Dive Brief:

• The Federal Reserve Board on Friday voted to seek public comment on what would be a new, limited-use bank payment account that could be used by eligible banks and credit unions, according to a press release from the central bank that day.
• The vote in favor was 6-1, with a dissenting vote from Federal Reserve Gov. Michael Barr, who said in a separate statement that he was worried about such accounts lacking sufficient safeguards to avoid being used for terrorist financing and money laundering.
• The account would be used “for the express purpose of clearing and settling the institution’s payment activity” and would be a “prototype tailored to the risks and needs of eligible institutions focused on payments innovation,” the Fed’s staff said in a newly released Dec. 5 memo to the board regarding the proposed account type.

Dive Insight:

Federal Reserve Gov. Christopher Waller floated the idea of exploring the creation of such a limited use payments account in October, leaving somewhat unclear, at first, whether the account might also be used by companies that don’t currently have access to Fed accounts. He called it a “skinny” account that wouldn’t confer all the benefits that current master accounts allow.

Fintechs have been clamoring in recent years for such direct connections to the central bank, but Waller made comments soon after the October speech in which he touched on the idea that the new account would only be available to financial institutions.

Initially, at the Fed’s Payments Innovation Conference in Washington, Waller explained how such an account could be suited to emerging financial technology purposes, and would limit the risk taken on by the central bank for such uses. He said at the time that the proposal was in keeping with the Fed now starting to view such technologies, and decentralized finance, with less skepticism.

He said he wanted to “send a message that this is a new era for the Federal Reserve in payments, the defi industry is not viewed with suspicion or scorn,” Waller said. “My view for the Fed from now on is embrace the disruption – don’t avoid it,” he added.

Similarly, President Donald Trump’s administration has embraced digital payments and digital assets, issuing an executive order to modernize the federal government’s payments system and signing the Genius Act to build an infrastructure for stablecoins.

One trade group, the Federal Money Services Business Association, posted a comment Monday in response to the Fed’s request for input, partly criticizing the proposal. The organization, which represents money transmitters that provide remittance and other payments services, underscored fintechs’ need for broader industry access to Fed services, and said the proposed new account type doesn’t do the trick.

“The Fed deserves credit for recognizing that payments innovation requires new access models,” the organization’s president, Van Young, said in a statement after the association submitted its 43-page comment. “But a narrower door is not the same as broader access. MSBs operate at national scale, move significant payment volumes, and serve millions—yet the industry remains structurally dependent on indirect settlement arrangements that can be fragile, opaque, and vulnerable to sudden disruption.”

The organization’s members include PayPal, Remitly and X Payments, according to a spokesperson for the association.