Fed Considers ‘Skinny’ Master Accounts for Some FinTechs

Fed staff is looking into “skinny” master accounts that would give select FinTechs access to the accounts banks use to move money through Fed systems, but would exclude access to interest, overdraft privileges and discount window borrowing, Bloomberg reported Tuesday (Oct. 28).

For FinTechs, an arrangement like this could allow them to hold customer reserves directly at the Fed and manage flows without relying on sponsor banks, according to the report.

This would enable FinTechs to cut costs, reduce counterparty risk and offer tighter control over funds, the report said.

This plan would be similar to the model in Europe in which FinTechs access payment infrastructure through Electronic Money Institutional licenses, per the report.

It was reported on Oct. 21 that Fed Governor Christopher Waller said he had asked the Fed’s staff to explore the idea of a “payment account,” with one potential prototype being a “skinny” master account that would offer access to the Fed’s payment rails.

Waller said this in a speech for the Fed’s payments innovation conference in Washington. He also said that the central bank will be more active in studying payments innovations.

“The revolution transforming payments is demanding change everywhere,” Waller said. “I am here to say that the Federal Reserve intends to be an active part of that revolution.”

PYMNTS reported Thursday (Oct. 23) that stablecoin issuers are applying for bank or trust charters and seeking direct access to the Federal Reserve’s core payment system.

Circle Internet Group applied on June 30 to the Office of the Comptroller of the Currency (OCC) to establish a national trust bank that would oversee USDC reserves and institutional custody; Paxos Trust Company followed with an application to convert its New York Department of Financial Services charter into a national trust charter with the OCC; and Stripe’s stablecoin arm, Bridge Infrastructure, filed for a national trust charter earlier this month.

If the Fed gives eligible firms access to a “payment-only” or “skinny” version of the master accounts used by banks, stablecoin firms that currently depend on partner banks to access Fed settlement systems would instead be able to use a direct, limited-purpose master account to hold reserves, settle transactions instantly and operate more efficiently across borders.