Are Banks About to Lose Their Grip on the Fed's Rails?

For decades, the plumbing of the U.S. payment system has run through a fairly exclusive club. Banks — and the regulators who supervise them — have controlled who gets to plug directly into the Federal Reserve's payment infrastructure. A new directive from the White House could rewrite the membership rules.

On Tuesday, President Trump signed an executive order telling the Federal Reserve Board of Governors to take a hard look at how it decides which firms get to use its payment rails. The stated aim is to figure out what stands in the way of fintech companies tapping into those Fed services directly, and whether some of those barriers can be lowered.

According to the White House summary released with the order, the review is meant to surface the rules and processes that could be reworked to encourage innovation and competition in financial services — without putting the system's stability at risk. That final caveat is carrying a lot of weight, and it's exactly where the fight will play out.

Cheers from fintech, caution from banks

The fintech lobby wasted no time celebrating. The Financial Technology Association framed the order as a win for the everyday consumers who lean on fintech apps to pay bills, move money, and manage their finances, calling it real momentum toward a cheaper, more modern payments system for households and small businesses.

The banking establishment was noticeably cooler. The American Bankers Association, which has long argued for restraint here, said any review should leave room for innovation but must not weaken the safety of the system as it exists today. Its underlying message: if a company wants to offer services that look and feel like banking, it should have to clear the same regulatory and consumer-protection bar that banks do.

Congress is circling the same question

The order doesn't land in a vacuum. The House is already weighing a bill — the Payments Access and Consumer Efficiency (PACE) Act — that would open the FedACH and FedNow rails to fintechs. It was introduced last month by two California representatives, Republican Young Kim and Democrat Sam Liccardo.

Rep. French Hill of Arkansas, who chairs the House Financial Services Committee, hinted the real prize might be bigger than rail access alone. Speaking at a fintech conference, he suggested the bill could open a serious conversation about whether the country needs a single national payments-licensing framework, instead of today's patchwork of state-by-state money-transmitter licenses. He also noted the Fed is looking for a consistent licensing approach across the whole system.

Inside the Fed, a quieter overhaul

Much of the technical work is already underway. Fed Governor Christopher Waller is steering an internal review aimed at stopping the dozen regional Reserve banks from each inventing their own rules for letting financial firms in. Last year, Waller floated a stripped-down "skinny" account — a limited on-ramp to Fed rails designed with fintechs in mind. A follow-up proposal in December drew complaints from parts of the industry that found it too restrictive.

Comptroller of the Currency Jonathan Gould, at the same Washington event as Hill, welcomed the order as a reassessment of Fed rules that, in his view, was long overdue.

The clock is running

The order gives the Fed 120 days to report back with its findings, the options on the table, and its recommendations. Whether that ends in a genuinely wider door for fintechs — or a narrow side entrance with plenty of locks — is the question everyone in payments will be watching.

Source: Payments Dive