Fintechs edge closer to banks’ payments privilege

IN A POTENTIALLY far-reaching shift, the US Federal Reserve is weighing whether to redraw the perimeter of the US financial system. A proposal under consideration would grant financial technology (fintech) giants like Circle Internet Group, Inc. and Stripe, Inc. a form of direct access to the central bank’s core payment infrastructure — a privilege historically reserved for banks.

Fed Governor Christopher Waller has asked staff to explore a model for so-called “skinny” master accounts available to legally eligible entities: stripped-down versions of the accounts banks use to move trillions through Fed systems daily. These accounts would exclude access to interest, overdraft privileges and discount window borrowing among other potential restrictions, but would still give select fintechs a direct line into the heart of the system.

“He’s trying to give these novel charters access to the payment rails without also implicitly or explicitly putting the Fed on the hook to bail them out,” said Roman Goldstein, senior director at Klaros Group and former lead innovation policy analyst for the Federal Reserve Board.

For companies like Circle, it could mean holding customer reserves directly at the Fed and managing flows without relying on commercial banks — a shift that cuts costs, reduces counterparty risk, and offers tighter control over funds.

“The upshot is that, in my view, the payments landscape, as well as the types of providers, has evolved dramatically in recent years, and, accordingly, a new payments account could better reflect this new reality,” Mr. Waller said at a conference in Washington, DC, on Oct. 21. Waller is one of five candidates to succeed Jerome H. Powell when his term as Fed chair expires in May, according to Treasury Secretary Scott Bessent.

The implications go beyond plumbing. Sponsor banks — many of which have built profitable businesses by acting as fintechs’ backend providers — stand to lose a key revenue stream.

“The business model for a lot of sponsor banks is basically serving as a gatekeeper to the payment system,” Mr. Goldstein said. “With these skinny master accounts, a fintech doesn’t need to go through one of these gatekeepers anymore.”

But their role isn’t merely transactional: they provide compliance infrastructure, including anti-money-laundering monitoring and account reconciliation. Fintechs would likely need to replicate or outsource those functions to go it alone.

“Typically, we’re not solving just for payments with these partnerships,” said Sean Willet, chief executive of Lincoln Savings Bank, a Reinbeck, Iowa-based lender that partners with fintechs like Qapital and Acorns. “As long as we stick to our knitting in terms of what we deliver, we should be OK.”

For that reason, some sponsor banks strike a sanguine tone, for now. Yet the Fed’s move would mark a quiet but consequential step toward treating fintechs more like regulated banks, at a time when their business models are converging fast.

Beyond sponsor banks, firms have long pursued alternative ways to plug into the Fed’s infrastructure — chief among them: specialty banking charters. But so far they have struggled to get payment systems up and running.

For example, Wyoming’s Special Purpose Depository Institution (SPDI) charter was designed for digital asset firms. But when Custodia Bank, one of its earliest holders, sued both the Federal Reserve Board and the Kansas City Fed for “a patently unlawful delay,” the case was dismissed in court. Custodia has appealed the decision and the litigation is ongoing at the appellate level.

In response to mounting legal and industry pressure, the Fed introduced a tiered review system for account approvals. Anchorage Digital Bank, a crypto custodian with a national trust charter, recently applied under a “tier 3” designation which generally comes with the strictest level of review. Its application is widely seen as a bellwether for other firms that may want to apply, including Circle and Stripe’s Bridge platform.

Meanwhile, in Europe, fintechs already access payment infrastructure via Electronic Money Institution licenses — a model that offers payments access without lending rights. Governor Waller’s plan would echo this structure, narrowing privileges to core rails and excluding bailout protections.

“This is a new era for the Federal Reserve in payments,” Mr. Waller said at the conference. — Bloomberg