Federal Reserve Proposes Limited Payment Accounts for Fintechs

The US Federal Reserve has taken a significant step towards expanding access to its payment system, proposing a new type of limited payment account for fintechs and other non-traditional firms.

The proposal, which was announced on May 20, would allow these firms to move money across the Fed's payment rails without enjoying all the backstops available to traditional banks. However, they would not have access to intraday credit or the Fed's discount window, nor would they earn interest on reserves held at the Fed.

The move is seen as a response to growing pressure from fintechs and crypto companies, which have been pushing for direct access to the Fed's payment system. The industry has met intense resistance from banks, which have long argued that allowing lightly regulated firms direct access to Fed payment rails could create operational and liquidity risks.

However, some regulatory experts say that the banks' warnings have merit, as non-traditional firms are subject to less rigorous ongoing oversight than insured banks. The proposal has already sparked controversy, with Fed Governor Michael Barr dissenting from the proposal, citing concerns about illicit finance.