Expanding access to FedACH will advance innovation, competition, and affordability
WASHINGTON, D.C. – The Financial Technology Association (FTA) applauds the Federal Reserve Board for seeking to expand real-time payments access in America and calls on the Board to enhance its Payment Account Prototype (also known as the “skinny Master” proposal) to fully capture the benefits of innovative payment firms, in a comment letter responding to the Board’s request for information. The Payment Account proposal should be expanded to include access to core payment rails, such as FedACH, and reinforce an eligible institution’s ability to obtain a full Master Account.
“As financial services become more digital, our payment infrastructure needs to catch up to harness the benefits of technology,” said Penny Lee, President and CEO of the Financial Technology Association. “Providing payment-focused firms with direct access to the Federal Reserve’s clearing and settlement systems will help Americans access faster, cheaper payments. We appreciate the Federal Reserve Board’s openness to optimizing our national payments infrastructure and look forward to engaging with them throughout this process.”
The Current Landscape: Payment-Focused Firms Lack Direct Access
Currently, most payment-focused firms lack direct access to the Federal Reserve’s payment rails, including FedWire, FedACH, and FedNow – foundational channels for moving money in the U.S. economy. While firms with direct access pay a fraction of a cent per transaction, payment firms are charged significantly more, and those costs are ultimately passed on to merchants and consumers. Just two banks originate approximately 50% of U.S. ACH transactions, creating significant concentration risk. The U.S. system stands in contrast to other leading economies, including the U.K., the EU, Brazil, Singapore, Canada, Australia, and Japan, which have created modern, real-time payment systems, many of which allow broad participation by payment-focused firms.
The Path Forward: Enhancing the Payment Account Proposal to Optimize Innovation
The Federal Reserve Board’s payment account proposal aims to upgrade the payments system by providing basic services to eligible institutions that may prefer a narrower option and are currently moving money through a third party with a full Master Account. While the intent of the proposal is promising—including its inclusion of the real-time payment rail, FedNow—FTA encourages the Board to optimize the payment account design to drive innovation, competition, and resiliency in the following ways:
- Upgrade the Payment Account to include FedACH access. FedACH is the highest-volume payment rail, but it is not included in the proposal. The Board should provide access to this network and additional payment services to ensure customers can benefit from lower-cost ACH-powered payments for direct deposits, payroll, bill payments, and recurring transactions.
Payment companies’ core business is to receive and disburse funds, investing those funds in low-risk assets in the meantime (e.g., short-term Treasuries and AAA money market funds). Similarly, national trust banks are limited in the types of activities they can perform, many of which pose little or no credit risk, such as custody and safekeeping of customer assets on a 1:1 basis. Given the low credit and counterparty risk and the limited scope of payment activities, the Board should avoid a binary FedACH access model and instead consider a range of risk-management tools that are more appropriate than blunt exclusion.
- Confirm that the Payment Account is an optional on-ramp to Fed Access that does not impede full Master Account eligibility. The establishment of a Payment Account should not alter or impede an institution’s statutory eligibility for a full Master Account. Additionally, the Board should ensure tailored supervision of such Account holders based on identifiable risks rather than applying a one-size-fits-all approach developed for insured depositories. By confirming the Payment Account as a complementary, optional pathway, the Board can foster a modern payment system while upholding the Federal Reserve Banks’ independence in administering account access.
Read FTA’s full comment letter here. To learn more, read FTA’s Payments Modernization Explained.
ABOUT US
The Financial Technology Association (FTA) is a network of fintech leaders shaping the future of finance. We champion the power of technology-driven financial services to catalyze innovation and advocate for modernized policies and regulations that reflect the digital transformation.
FTA Urges Fed to Optimize Payment Account Prototype to Ensure Broad and Robust Access
Expanding access to FedACH will advance innovation, competition, and affordability
WASHINGTON, D.C. – The Financial Technology Association (FTA) applauds the Federal Reserve Board for seeking to expand real-time payments access in America and calls on the Board to enhance its Payment Account Prototype (also known as the “skinny Master” proposal) to fully capture the benefits of innovative payment firms, in a comment letter responding to the Board’s request for information. The Payment Account proposal should be expanded to include access to core payment rails, such as FedACH, and reinforce an eligible institution’s ability to obtain a full Master Account.
“As financial services become more digital, our payment infrastructure needs to catch up to harness the benefits of technology,” said Penny Lee, President and CEO of the Financial Technology Association. “Providing payment-focused firms with direct access to the Federal Reserve’s clearing and settlement systems will help Americans access faster, cheaper payments. We appreciate the Federal Reserve Board’s openness to optimizing our national payments infrastructure and look forward to engaging with them throughout this process.”
The Current Landscape: Payment-Focused Firms Lack Direct Access
Currently, most payment-focused firms lack direct access to the Federal Reserve’s payment rails, including FedWire, FedACH, and FedNow – foundational channels for moving money in the U.S. economy. While firms with direct access pay a fraction of a cent per transaction, payment firms are charged significantly more, and those costs are ultimately passed on to merchants and consumers. Just two banks originate approximately 50% of U.S. ACH transactions, creating significant concentration risk. The U.S. system stands in contrast to other leading economies, including the U.K., the EU, Brazil, Singapore, Canada, Australia, and Japan, which have created modern, real-time payment systems, many of which allow broad participation by payment-focused firms.
The Path Forward: Enhancing the Payment Account Proposal to Optimize Innovation
The Federal Reserve Board’s payment account proposal aims to upgrade the payments system by providing basic services to eligible institutions that may prefer a narrower option and are currently moving money through a third party with a full Master Account. While the intent of the proposal is promising—including its inclusion of the real-time payment rail, FedNow—FTA encourages the Board to optimize the payment account design to drive innovation, competition, and resiliency in the following ways:
Payment companies’ core business is to receive and disburse funds, investing those funds in low-risk assets in the meantime (e.g., short-term Treasuries and AAA money market funds). Similarly, national trust banks are limited in the types of activities they can perform, many of which pose little or no credit risk, such as custody and safekeeping of customer assets on a 1:1 basis. Given the low credit and counterparty risk and the limited scope of payment activities, the Board should avoid a binary FedACH access model and instead consider a range of risk-management tools that are more appropriate than blunt exclusion.
Read FTA’s full comment letter here. To learn more, read FTA’s Payments Modernization Explained.
ABOUT US
The Financial Technology Association (FTA) is a network of fintech leaders shaping the future of finance. We champion the power of technology-driven financial services to catalyze innovation and advocate for modernized policies and regulations that reflect the digital transformation.