Master accounts with the U.S. Federal Reserve have traditionally been the sole domain of banks, but Fed Governor Christopher Waller has proposed a new model that could also accommodate fintechs.
At the Fed’s inaugural Payments Innovation Conference, Waller suggested that payment services companies might be able to obtain a payment account, or a “skinny” master account, that would give them access to the services they need.
For example, the account could provide access to the Federal Reserve payment rails while including safeguards such as balance caps, no interest on balances, and no daylight overdraft privileges.
Eliminating the Workaround
These accounts target fintechs that rely on banks’ master accounts to operate payment services. This workaround becomes a pain point as fintechs scale, and it has pushed many companies to seek bank charters of their own.
For example, merchant payments platform Checkout.com was recently granted a bank charter by the state of Georgia. Checkout.com’s main objective was to gain direct access to U.S. card networks like Visa and Mastercard, allowing the company to act as its own acquirer.
Looking for a Green Light
Expanding access has been a primary reason why digital assets companies like Ripple and Circle have applied for bank charters with the Federal Reserve. Ripple has also applied for a master account, which would allow the firm to hold reserves of its RLUSD stablecoin directly with the Federal Reserve, providing an added layer of security.
While Ripple’s master account has not yet been approved, Waller’s remarks could signal a potential path forward for the company and its peers. He emphasized the importance of innovations involving emerging technologies such as stablecoins, tokenization, and artificial intelligence, and highlighted the increasing role of digital assets in traditional finance.
However, any changes to the current model will take time to implement.
“If these ‘payment accounts’ become real, banks and other financial institutions can access Fed rails directly, which has been a friction point for crypto firms since the 2023 bank fiasco,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “It’s not necessarily a green light for every crypto company, but I think it will be good for crypto exchanges and stablecoins—and eventually tokenization.”
“As the optionality for payments continues to grow, the Fed is recognizing that access to these tools needs potential oversight and better plug-in options for FIs,” he said. “It could come with some nuances like no interest on balances or capping balances, but even with those types of guardrails it could be a step in the right direction.”
