A proposed Federal Reserve “skinny” account will be hobbled if regulators don’t allow fintech companies access to FedACH, fintech trade groups said last week in comments to the Federal Reserve.

Meanwhile, banking groups urged the Fed to proceed cautiously with its so-called prototype payment account. The Fed published the proposal in December, seeking public comments that were due Friday. 

Financial technology companies have been cheered by the prospect of direct access to the Fed’s real-time payments rails and the future potential to apply for full-access master accounts now open only to regulated financial institutions. 

Under the Fed’s current proposal, fintechs could access only its instant payments system FedNow and high-dollar amount FedWire rail for payments and not its high-volume FedACH, the most-used U.S. payment rail.

Nacha, the nonprofit that oversees the ACH network, has two operators that funnel ACH payments through the ACH network, the Federal Reserve and The Clearing House. The latter is owned by a consortium of banks. The ACH network processed 35.2 billion payments with $93 trillion value last year, according to Nacha data.

The FedACH exclusion forces companies with payment accounts “to continue relying on expensive partner bank intermediaries for the vast majority of transactional volume,” Wise, the London-based cross-border payment firm, said in its Thursday letter. The need for ACH access via intermediaries creates “a hidden cost passed onto consumers and businesses,” Wise added.

A fintech trade group echoed that perspective. The U.S. payment system relies on “legacy structures and approaches that are increasingly misaligned with the speed, scale, and security demands of our modern, digital economy,” the Financial Technology Association wrote Friday in its letter to the Federal Reserve Board of Governors.

The lack of access to the Fed’s clearing and settlement infrastructure forces “well-regulated payment firms to bear frictions, costs, and delays of operating indirectly through sponsor institutions,” added the letter from FTA Chief Executive Penny Lee. The association represents fintechs including Block, PayPal Holdings and Plaid.

The American Bankers Association said in its Friday letter that the Fed should adopt a “crawl, walk, run progression” approach for companies applying for the prototype account.

“Because the proposal concerns nascent access models and may extend limited Federal Reserve account services to entities with varying supervisory profiles and emerging business models, careful design and robust risk mitigants are essential to uphold the integrity of the payments system and to protect the public interest,” wrote Steve K. Kenneally, the ABA’s senior vice president of payments.

The Fed account proposal also would prohibit U.S. interest payments on payment account firms’ reserve holdings at the central bank. It also caps overnight balances to either $500 million, or 10% of an account holder’s assets – a limit the ABA supports and fintechs do not. The FTA said that amount is “unduly restrictive for major payment processors handling billions in daily volume.”

Fintechs also called the Fed’s attention to the experience of other nations, including Australia, Canada, the European Union, Japan and the U.K., that have “moved decisively” to real-time, interoperable payment systems, according to the FTA filing.

“The U.S. has lagged peer jurisdictions in payments modernization not due to a lack of technology or capital, but because legacy structures limit how innovation can be deployed at scale, effectively locking in place the status quo,” the FTA said in its letter.

The FTA and Wise both highlighted Nacha data showing that two banks – Wells Fargo and JPMorgan Chase – originate about half of ACH transactions. That situation creates “significant concentration risk” for FedACH, the FTA said. Both banks are among The Clearing House’s owners.

Also citing Nacha data, Wise said that partner banks generally charge 30 to 50 cents per ACH transaction, calling that fee “a staggering markup compared to the Fed's direct cost of approximately $0.0035.”

If the Federal Reserve decides to keep its ACH exclusion, it should “create a pathway where FedACH access is granted following a successful trial period of real-time settlement,” Wise executives wrote.

Visa, the largest U.S. card network, said it supports the Fed’s objectives with the new account type. However, it added, the accounts must be “offered in a manner that does not enable regulatory arbitrage, introduce new and unmitigated risks to the financial ecosystem, or undermine safety and soundness.”

In a letter Friday from Clinton Chen, Visa’s senior managing counsel for global risk and regulatory affairs, the company also said the Fed should consider giving payment account holders access to only FedACH credit, “with appropriate controls to mitigate risks related to timing and finality of payment.”

Cryptocurrency trade groups and companies also weighed in on the Fed’s proposal.

The Blockchain Payment Consortium said in comments filed Jan. 29 that “commercial banks lack the proper economic and commercial incentives to be honest actors in a competitive market that includes the stablecoin economy.” The group urged the Fed to “embrace blockchain analytics integration” as a condition for companies seeking access to Fed services.

Circle Internet Group, a major stablecoin issuer and cross-border payments firm, told the Fed board that the payment accounts would “play an important first step in carrying forward Congress’ vision under the Genius Act.” That’s because the law signed by President Donald Trump last year allows stablecoin issuers to keep funds at the Federal Reserve as part of their reserve assets.

“Access to Federal Reserve services will play an important role to the operational and liquidity management of permitted payment stablecoin issuers , which we encourage the Board to take into account as it tailors services for large issuers,” New York-based Circle wrote in its letter Friday.

Other banking groups, including state associations from Colorado and Illinois, suggested the Fed should also consider fintechs’ financial ties to local communities.

“While the proposal offers some minimal guardrails, are those guardrails sufficient to protect against illicit funds flowing through the payment system?” Jenifer Waller, CEO of the Colorado Bankers Association, wrote in her Jan. 13 letter to the Fed’s board.

“We are also concerned about the risk of funds leaving the traditional banking system,” she wrote, adding that “novel institutions are not required to support the community.”