Fed Accounts Are Now Open to Fintechs With a Bank Charter Under New Guidelines

For years, payments fintechs with a bank charter have labored under a requirement that, for money movement, deposit-taking, and other related services, they largely had to work with another federally chartered bank. This week, the nation’s top banking regulator announced an important change to its rules that could sweep away that crucial requirement for a rapidly growing list of these firms.

The Federal Reserve said on Monday it has determined standards by which it will now review applications from certain fintechs with a bank charter for an account with the Fed, known as a master account, that would grant fintechs direct access to services such as the Fed’s payments rails. “The new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive, and innovative payment system,” said Lael Brainard, the Fed’s vice chair, in a statement.

The Washington, D.C.-based Electronic Transactions Association, among whose 500 members are well-known fintechs such as Adyen, Block, PayPal, and Stripe, applauded the Fed’s decision. “We like it. It sets out the beginning of a process for a fintech to work directly with the Fed,” notes Scott Talbott, senior vice president for government relations.

The Fed’s announcement does not set a definite effective date for the new rule, stating it will take effect upon publication in the Federal Register. But the regulator said it will take a risk-based approach, granting more leeway to some businesses under certain circumstances. “Institutions with federal deposit insurance would be subject to a more streamlined level of review, while institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review,” the announcement says.

In practice, the guidelines will be applied by the 12 regional Federal Reserve Banks, according to the announcement. But there is no guidance so far regarding how long the approval process might take. “There’s nothing in this final guidance about timing,” says Talbott. “The Fed takes its time. If you don’t get an answer, that’s a ‘no.’”

Indeed, while the Fed has opened a critical avenue that could lead to direct access to Fed services for fintechs with a bank charter, nothing is automatic under the new set of rules. “It’s a marginal but important step toward these charter-holding fintechs working with the Fed,” Talbott notes. “But what this announcement does is, the Fed recognizes that more than banks want access to a master account, and they will at least consider an application from these types of fintechs.”