Faster Payments at Less Cost and Lower Risk: The Case for Allowing Nonbank Payment Processors Direct Access to Federal Reserve Payment Systems

Twice since the 1913 enactment of the Federal Reserve Act, Congress has expanded direct access to Federal Reserve payment systems.

In 1980, at the urging of thrifts and DOJ, Congress expanded access to all depository institutions, instead of just Fed member commercial banks. In 2010, in the wake of the financial crisis, Congress opened direct access to large clearing and settlement firms designated as financial market utilities.

In this white paper, James Sivon, BJ Sanford, and Greg Wilson argue it is time for Congress to extend direct access again -- this time to certain state-regulated nonbank payment processors. They lay out a path to do this without creating undue risk or competitive inequities through a targeted amendment to the Federal Reserve Act.

The white paper:

➡️ shows why direct Fed access for nonbank payment processors would make payments faster, cheaper, and more secure by reducing extra links in the payment chain and accelerating competition and innovation

➡️ describes how the UK, EU, and Canada (among others) have already opened central bank access to nonbank payment service providers or are in the process of doing so

➡️ explains how a Federal Reserve Act amendment allowing state-regulated nonbank payment processors to apply for direct access fits into the emerging national framework of payments regulation now taking shape in the United States -- a key component of an ecosystem that includes insured banks, special-purpose banks, money transmitters, and stablecoin issuers, as well as a potential federal payments charter.