Blockchain in U.S. Payments: A Practitioner’s Guide to the Rails, the Risks, and the Opportunity (Part 1)

FPC Digital Assets Work Group

Overview

Blockchain is increasingly integrated into payment infrastructure as shared settlement and audit rails. For U.S. banks, fintechs, and government agencies, the practical questions are where to pilot first and how to align governance, compliance, and success metrics from day one. This blog post outlines near-term payment use cases that target familiar frictions, including settlement delays, reconciliation costs, and liquidity trapped across siloed ledgers. Part 1 focuses on practical use cases already delivering operational value, while Part 2 examines the technology stack and infrastructure choices that enable them.

Introduction

Payments in the United States are modernizing rapidly. The RTP® Network and FedNow® Service have expanded instant settlement. ISO 20022 is easing data limitations and friction, while digital wallets are reshaping consumer expectations. Yet, even with instant settlement, operational friction persists: fragmented data, manual reconciliation, cross-border delays, liquidity bottlenecks, rising fraud, and compliance workflows that slow money movement across institutions.

Blockchain can serve as a complementary layer in payments infrastructure. Its value is not simply instant payments, but a shared, tamper-evident record of transaction state that multiple institutions can rely on at the same time globally. Instead of each party keeping siloed records and reconciling after the fact, a shared ledger can support a consistent view of real-time status, with rules and controls enforced through programmable logic.

Blockchain Uses in Payment Modernization
 
1. Payment Stablecoins and Tokenized Deposits
 
As regulatory frameworks mature, tokenization is changing how money moves. In payments, tokenization generally takes two forms: stablecoins and tokenized deposits (or newly termed “deposit tokens”). Both use blockchain as the transport layer, support instant settlement, and enable programmable money, but they serve different purposes and operate under distinct regulatory models.

Today’s payment systems face persistent constraints including liquidity held in pre-funded accounts, frictions from regulatory and operational processes, settlement delays across siloed ledgers, cybersecurity considerations across different system architectures, high costs from multiple intermediaries, and a growing need for 24/7 money movement in an interconnected global economy. Stablecoins and tokenized deposits are a potential solution to addressing some of these constraints.

Stablecoins are blockchain-based tokens pegged to fiat currency and backed by issuer reserves. They function as open-network payment instruments that enable crypto-native movement across blockchain rails for continuous settlement and global reach – particularly where traditional banking access is limited or where always-on liquidity is required. 

Tokenized deposits offer similar technical benefits but remain within the regulated banking perimeter, integrating directly with a bank’s balance sheet, compliance framework, deposit insurance and supervision requirements. Some broader blockchain networks have limited interoperability by design and are typically issued and operated within bank-specific or consortium-based systems. This model is well-suited for controlled high-assurance settlement among regulated counterparties and for treasury use cases that require clear governance and risk controls. 

Today, on-chain settlement is developing alongside existing infrastructure rather than replacing it, with banks and fintechs investing in wallet infrastructure; interoperability; and integration tooling to simplify adoption. 
 
2. Cross-Border Payments 
 
Moving money across borders has historically involved multiple intermediaries and varying processing times, though significant improvements in speed and transparency have been made in recent years. Costs and service levels can vary depending on corridor, provider, and customer segment. Payments may route through correspondent banking networks and FX intermediaries, while the nostro/vostro system requires liquidity to be held in local accounts.

Tokenized money can move across blockchain networks on a near real-time basis, 24/7, with settlement and compliance logic embedded into smart contracts. While on- and off-ramp considerations remain, including integration with domestic payment systems, local instant payment rails may support efficient conversion to fiat currency where needed.

In some cases, U.S. dollar–backed stablecoins may be used directly within certain ecosystems; however, conversion back to fiat currency is typically required for use outside those networks.

Remaining Challenges: Leading stablecoins in circulation today include a range of established and emerging issuances with differing structures, governance models, and regulatory alignment. The broader trend is toward fully reserved, compliance-aligned digital dollars that can interoperate with traditional financial infrastructure. In parallel, emerging redemption and clearing networks are being developed to connect regulated stablecoins with existing payment rails and banking systems.
 
3. Strengthening Regulatory Compliance  
 
Many core compliance functions in financial services remain highly resource‑intensive, including:
  • Know Your Customer (KYC)
  • Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) verification,
  • Sanctions screening
  • Recordkeeping
  • Auditability
  • Consumer protections
These processes are increasingly strained by fragmented data, repeated verification across silos, batch-based reporting, and the growing volume of instant, cross-border activity. 

When properly designed and governed, payment systems—whether blockchain-based or traditional—can provide a strong foundation for modern compliance. Shared and well-structured data environments can support auditability, transparency, and more efficient reconstruction of transaction histories. Smart contracts or equivalent rule-based mechanisms can support “compliance by design” by embedding controls—such as whitelisting, limits, geographic restrictions, and reporting triggers—directly into transaction flows, where such controls are implemented and enforced at the network or institutional level.

These capabilities are reinforced by a growing ecosystem of analytics and RegTech (regulatory technology) firms that monitor on-chain activity, identify illicit patterns, assess wallet risk, and support investigations. In some implementations, additional transaction metadata may be recorded off-chain alongside the blockchain settlement record.
For compliance teams, blockchain offers clearer visibility across transactions, faster risk detection, and more reliable auditability.
 
4. Fraud Detection and Prevention
 
Fraud is accelerating across both traditional and blockchain-based payment environments, with risks largely driven by weaknesses in identity verification, customer behavior, and control frameworks rather than the underlying payment rails themselves.

While risk characteristics may vary across systems, effective fraud mitigation depends on the strength of controls applied across all rails, including identity verification, transaction monitoring, and real-time response capabilities.

In blockchain-based environments, additional considerations may include irreversible transactions and varying levels of control implementation across networks.

Across both environments, fraud remains fundamentally rooted in identity. Blockchain addresses this weakness by enabling cryptographic identity verification without relying on centralized personally identifiable information (PII) repositories. Meanwhile, decentralized identity (DID) frameworks using verifiable credentials allow attributes to be validated without exposing raw data.

Operationally, shared ledgers provide real-time visibility into transaction flows, while smart contracts can embed safeguards that flag, pause, or route transactions for review based on risk indicators. Further, on-chain analytics trace flows across networks and coordinate responses with exchanges and issuers, thereby shortening investigative timelines. 

Why this matters: As fraud spans both traditional and digital payment environments, effective prevention depends on strong, interoperable control frameworks, real-time visibility, and coordinated response mechanisms across institutions and networks. Investments in shared capabilities—such as fraud signal sharing, identity frameworks, and advanced analytics—can strengthen protection across all payment rails.
 
5. Treasury Management  
 
The central challenge for modern treasury is real-time liquidity management. Global businesses must fund obligations across time zones, move cash between entities, and respond to market conditions instantly. Cut-off times, multi-day settlement cycles, trapped cash, and limited intraday visibility force treasurers to hold larger buffers and maintain fragmented accounts. 

Blockchain, tokenized deposits, and stablecoins offer one approach to addressing these liquidity challenges. In parallel, modernized payment infrastructure and advanced treasury systems in traditional environments can also support real-time liquidity management.

When integrated effectively, both traditional and blockchain-based solutions can enable improved cash visibility, more efficient liquidity deployment, and automation of treasury workflows.

6. Decentralized Infrastructure and Financial Inclusion

For decades, payments have relied on centralized networks of banks and financial institutions—reliable, but in some contexts subject to constraints related to speed, cost, or accessibility.

This shift is increasingly visible where blockchain-based payment rails intersect with decentralized physical infrastructure networks (DePINs). DePINs use token incentives to coordinate real-world infrastructure such as compute, storage, and connectivity, all of which underpins digital payments and financial services. Decentralized finance (DeFi) and decentralized autonomous organizations (DAOs) complement these networks by enabling pooled, non-custodial financing and decentralized governance. Peer-to-peer capital flows can be supplied through shared pools without direct counterparty relationships, while on-chain governance aligns incentives, manages upgrades, and coordinates network operations.

For payments, this convergence taking place right now matters because infrastructure reliability, data availability, and coordination increasingly extend beyond any single institution.

As payment systems evolve, financial institutions are increasingly investing in decentralized, modern processing capabilities that can support both traditional and digital payment rails, helping to avoid fragmentation and enabling consistent controls, data sharing, and operational efficiency across systems.

Decentralized storage and infrastructure networks illustrate how services such as data availability and transaction coordination can be delivered using distributed models, supported by economic incentives and cryptographic verification.

While still evolving, liquidity-pool models allow participants to contribute capital in fractional amounts, borrow against shared pools, and receive automated distributions through smart contracts. These models illustrate how programmable liquidity and automated settlement can lower participation thresholds and support new access models alongside regulated financial infrastructure. 

Together, these developments show how decentralized infrastructure, financing, and governance can complement existing payment systems by expanding access, strengthening resilience, and enabling new participation models - particularly in environments where traditional infrastructure is costly, fragmented, or unavailable.

The Future Outlook

Blockchain adoption in payments is moving from experimentation to integration. Today more than ever, federal regulators are giving the market room to innovate while they gradually clarify how existing rules apply to this new technology. 
The near-term opportunity is to enable more digital, flexible, and integrated approaches to settlement, reconciliation, compliance, fraud controls, and treasury workflows alongside existing payment rails, rather than in isolation.
Financial institutions, fintechs, and government agencies are actively evaluating these capabilities. While evolving regulation and technology present both opportunities and risks, many organizations are beginning with targeted pilots to build experience, assess value, and inform longer-term strategies.
 
Acknowledgements

Digital Assets in the Financial Industry Work Group
Thank you to the members of the FPC Digital Assets Work Group (DAWG) who contributed to this blog.

Digital Assets Work Group Leadership
Avenue B Consulting, Inc.             Bo Berg, Work Group Chair
SRM Larry Pruss, Work Group Vice Chair       
Avenue B Consulting, Inc.             Maria Arminio, Work Group Facilitator

Digital Assets Work Group Members
7T World LLC Anthony Serio, Editorial Review
AFM Consulting LLC Aaron McPherson
Alacriti Divya Raghupatruni
American Express Margaret Rae
BNY Eric Peterson
Banker’s Bank of Kansas Daniel Hayden
BVNK Keith Vander Leest
Candescent Marcia Klingensmith
Fincom James Hutchison
Form3 US Inc. Gursharan Singh
FPC Member Jonathan Holland
Matera Sarah Hoisington
Matera John Wilson
Metallicus Frank Mazza
Nacha Mark Dixon
National Consumer Law Center Carla Sanchez-Adams
PayGility Advisors LLC Deborah Baxley
PayGility Advisors LLC David True
Payments as a Lifeline Mark Steven
Payments as a Lifeline Kirsten Trusko
Phatdog Enterprises LLC Dean Nolan
Pidgin Kevin Olsen
PTap Advisory, LLC Peter Tapling
The Bancorp Bank, N.A. Bill Rambadt
US Bank Sara Cichoski
Vments, Inc. Steve Wasserman

About the Digital Assets in the Financial Industry Work Group
Maps out how digital assets relate to the financial industry, focusing specifically on payments made with digital funds – central bank digital currency (CBDC), regulated liabilities, and stablecoin.

About the U.S. Faster Payments Council
The U.S. Faster Payments Council (FPC) is an industry-led membership organization whose vision is a world-class payment system where Americans can safely and securely pay anyone, anywhere, at any time and with near-immediate funds availability. By design, the FPC encourages a diverse range of perspectives and is open to all stakeholders in the U.S. payment system. Guided by principles of fairness, inclusiveness, flexibility, and transparency, the FPC uses collaborative, problem-solving approaches to resolve the issues that are inhibiting broad faster payments adoption in this country.
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