The recent Executive Order on financial technology innovation and the Federal Reserve’s payment account proposal together send a clear directional signal: The United States is moving toward more open payment infrastructure. We covered the broader policy implications of the Executive Order at the end of May. This series of FAQs dives deeper into the proposal, what it means for the payment system, and the specific issues beyond rail access that banks and credit unions should raise in their comment letters, which are due by July 27.

What is the Federal Reserve proposing, and why does it matter now?

The Federal Reserve has issued a proposal to establish a special-purpose payment account that would allow certain nonbank institutions to access core payment infrastructure — including Fedwire and FedNow — without going through a traditional bank intermediary. The proposal follows a May 19 Executive Order directing the Fed to evaluate broader payment rail access for fintechs, uninsured depository institutions, and firms engaged in digital assets. The comment deadline is July 27, 2026. For banks and credit unions, that window is the opportunity to shape what comes next.

What is the Fed’s proposed payment account and how is it different from a master account?

A master account gives a financial institution full access to Federal Reserve payment services — including Fedwire, FedNow, FedACH, intraday credit, and the discount window. The proposed payment account is a more limited structure. It would allow eligible institutions to clear and settle payments through Fedwire and FedNow, but with significant restrictions: no FedACH access, no intraday credit, no discount window, no interest on balances, and a balance cap tied to expected payment activity. The Fed describes it as purpose-built for payment clearing and settlement, not for holding value or accessing the full range of central bank services. For nonbank institutions that have struggled to obtain master accounts, it represents meaningful access. For banks evaluating the competitive implications, the distinction matters: a payment account is not equivalent to a bank charter, but it gets nonbank firms meaningfully closer to the rails.

Who would be eligible for this new type of account?

Eligibility under the proposal is tied to existing law. Institutions must already qualify under the Federal Reserve Act or another federal statute to hold a Reserve Bank account. The proposal does not itself expand legal eligibility. What it does is create a structured pathway for institutions that are already legally eligible but have historically faced long wait times or uncertainty in the application process. That includes fintechs with novel banking charters, certain digital asset firms, and other nonbank payment providers.

Hasn’t this already started? What happened with Kraken?

Yes, and that’s part of why the July 27 deadline carries real urgency. In March 2026, the Federal Reserve Bank of Kansas City approved a limited-purpose account for Kraken Financial, a Wyoming special-purpose depository institution, with Fed Governor Michelle Bowman describing the approval as a pilot for nonbank access to the Fed’s payment system. That approval was the first of its kind and signaled that the policy direction was already in motion before the formal proposal was published. The Fed has since encouraged Reserve Banks to pause decisions on access requests from Tier 3 institutions — those not federally insured or subject to federal prudential oversight — until policy development on the payment account proposal is complete, with that pause expected to end no later than Dec. 31, 2026. Roughly 20 such applications were pending as of the proposal date. The framework being established now will govern how those applications — and every one that follows — gets evaluated.

If the account is so limited, why should banks be concerned?

The account structure is deliberately constrained — no discount window, no intraday credit, no FedACH, no interest on balances. But constrained doesn’t mean low-risk. What the design actually does is relocate risk away from the Federal Reserve and onto the new participant. Liquidity management, fraud monitoring, sanctions screening, operational resilience — those all become the nonbank account holder’s responsibility on day one. The real question is whether every new participant will be held to a comparable operational standard. If access expands faster than risk management maturity, the result isn’t modernization. It’s speed with structural weakness built in.

How does broader direct access affect bank-fintech partnerships?

The current partnership model has a clear liability chain: banks provide rail access, compliance infrastructure, and supervisory accountability; fintechs bring distribution, user experience, and speed. That division of labor has worked, at least in relative terms. Broader direct access — even in limited form — puts that structure under pressure. Sponsor banks should be asking which fintech relationships depend on rail access specifically, which depend on compliance expertise the partner can’t replicate, and which are strategically durable regardless of how the access question resolves. If a partner can eventually reach settlement infrastructure through a more direct route, negotiating dynamics and revenue models shift. Contracts should be under review now, before those conversations are forced.

Isn’t the Executive Order also supposed to make bank-fintech partnerships easier?

That might be the intention; however, the Executive Order calls for reducing regulatory friction in bank-fintech partnerships while simultaneously asking the Fed to evaluate broader direct access for certain nonbank firms. Those are divergent policy paths. One strengthens the existing partnership model. The other potentially reduces the need for it in some cases. Banks shouldn’t assume those things will balance out on their own.

Can regulators actually keep pace with these changes?

That’s one of the central unresolved questions. The Executive Order gives regulators 90 days to review relevant rules and 180 days to act. The Fed’s comment deadline is July 27. These are compressed timelines for decisions that could materially reshape how payment access and settlement risk are allocated.

Practical supervisory questions don’t yet have established answers:

• What does adequate liquidity management look like without intraday credit?
• What operational readiness should be required before a participant touches core infrastructure?
• Who is accountable when a participant fails but the impact spreads downstream through banks, processors, merchants, and end users?

Regulators also need to be thinking beyond early applicants. The framework being established now will govern access later, when firms with massive consumer reach come to the table. That’s a question that extends into competition policy and platform governance.

What should banks and credit unions actually say in their comment letters?

Comments that simply express concern won’t be persuasive. The Fed is looking for specific, substantive input on how the framework should be structured. A few pressure points worth addressing directly:

Require operational parity before access is granted. The proposal’s constrained account design relocates risk to new participants but doesn’t specify what risk management standards they must meet before going live. Comment letters should push for explicit, bank-comparable requirements for liquidity controls, fraud monitoring, sanctions screening, and operational resilience as prerequisites for access.

Demand a clear accountability framework for operational failures. The proposal is largely silent on who bears responsibility when a nonbank participant fails operationally and the impact ripples downstream through banks, processors, merchants, and end users. Comments should press the Fed to define that chain of accountability explicitly before the framework is finalized.

Push for supervisory capacity benchmarks. Access timelines and supervisory readiness are not currently linked. Comment letters should ask the Fed to establish that examination capacity, enforcement mechanisms, and oversight standards are in place before access expands.

Flag concentration risk from large platform applicants. The early applicants may not be the most consequential ones. Comments should raise the question of what safeguards will govern access when firms with massive consumer reach come to the table, and ask that the framework address platform concentration risk explicitly.

What happens after the July 27 deadline?

The Fed will review all comments received and use them to inform final policy development. Policy development on the payment account proposal is expected to be complete by Dec. 31, 2026, at which point the pause on Tier 3 access decisions would end. Separately, the May 19 Executive Order requests that the Fed conduct a comprehensive review of access to Reserve Bank accounts for uninsured depository institutions and nonbank financial companies, with an accompanying report due by mid-September 2026. That report could recommend legislative or regulatory changes that go beyond the payment account proposal itself. In other words, July 27 is not the end of this conversation. However, it’s an important milestone for banks and credit unions. Sitting this one out isn’t neutral. It’s ceding the terms.

The Bottom Line

The Fed’s July 27 comment deadline is not a procedural formality. It is a decision point. Banks and credit unions that engage now can help shape the operational standards, accountability frameworks, and supervisory expectations that will govern expanded rail access for years to come. Those that don’t will be responding to a framework built without their input. SRM works with financial institutions to assess payment strategy, evaluate partnership models, and prepare for structural shifts in the payment ecosystem. If you’re navigating what these changes mean for your institution, we can help.

Posted by Larry Pruss on July 1, 2026.