seconds. The process involves a payer initiating a payment, which their financial institution authorizes and submits to FedNow. The service validates and forwards the payment to the payee’s institution for acceptance. If accepted, funds are instantly transferred. FedNow uses ISO 20022 standards, integrated clearing, and advanced security measures, including fraud prevention tools. The infrastructure supports real-time messaging and liquidity management, ensuring seamless, secure transactions.
Strengths and Limitations of FedNow
Strengths
- FedNow offers 24/7/365 availability, ensuring uninterrupted processing without nightly, weekend, or holiday restrictions.
- It enables instant payments, providing immediate fund availability to beneficiaries, often within seconds.
- Backed by the US Federal Reserve, FedNow has strong institutional support, enhancing its credibility and potential reach within the US financial system.
Limitations
- FedNow transactions are limited to a maximum value, unlike Fedwire, which does not impose such limits.
- It requires users to navigate to their bank app for authentication, which can be cumbersome and negatively impact user experience.
- As of its early stages, FedNow has limited adoption, with only a small number of participating banks and credit unions.
How UPI Works
UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI) that allows users to transfer money between bank accounts via a smartphone app. It leverages existing systems like IMPS and AEPS for seamless settlement. UPI transactions involve logging into the app, selecting the send or receive option, entering the recipient's virtual ID and amount, and authorizing with a UPI PIN. Both parties receive confirmation messages. The system supports both push (pay) and pull (receive) transactions, recurring payments, and uses two-click factor authentication for enhanced security.
Strengths and Limitations of UPI
Strengths
- UPI eliminates the need to enter bank details or sensitive information for each transaction, enhancing security and convenience.
- It supports a wide range of transactions, including peer-to-peer, merchant payments, and recurring payments, making it versatile.
- UPI is regulated by the Reserve Bank of India (RBI) and offers real-time payment processing with instant fund availability.
Limitations
- UPI requires a smartphone and internet access, which may exclude users without such devices or connectivity.
- Users need to know the recipient's virtual ID, account number, IFSC, mobile number, or Aadhaar number to send money, which can be a barrier.
- Despite its strengths, UPI has a lower user penetration rate compared to other systems like Pix in Brazil.
FedNow and UPI Compared
Transaction Speed
FedNow and UPI both offer real-time transaction processing. FedNow facilitates instant 24/7/365 payments, ensuring immediate fund availability. UPI also processes transactions instantly, with speeds reaching over 3,000 transactions per second at peak times. Lightspark, leveraging the Lightning Network, promises even faster, real-time global money movement.
Fees
FedNow charges a participation fee and per-transaction costs, making it a premium service. In contrast, UPI transactions are generally free for users, with no fees for most transactions. Lightspark emphasizes low-cost payments, offering a transparent fee structure with no hidden costs, making it a cost-effective alternative.
Cross-Border Capabilities
FedNow is primarily designed for domestic transactions within the United States and lacks cross-border capabilities. UPI, however, has established cross-border payment agreements with several countries, including Singapore and UAE. Lightspark excels in this area, providing seamless, low-cost cross-border payments across 140+ countries.
Security Protocols
FedNow employs advanced security measures, including fraud prevention tools, but specific protocols are not detailed. UPI uses strong device binding and MPIN for authentication, ensuring secure transactions. Lightspark, built on Bitcoin’s decentralized foundation, offers robust security through blockchain technology and self-custodial wallets.
Operational Hours
Both FedNow and UPI operate 24/7/365, ensuring continuous availability for real-time payments. Lightspark also offers 24/7 operational capability, enabling businesses to move money instantly and securely at any time, anywhere in the world.
How FedNow And UPI Are Used
Peer-to-Peer Payments
UPI excels in peer-to-peer (P2P) payments with its zero-fee structure and ease of use, making it ideal for everyday transactions. FedNow, while efficient, is more costly and less user-friendly. Lightspark offers instant, low-cost P2P payments globally, leveraging the Lightning Network for seamless cross-border transactions.
Merchant Payments
UPI supports a wide range of merchant payments, including QR code-based transactions, making it versatile for small businesses. FedNow is more suited for larger enterprises due to its higher costs. Lightspark provides a cost-effective, real-time solution for merchants, enabling instant settlement and reducing transaction fees.
Recurring Payments
UPI's AutoPay feature simplifies recurring payments for subscriptions and bills, while FedNow's Request for Payment (RFP) is still evolving. Lightspark offers a robust alternative with its always-on infrastructure, ensuring timely, low-cost recurring payments across multiple currencies and countries.
Cross-Border Transactions
UPI has limited cross-border capabilities, primarily within select countries. FedNow lacks international reach, focusing on domestic transactions. Lightspark stands out by enabling seamless, low-cost cross-border payments in over 140 countries, leveraging Bitcoin's decentralized network for global interoperability.
Time for a New Standard
Lightspark is a global payments infrastructure provider that enables real-time, cross-border money movement for Bitcoin, fiat, and stablecoins. Unlike FedNow and UPI, Lightspark offers a more open, multi-currency, and global solution for instant, secure, and low-cost payments.
- Built on Bitcoin: Lightspark’s infrastructure leverages Bitcoin’s open, decentralized foundation, ensuring secure and efficient transactions.
- Instant Settlement: The platform enables instant settlement, allowing money to move like information on the Internet—instantly and securely.
- Lower fees: Lightspark offers low-cost payments with no hidden fees, making it a cost-effective alternative to traditional financial systems.
- Cross-border security by default: The use of Bitcoin and the Lightning Network provides inherent security for seamless, low-cost, and reliable cross-border payments.
A Modern Infrastructure
For businesses looking to transcend legacy payment systems like FedNow and UPI, here’s what Lightspark brings to the table:
- Wallets: Lightspark offers a comprehensive solution for building feature-rich digital wallets with flexible custody options, supporting both custodial and non-custodial models.
- Digital Banks: This solution connects digital banks to the 'Money Grid,' enabling them to expand globally, improve efficiency, and offer advanced payment capabilities.
- Exchanges: Lightspark provides cryptocurrency exchanges with the easiest way to connect to the Bitcoin Network, facilitating instant, low-cost Bitcoin transfers and built-in compliance tools.
- Stablecoins: Through Spark, businesses can create, distribute, and monetize stablecoins on the Bitcoin network, offering a fast, cost-effective way to launch financial assets.
Emerging technologies and evolving regulations are reshaping the future of payments. Lightspark can help businesses achieve real-time, low-cost global payments. Don’t just choose between two outdated options—upgrade to a payment rail built for the internet age. Learn more or book a demo.
