Fed Opens a New Front in Access to Its Payment Rails

The Federal Reserve wants to make it easier for some eligible institutions to connect directly to its payment services without giving them everything that comes with a Master Account.

Monday (July 27) is the comment deadline for the Fed’s Proposed Revisions to the Federal Reserve Policy on Payment System Risk and the Guidelines for Account and Services Requests, or OP-1878. Comment letters are drawing different requests and concerns from banks and FinTechs.

The proposal would create an optional, special-purpose Payment Account for institutions already legally eligible for Reserve Bank accounts. It does not expand legal eligibility. Instead, it would provide a narrower account for institutions primarily interested in clearing and settling their own and their customers’ payments. The Fed says the objective is to support private-sector payments innovation while managing the risks addressed by its Account Access Guidelines.

The Fed expects most requests to come from Tier 2 and Tier 3 institutions, categories covering non-federally insured institutions subject to different degrees of federal prudential oversight. The existing tiered review framework would continue to apply.

Payment Accounts could access Fedwire Funds, FedNow, National Settlement Service and Fedwire Securities for transfers free of payment, but not FedACH. They would provide no intraday credit or discount-window access, balances would earn no interest and transactions that would produce an overdraft would be rejected.

The Fed would set closing-balance limits based on expected payment needs, with a maximum of $1 billion under normal circumstances. There would be no intraday balance ceiling, and temporary closing balances above the limit could be permitted in unusual circumstances. Repeated violations could result in additional restrictions or account closure.

The narrower account also comes with a proposed timetable. Tier 1 account requests generally would be evaluated within 45 days after all requested documentation is received. Tier 2 and Tier 3 Payment Account applications generally would be evaluated within 90 days. Those are targets, not mandatory deadlines; a Reserve Bank could take longer after consulting with the Board.

Banks Want More Conditions on the Applicant

Several community bank submissions to date argue that restrictions on the Payment Account do not fully address differences in regulation of the institutions that could receive one.

Bank of Colorado Market President Cameron Armagost wrote that giving direct Fed access to institutions not subject to comparable prudential and supervisory requirements would provide the benefits “without the corresponding safeguards.” His letter specifically cited BSA/AML and sanctions compliance as responsibilities that could rest with entities receiving less oversight.

PriorityOne Bank and American Commercial Bank & Trust recommend similar safeguards: low initial limits on balances and the number of accounts, mandatory BSA/AML and sanctions requirements, continuing review and clear mechanisms for restricting access when risks emerge. PriorityOne also wants the Fed to state explicitly that a Payment Account is “not a pathway to a master account.”

Those recommendations address questions the Fed itself asks in OP-1878. The Board seeks comment on whether non-federally insured institutions should face additional BSA/AML and OFAC requirements, including independent assessments, and whether Reserve Banks should determine that their regulatory regimes are comparable to those governing federally insured institutions.

Hebron Savings Bank, in a letter addressing OP-1878 supports keeping Payment Accounts distinct from Master Accounts and backs restrictions on interest, daylight overdrafts, Fed credit and discount-window access.

But Hebron wants direct access tied to stronger oversight, saying “any entity granted direct access to Federal Reserve payment infrastructure should be subject to ongoing federal prudential supervision.”

The bank comments also raise a separate commercial concern.

Bank of Colorado said direct access “could also divert deposits and payment activity” from community banks. PriorityOne linked that concern to funding, saying deposits and payment activity support “local economic development, loans for small businesses and rural housing.”

FinTechs Put FedACH at the Center

The Financial Technology Association’s July 27 letter supports the Payment Account framework but argues that the Fed has excluded a service necessary to make it useful for many payment businesses.

“Unless the final framework includes access to the Federal Reserve’s Automated Clearing House (FedACH) network,” FTA wrote in its commentary letter provided to PYMNTS. The account “will not provide practical access to the nation’s core payment infrastructure,” the FTA argued.

FTA points to what runs over ACH: payroll, direct deposit, recurring consumer and business payments, government disbursements, account funding and bill payments. Citing Federal Reserve data, it said FedACH payment value reached $104.06 trillion in 2024.

Without FedACH, the FTA argues, Payment Account holders would continue using intermediary banks for a substantial portion of their payment activity. FTA, citing Nacha data, also said two banks accounted for approximately half of U.S. ACH transactions in 2024 and argued that requiring continued intermediation preserves concentration in ACH origination.

The Fed would exclude FedACH because Payment Accounts are limited to services with automated overdraft controls. The FTA acknowledges that ACH lacks those controls but argues the risk could instead be addressed through prefunding, balance limits and other operational safeguards. Its alternatives include enhanced prefunding and real-time balance verification, initially limiting participation to ACH credits, working with Nacha on operational controls, and phasing in broader access with transaction limits, volume thresholds and heightened reporting.

The FTA also supports the proposed 90-day review expectation and the shift toward balance limits based on payment activity. On supervision, however, it wants requirements calibrated to payment-specific risks such as operational resilience, cybersecurity, BSA/AML and sanctions compliance, rather than prudential standards primarily designed for lending and maturity transformation.

The comments give the Fed several concrete decisions to make after July 27 and upon any final rulemaking: whether to add some form of FedACH access, what additional oversight should apply to non-federally insured applicants, how tightly to limit balances and initial access, and how much certainty applicants should receive about the time required for a decision.