Fed proposes limited payment accounts for fintechs, others

By Pete Schroeder and Hannah Lang

WASHINGTON, May 20 (Reuters) – The U.S. Federal Reserve proposed Wednesday adopting a new, more limited form of a payment account that would allow firms like fintechs to move money across the Fed’s payment rails without enjoying all the backstops available to traditional banks.

In a statement, the Fed said the proposed accounts would not include access to intraday credit or the Fed’s discount window, nor would firms earn interest on reserves held at the Fed.

Fintechs and crypto companies have for years been pushing for access to Fed master accounts. Often likened to bank accounts for banks, a Fed master account allows accountholders to move funds directly via the Fed’s payment rails, speeding up transactions and reducing costs. 

The industry has met intense resistance from banks, which have long argued that allowing lightly regulated crypto and fintech firms direct access to Fed payment rails could create operational and liquidity risks. While banks stand to lose out as fintechs gain ground, some regulatory experts say their warnings have merit.  

While the Fed more closely scrutinizes applications by uninsured depository institutions, such entities are subject to less rigorous ongoing oversight than insured banks. Fed Governor Michael Barr dissented from the proposal, saying it lacked sufficient safeguards to ensure the accounts would not be used for illicit finance.

Last year, however, the ground started to shift. In December, the Fed first floated the idea of a potential new type of limited payment account aimed at fintech and crypto firms. Then in March, Kraken became the first crypto company to win a Fed master account, albeit with limits, five years after first applying.  

Crypto platform Ripple, Anchorage Digital and fintech money transfer company Wise hope to win master accounts, according to public information. 

The Fed’s new proposal came one day after President Donald Trump signed an executive order asking the Fed to review its policies on payment accounts and explore ways to expand access.

“It’s definitely a signal that the White House wants to expand access to the Fed’s payment system,” said Roman Goldstein, senior director at Klaros Group, of the executive order.

Under Fed rules, only depository institutions can have master accounts. Goldstein noted that several other crypto and fintech firms are in the process of securing depository trust charters, meaning they would be eligible to apply for Fed accounts and would likely be winners from the order. 

The Fed said the proposal would not expand the legal qualifications for who can receive accounts or access to payment services, and the ultimate discretion would still lie with regional Fed banks across the country. However, the Fed said that while the proposal is pending, it has asked the regional banks to pause decisions on account requests already submitted by nontraditional firms to ensure “consistent implementation.”

(Reporting by Pete Schroeder and Hannah Lang; Editing by Michelle Price, Franklin Paul, Daniel Wallis and Stephen Coates)