Federal Reserve Board Requests Public Input on Limited Payment Accounts

On October 27, 2025, the Federal Reserve Board of Governors (FRB) requested public input on a limited-purpose "payment account," distinct from a master account, that eligible financial institutions could use for clearing and settling their payments.¹ The payment account was first proposed by Federal Reserve Governor Christopher Waller in a speech in October.² It is intended to allow financial institutions with new and innovative business models that need only a limited set of features to have a more streamlined and quick review process.³

Overview of Payment Account Prototype

The FRB's request for information proposed a payment account "prototype" and included an account term sheet describing its concrete features. The payment account would be available only to institutions that are already eligible for a master account under the Federal Reserve, though they would only be able to have one account: either a payment account or a master account. There would be no changes to the eligibility criteria, which would remain the same as those currently in place for master accounts.

Payment Account Restrictions

The payment account would be subject to a number of restrictions to reduce credit risk:

• The payment account would have an overnight balance limit, which the FRB is considering setting at the lesser of $500 million or 10% of the payment account holder's total assets.
• The payment account would earn no interest on overnight balances, as it is designed only to facilitate clearing and settlement of payment activity.
• A payment account holder would have no access to the discount window.
• A payment account holder would have no access to intraday credit, also known as a daylight overdraft. Payments would instead have to be prefunded. Accordingly, there would be no outgoing transactions that would result in an overdraft, as such transactions would be automatically rejected.
• A payment account holder would have no permission to act as a correspondent bank, and a payment account could not be used to settle transactions for respondent institutions.
• Finally, there would be no recognition of third-party interests in payment accounts.

Payment Account Services

The payment account would offer the following services, all of which can automatically reject transactions that would cause daylight overdrafts:

• The FedWire Funds Service;
• The National Settlement Service;
• The FedNow Service; and
• The FedWire Securities Service for Free Transfers only.

On the other hand, no services which are not currently capable of automatically rejecting transactions that would cause daylight overdrafts would be offered to payment account holders, including the following:

• FedACH Services;
• Check Services;
• FedCash; and
• The FedWire Securities Service for Transfer Against Payment.

Payment Account Requests

Any institution that is already eligible for a master account would be able to request a payment account from their relevant Reserve Bank, who would have discretion to approve or deny the request. They would review the request, however, under the Guidelines for Evaluation Account and Services Requests.⁴However, because the payment account is limited and represents a lower risk profile, requests for payment accounts are likely to "receive a more streamlined review than a request for a Master Account from a comparable institution."⁵ As such, review of a request for a payment account is expected not to exceed 90 calendar days of receiving all necessary documentation.

Request for Information

Despite the above design, the FRB continues to explore other features and controls for the payment account program. For example, the FRB noted it was exploring risk controls and conditions, including "agreement conditions, attestation requirements, consent to reviews, or periodic reporting requirements."⁶ Accordingly, the FRB listed eight distinct questions related to the payment account proposal on which it requests input from the public:

1. Would the design of the Payment Account prototype support payment activities of eligible institutions?
2. What payment activities or use cases would a Payment Account best facilitate (or be unable to facilitate)?
3. What barriers to innovation in payments would a Payment Account eliminate or alleviate?
4. Would the design of the Payment Account prototype potentially increase the range of risks to the payment system identified in the Guidelines? If so, in what ways?
5. What are the benefits and challenges of imposing an overnight balance limit on a Payment Account? Are there adjustments to the proposed formula for setting the balance limit that the Board should consider if it decides to establish a Payment Account?
6. What are the benefits and drawbacks of paying no interest on overnight balances in a Payment Account?
7. How might the Federal Reserve condition access to a Payment Account on the applicant having an acceptable Anti-Money Laundering (AML), Bank Secrecy Act (BSA) and Countering the Financing of Terrorism (CFT) compliance programs and, more generally, how can the Federal Reserve best constrain AML/BSA/CFT risks associated with a Payment Account?
8. Are there additional features or limits that the Board should consider in the design of the Payment Account prototype?

Comments are due to the FRB on the date 45 days after the request for input is published in the Federal Register.

Takeaway

The FRB's payment account, as currently proposed, would not expand the pool of eligible financial institutions, as it would only be offered to institutions already eligible for a master account. Furthermore, it would be subject to a number of restrictions and only offering a limited number of payments services that the FRB had found acceptable in terms of risk. On the other hand, the processing time to receive a payment account would be generally 90 days at most.

The precise risk controls and conditions to be imposed on payment account holders are still not final, and the FRB has made clear that it is continuing to explore additional risk controls. Likewise, the features offered may not actually be enough to motivate innovative financial institutions to open a payment account with their Reserve Bank, and they may instead continue to opt to work with third parties.

For more information or assistance navigating the FRB's proposed payment account or preparing timely comments to the request for input, please contact Steptoe's Financial Innovation and Regulatory team.

¹ See Press Release, Federal Reserve Board requests public input on "payment account," which eligible financial institutions could use for the limited purpose of clearing and settling their payments, Bd. of Govs. of the Fed. Reserve Sys. (Dec. 19, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20251219a.htm.

² See Christopher J. Waller, Speech: Embracing New Technologies and Players in Payments, Board of Governors of the Federal Reserve System (Oct. 21, 2025), https://www.federalreserve.gov/newsevents/speech/waller20251021a.htm.

³ See Press Release, Federal Reserve Board requests public input on "payment account," which eligible financial institutions could use for the limited purpose of clearing and settling their payments, BD. OF GOVS. OF THE FED. RESERVE SYS. (Dec. 19, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20251219a.htm.

⁴ See Guidelines for Evaluating Account and Services Requests, 87 Fed. Reg. 51099, 51107 (Aug. 19, 2022).

⁵ Bd. of Govs. of the Fed. Reserve Sys., Request for Information and Comment on Reserve Bank Payment Account Prototype at 12 (Dec. 19, 2025), https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20251219a2.pdf.

⁶ Id. at 11.