The consultation for the Payment Accounts prototype officially launches, with the Fed seeking to balance innovation and system security.
The Federal Reserve (Fed) took a highly indicative step last Friday (12/19), announcing a 45-day public consultation on a prototype concept called 'Payment Accounts'.
This program, informally referred to internally as 'Skinny Master Accounts', aims to provide a limited central bank payment service access channel for eligible financial institutions that do not have full banking privileges.
The Federal Reserve clearly stated in an official memorandum that the original intention of this concept is to respond to the increasing requests from businesses, allowing financial service providers relying on emerging technologies to more directly utilize the Federal Reserve's payment rails for executing clearing and settlement operations, without having to cross the extremely high and cumbersome compliance thresholds like applying for a traditional master account.
Christopher Waller, a key advocate of this proposal and a Federal Reserve Board member, stated that establishing payment accounts is a crucial starting point to ensure that the Federal Reserve remains responsive during the evolution of payment methods.
Waller pointed out that emerging financial technologies are reshaping the flow of funds, and the Federal Reserve must provide more flexible tools to support these responsible innovations without compromising the overall security and efficiency of the payment system.
According to the plan, these types of accounts will primarily serve those legally entitled to open accounts, but whose business models focus mainly on settlement rather than traditional deposit and loan operations. If the plan progresses smoothly, it is expected to be officially operational by the fourth quarter of 2026, opening a new door for the digital asset and payment innovation industry in the United States.
From the master account dispute to tiered management, there is hope for crypto banks after years of compliance dilemmas
For a long time, 'Master Accounts' have been the most contentious industry between cryptocurrency companies and the Federal Reserve. Master Accounts are seen as a direct channel for financial institutions to access the Federal Reserve's payment rails, allowing institutions with such accounts to directly connect to systems like Fedwire or FedNow for near-instantaneous fund transfers and settlements.
For cryptocurrency banks, without master accounts, they must rely on traditional banks that possess those accounts as 'partner banks,' which not only increases intermediary costs but also poses a risk of 'debanking' at any time due to changes in the risk preferences of traditional banks. Custodia Bank in Wyoming previously engaged in a years-long legal battle with the Federal Reserve after its application for a master account was rejected, and until the end of October 2025, the Tenth Circuit Court of Appeals ruled that the Federal Reserve possesses 'discretionary power' over whether to grant accounts, leaving the crypto industry deeply frustrated.
However, the 'payment account' concept proposed by Waller seems to provide a compromise 'tiered management' solution to this deadlock.
Waller previously used Olympic medals as a metaphor: if traditional institutions that are full-service banks, FDIC-insured, and comprehensively regulated receive 'gold medal' master accounts, then those innovative banks with higher risk levels and narrower operational scopes may receive 'silver' or 'bronze' payment accounts.
Although the functionality of these accounts is not as comprehensive as master accounts, for crypto institutions pursuing settlement efficiency and regulatory certainty, this is undoubtedly an important step toward reducing excessive reliance on third-party banks. This will not only accelerate the processes of fund inflows and outflows but also help maintain the U.S. position as a leader in payment innovation.
Comparison table of Federal Reserve account types
Functional features Traditional Master Account Payment Account Clearing and Settlement Functions Fully functional (including correspondent banking) Limited to the institution's own business settlement Reserve Interest (IORB) Interest-bearing No interest Daytime overdraft/credit limit Available (for qualified) Not available Permissions (zero balance stops) Discount window (financing) Available Not qualified Balance Limit Usually no limit Set balance limit (tentative) Regulatory Threshold Extremely high (Tier 1/2 financial institutions) Simplified process (Tier 3 qualified institutions)
Simplified technical details of permissions, limited functions, and strict fund management
Although payment accounts are seen as a 'shortcut,' their functionalities are significantly limited compared to traditional master accounts, which is also a core means for the Federal Reserve to manage risks. According to the technical details published by the Federal Reserve, payment accounts can only be used for 'the payment activities of the clearing and settlement institutions themselves,' explicitly excluding high-complexity services such as correspondent banking. More importantly, payment accounts will be subject to the following four stringent restrictions on fund utilization:
No reserve interest: Funds held in Federal Reserve accounts will not earn interest income.
No overdraft privileges: Once the account balance reaches zero, all payment requests will be immediately rejected by the system, and no daytime credit support from the Federal Reserve will be available.
Set balance limits: To prevent excessively large account balances from affecting the Federal Reserve's balance sheet management, a maximum holding amount may be set for a single account.
Strict reporting requirements: Account holders may need to comply with more frequent and detailed operational reporting mechanisms.
These designs reflect the conservative thinking within the Federal Reserve, which aims to provide payment links without expanding credit risk. However, not all decision-makers are comfortable with this proposal. Currently, the Democratic-appointed Vice Chairman Michael Barr has expressed opposition to this plan.
Barr pointed out that the current consultation document lacks specificity in protective measures against money laundering (AML) and combating the financing of terrorism (CTF) for those institutions not directly supervised by the Federal Reserve (such as some state-chartered crypto banks).
He is concerned that once these accounts are exploited by 'malicious actors,' they could create irreparable vulnerabilities in the overall financial security system of the United States. This internal conflict within the Federal Reserve will also become the core of discussions during the upcoming 45-day public consultation period.
Political winds and industry expectations: the reshaping of the payment system during the Trump administration
The introduction of this policy is also subtly related to the power shift in American politics. With the arrival of Donald Trump's second term, Washington's attitude toward digital assets and financial technology has seen a significant shift. Waller himself is seen as one of the popular candidates to succeed current Chairman Jerome Powell, as he has actively demonstrated alignment with the new government's agenda of 'commerce and innovation' in a recent series of statements.
Republican Senator Cynthia Lummis, who supports cryptocurrency, publicly praised the Federal Reserve's action on social media, calling it a 'significant step toward rectification' and emphasizing that this will make the U.S. payment system faster, cheaper, and safer.
The cryptocurrency industry has also shown cautious optimism. Rachel Anderika, Chief Operating Officer of Anchorage Digital Bank, noted that direct access to the Federal Reserve's payment rails would unleash the efficiency needed for crypto companies to scale their functionalities and eliminate long-standing uncertainties.
For stablecoin issuers actively applying for national trust bank licenses, if payment accounts can be established, it will allow them to directly settle dollar assets, which is of significant importance for enhancing the transparency and trust of stablecoins. Despite concerns from Barr and others about security protections, under the broader trend of the Trump administration continuing to clear barriers between traditional and crypto economies, the Federal Reserve's 'open door policy' for the payment system seems imminent.
'The Federal Reserve introduces a simplified master account concept! Crypto institutions are expected to have 'limited' access to the Fed payment system.' This article was first published in 'Crypto City.'
