FED Mulls ‘Payment Accounts’ for Fintechs, Small Companies

The US Federal Reserve is considering the introduction of a new type of payment account that would make it easier for smaller companies to participate in the central bank’s payment system, signaling the end of the crypto industry’s banking access challenges.

The newly floated “payment accounts” would seek to grant full access to fintech companies seeking to utilize the Fed’s payment services, which are currently reserved for large banks and financial institutions through the Fed’s “master accounts.”

“I believe we can and should do more to support those actively transforming the payment system,” said Fed Governor Christopher J. Waller during his speech at the Payments Innovation Conference on Tuesday, adding:

“To that end, I have asked Federal Reserve staff to explore the idea of what I am calling a “payment account.”

The payment accounts would be available for all institutions legally eligible for an account that currently conducts payment services through a third-party bank.

The “skinny” master accounts would provide access to the Fed’s payment rails, while “controlling for various risks to the Federal Reserve and the payment system,” Waller said.

While the idea is still in an experimental stage, it signals a growing effort toward the integration of fintech and crypto payment companies in the traditional finance (TradFi) system.

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Industry watchers saw the news as a positive development for the crypto industry, as many companies have faced debanking challenges in the past.

During the administration of former US President Joe Biden, at least 30 tech and crypto founders were denied banking access in what some insiders described as an orchestrated effort known as “Operation Chokepoint 2.0.”

“THANK YOU, Gov Waller, for realizing the terrible mistake the Fed made in blocking payments-only banks from Fed master accounts, and re-opening the access rules the Fed enacted to keep @custodiabank out,” wrote Caitlin Long, the founder and CEO of Custodia Bank, in a Tuesday X post, adding:

“The Fed told courts that such firms would put financial stability at risk for being inherently unsafe & unsound. Thank you for admitting that’s not true–it never was true!”

The collapse of crypto-friendly banks in 2023 sparked the first allegations of Operation Chokepoint 2.0. Critics, including venture capitalist Nic Carter, described it as a government effort to pressure banks into cutting ties with cryptocurrency firms.

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Fed is “hands-on” on tokenization, smart contracts, and AI-based payments

The Fed has been experimenting with blockchain technology for payments even before announcing the idea of the “skinny” master accounts.

The central bank has been exploring both blockchain and artificial intelligence for payment-related use cases, said Waller, adding:

“We are also looking ahead, conducting hands-on research on tokenization, smart contracts, and the intersection of AI and payments for use in our own payment systems.”

“We do this to understand the innovation happening within the payment system as well as to evaluate whether these technologies could provide opportunities to upgrade our own payment infrastructures,” added Waller.

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