Overview
On May 20, the Board of Governors of the Federal Reserve (FRB) requested public comment on three proposals that would establish a limited-purpose "Payment Account" that "legally eligible financial institutions could use for the specific purpose of clearing and settling their payments."[1] The Payment Account would function effectively as a new intermediate category of Federal Reserve payment-system access between traditional master accounts and complete exclusion from Reserve Bank payment services. The Payment Account was initially proposed by Federal Reserve (Fed) Governor Christopher J. Waller in a speech at the FRB's October 2025 Payments Innovation Conference, where he referred to the concept as a "skinny" master account.[2] The FRB later requested public input and comment on a prototype of the limited-purpose Payment Account in December 2025.[3] For more information on these previous actions, see Steptoe's previous alerts on Governor Waller's proposal and the initial prototype.
Background
The proposal follows the Federal Reserve Bank of Kansas City's March 2026 approval of a limited-purpose account for Kraken Financial, a Wyoming special-purpose depository institution.[4] Fed Governor Michelle Bowman confirmed that this approval decision was a "pilot" for nonbank access to the Fed's payment system.[5] It also followed a May 19 executive order from the White House directly requiring the Federal Reserve to review "the legal, regulatory, and policy framework governing access to Reserve Bank Payment Accounts and payment services by uninsured depository institutions and non-bank financial companies," with a focus on expanding payment system access for fintechs and nonbank financial companies.[6]
Overview
The proposed Payment Account closely follows the initial prototype account for which the FRB requested comment in December 2025. Payment Account holders would have access to services for which "the Reserve Banks can automatically reject transactions that would cause an overdraft."[7] These services include the Fedwire Funds Service, the FedNow Service, the National Settlement Service, and the Fedwire Securities Service for free transfers only.[8] In contrast, they would not have access to FedACH, check services, FedCash, or the Fedwire Securities Service for Transfer Against Payment.[9] Payment Account holders likewise would not have access to intraday credit or the discount window; would not earn interest on balances; would not be able to act as a correspondent bank; could not be used to settle transactions for a respondent institution; and would not be able to participate in an Excess Balance Account.[10]
However, there are some material changes from the prototype, which initially proposed an overnight closing balance limit of "the lesser of $500 million or 10% of the Payment Account holder's total assets."[11] Under the proposal, overnight closing balance limits "would be set by the Reserve Bank for an individual Payment Account based on expected payment activity in the account, not to exceed $1 billion."[12] Furthermore, the proposal stipulates that "a Payment Account holder may be required to provide information to demonstrate its compliance with [Bank Secrecy Act/anti-money laundering] and Office of Foreign Assets Control (OFAC) requirements."[13]
Finally, the FRB stated that requests for a Payment Account would "generally receive a more streamlined review than a Master Account."[14] As such, the FRB also proposed "revisions to the Account Access Guidelines to reflect that, in general, Reserve Banks would be expected to complete their reviews of Payment Account requests within 90 calendar days of receiving all requested documents."[15] They further encourage "Reserve Banks to pause decisions on access requests from Tier 3 institutions until the Board has completed its policy development process on the Payment Account proposal."[16] This would reflect a much faster timeline for applicants seeking access to a Payment Account compared to current practice, where certain novel or nontraditional access requests have taken years to resolve.[17]
Takeaways
The proposals represent a potentially significant evolution in Federal Reserve payment-system access policy. By establishing a limited-purpose account with restricted functionality and no access to intraday credit, interest on balances, or the discount window, the FRB appears to be creating an intermediate access framework between full master account access and no access to Federal Reserve payment services. If adopted, the proposal could materially expand direct payment-system access opportunities for fintechs, uninsured depository institutions, and other nontraditional financial institutions, including firms engaged in digital asset or stablecoin activities.
Comments are due 60 days after each proposal is published in the Federal Register. For more information or assistance evaluating the FRB's proposed Payment Account framework or preparing timely comments on the proposals, please contact Steptoe's Financial Innovation and Regulation team.
[1] Press Release: Federal Reserve Board requests public comment on a proposal to establish a "payment account," which legally eligible financial institutions could use for the specific purpose of clearing and settling their payments, Bd. of Governors of the Fed. Rsrv. Sys. (May 20, 2026), https://www.federalreserve.gov/newsevents/pressreleases/other20260520a.htm.
[2] See Speech: Embracing New Technologies and Players in Payments, Bd. of Governors of the Fed. Rsrv. Sys. (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 Governors of the Fed. Rsrv. Sys. (Dec. 19, 2025), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20251219a.htm.
[4] See Press Release: Federal Reserve Bank of Kansas City Approves Limited Account, Fed. Rsrv. Bank of Kan. City (Mar. 4, 2026), https://www.kansascityfed.org/newsroom/2026-news-releases/federal-reserve-bank-of-kansas-city-approves-limited-account/.
[5] Bowman: Kraken master account approval was ‘pilot' for nonbank access to Fed system, Am. Bankers Ass'n Banking Journal (Mar. 11, 2026), https://bankingjournal.aba.com/2026/03/bowman-kraken-master-account-approval-was-pilot-for-nonbank-access-to-fed-system/.
[6] Exec. Order No. 14405, 91 Fed. Reg. 30475 (May 19, 2026), https://www.federalregister.gov/documents/2026/05/22/2026-10399/integrating-financial-technology-innovation-into-regulatory-frameworks.
[7] Bd. of Governors of the Fed. Rsrv. Sys., Request for Comment on Proposed Establishment of a Payment Account at 4 (May 7, 2026), https://www.federalreserve.gov/newsevents/pressreleases/files/other20260520a1.pdf (Board Memo).
[8] Board Memo at 7.
[9] See id. at 3 n. 5.
[10] See id. at 6-7.
[11] Request for Information and Comment on Reserve Bank Payment Account Prototype, 90 Fed. Reg. 60096, 60097 (Dec. 23, 2025), https://www.federalregister.gov/documents/2025/12/23/2025-23712/request-for-information-and-comment-on-reserve-bank-payment-account-prototype.
[12] Board Memo at 7.
[13] Id.
[14] Id. at 2.
[15] Id. at 12-13.
[16] Id. at 1.
[17] See Kraken becomes first digital asset bank to receive a Federal Reserve master account, Kraken Blog (Mar. 4, 2026) ("The approval follows more than five years of sustained regulatory engagement, extensive examination, and operational scrutiny."), https://blog.kraken.com/news/federal-reserve-master-account.
