Fed Weighs Handing Fintechs More Access to Its Payments System

The Federal Reserve is deciding whether to give financial-technology companies more direct access to its payment system after many of the upstarts swelled in popularity during the pandemic.

Fed Weighs Handing Fintechs More Access to Its Payments System

The Federal Reserve is deciding whether to give financial-technology companies more direct access to its payment system after many of the upstarts swelled in popularity during the pandemic.

The central bank invited the public to comment on proposed guidelines that would allow companies with “novel types of banking charters” to access accounts and services provided by the Fed, according to a statement Wednesday.

Financial startups have historically had to rely on relationships with traditional banks that have accounts with regional Fed banks to use the central bank’s payment system. Even those that are granted a new fintech license from the Office of the Comptroller of the Currency are limited in their ability to use those systems.

“With technology driving rapid change in the payments landscape, the proposed account-access guidelines would ensure requests for access to the Federal Reserve payments system from novel institutions are evaluated in a consistent and transparent manner,” Fed Governor Lael Brainard said in the statement.

Approval would give fintechs access to one of the most efficient ways to send money in the U.S. For the Fed, it could also offer an easier way to move funds from government coffers to U.S. consumers, cutting out traditional banks in the process.

The central bank’s proposed rules would require any candidates to demonstrate an ability to comply with the agency’s orders and policies and be in “sound financial condition” by maintaining adequate capital.

“To access the system today, banks must meet the highest regulatory standards and face rigorous oversight,” Rob Nichols, chief executive officer of the American Bankers Association, said in a separate statement. “Every entity seeking similar access to the Fed’s payments system, including those with novel charters, should meet those same high standards. To do otherwise would put consumers and the financial system at risk.”