Fed Advances Proposed ‘Skinny’ Payment Account Framework for Nonbanks
The U.S. Federal Reserve sought feedback in December 2025 on a prototype for “skinny” payment accounts. The initiative responded to eligible institutions without federal deposit insurance that focus on payments or crypto and want direct access to Fed payment systems, bypassing correspondent banks to reduce costs and speed settlement. The framework would not expand statutory eligibility, but could reshape how nonbanks access central bank payment rails.
The Federal Reserve Board formally proposed the rule on May 20, 2026. Each Reserve Bank could set an end-of-day balance based on expected payment activity, with the cap raised to $1 billion from $500 million under the prototype. The accounts would pay no interest and provide no access to intraday overdrafts or the discount window, while reviews would generally be completed within 90 days. The Fed also proposed pausing decisions on applications from Tier 3 institutions, with the pause expected to end no later than December 31, 2026.
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The history behind this eventAFC Backs Fed Payment Accounts, Urges Targeted Reforms
The Federal Reserve on May 20, 2026 proposed a limited-purpose Payment Account for institutions already legally eligible for Reserve Bank services, offering a narrower route to clear and settle payments than a traditional master account. The plan matters to fintech and other payments-focused firms because direct access could reduce reliance on correspondent banks, lower costs and speed transactions. It would not broaden statutory eligibility, and accounts would carry safeguards including no intraday credit, no discount-window access, no interest and automated controls preventing overdrafts.
On July 27, the American Fintech Council backed the framework while urging the Fed to set objective eligibility standards, use risk-based and technology-neutral reviews, coordinate with other regulators and avoid duplicating existing compliance regimes. AFC also called for principles-based supervision and periodic reviews as payment technology evolves. Under the Fed proposal, Tier 1 applications would generally be reviewed within 45 calendar days and Tier 2 or Tier 3 Payment Account requests within 90 days; closing balances would be capped at $1 billion.
Community Banks Challenge Fed’s Limited Payment Account Plan
A Federal Reserve master account gives a financial institution direct access to central-bank clearing and settlement infrastructure, a privilege generally tied to a bank charter and close prudential oversight. On May 20, 2026, the Fed proposed a narrower “payment account” for legally eligible institutions, including some payments-focused fintech and nonbank firms. The framework matters because direct access could reduce reliance on partner banks, lower costs and speed transactions while shifting competitive and operational risks across the U.S. payments system.
More than 20 U.S. community banks lodged objections by the Fed’s July 27 comment deadline, arguing that the limited accounts could hand less-regulated nonbank payments and fintech firms an unfair advantage. The banks also warned that adding new direct participants could increase operational risk across the payments ecosystem. They urged the Fed to state explicitly that a payment account cannot serve as a pathway to a full master account. Under the proposal, holders would receive no intraday credit, discount-window access or interest on Reserve Bank balances.
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