U.S. MSB Daily News
USMSB.com – Call it the latest skirmish in America’s favorite sport: financial innovation trying to squeeze through a gate that was built for a different era.
On Monday, “Little Fed”—a tongue-in-cheek label some payments industry insiders use for the Federal Money Services Business Association (FedMSB)—filed a comment package responding to the Federal Reserve’s “Payment Account” request for information. The Fed, which some payments insiders wryly dub “Great Fed,” is considering a narrower kind of Fed access for eligible institutions: a special-purpose account for clearing and settling payments, but without interest, without access to Fed credit, and with balance caps—a deliberately “skinny” design meant to support innovation while limiting risk.
Little Fed’s response begins with a polite nod—then pivots into a sharper message: nice prototype, Great Fed, but you’re still leaving a major slice of the modern payments economy standing outside the fence.
“FedMSB welcomes the Fed’s willingness to explore a narrower, payments-only access construct,” said Van Young, FedMSB’s president, in a statement tied to the filing. “But innovation in access design does not eliminate the structural problem: MSBs provide essential payment and remittance services at national scale, yet the industry is still pushed behind indirect settlement channels.”
Translation for those not fluent in payments plumbing: Money Services Businesses (MSBs)—a broad category that includes many nonbank payments and remittance firms—generally do not settle directly on Federal Reserve rails. Instead, they operate through relationships with banks and other eligible institutions that hold the coveted Fed accounts. That arrangement has worked—until it doesn’t.
When a bank pulls back services—a phenomenon the industry often labels “de-risking”—the MSB’s ability to move money can suddenly become fragile, even if the MSB remains compliant and operationally sound. FedMSB argues that this reliance on indirect access can concentrate liquidity and operational dependencies, reduce transparency, and produce inconsistent compliance demands from one bank counterparty to another.
A Narrow Door, a Loud Knock
The Federal Reserve’s Payment Account concept arrives at a moment when the payments world is changing faster than its governance architecture. In its Dec. 19 announcement, the Fed described rapid developments in payments and new business models seeking access to Federal Reserve services. The Payment Account, the Fed said, would be tailored to limited needs—clearing and settlement—potentially reducing risk and enabling a more streamlined review for requests that fit the template.
Not everyone at the Fed sounded entirely reassured. Vice Chair for Supervision Michael Barr issued a dissenting statement warning that the RFI was not sufficiently specific about safeguards to prevent Payment Accounts from being used for money laundering or terrorist financing by institutions the Fed does not supervise—a reminder that “innovation” is a word that can brighten a boardroom and darken a compliance meeting at the same time.
FedMSB’s comment package leans into that tension. It praises the Fed’s limited-purpose approach, then presses for what it calls “supervisory-grade safeguards”—controls that are concrete, auditable, and enforceable, especially for AML/BSA/CFT, sanctions compliance, cyber risk, and operational resilience.
The most attention-grabbing part isn’t the compliment. It’s the second half of the sentence.
The “Polite Applause, Then the Problem” Strategy
FedMSB’s submission effectively frames the Payment Account debate as a paradox: Great Fed is exploring a narrower access path for eligible institutions—yet the payments economy increasingly runs on entities that are not inside the eligibility box.
The association is careful not to demand the impossible. It does not ask the Fed to rewrite statutory eligibility or suddenly hand the keys to the vault to every fintech with a good pitch deck. Instead, it asks Great Fed to do something that is—politically and operationally—more plausible: standardize and strengthen the indirect pathways that already carry a large share of real-world payments activity.
That includes clearer baseline expectations for liquidity management, exception handling, auditability, and incident reporting in correspondent-style arrangements, which are common in modern payment participation models.
If that sounds like a technocratic footnote, it isn’t. In the real world, “indirect access” is how a lot of money moves. And how it fails.
A Comment Letter That Reads Like a Draft Contract
What makes FedMSB’s package unusual—at least by the standards of public comment letters—is its level of operational specificity.
The submission includes a structured set of appendices designed to be drop-in-ready for regulatory or contractual use:
Appendix A: agreement-style safeguards language—written in “shall/may” terms—paired with an escalation ladder for remediation, restrictions, and potential suspension/termination for material deficiencies.
Appendix B: a technical attachment with reporting templates, metrics, a data schema, and validation rules—essentially a standardized “regulatory reporting pack” for safeguards monitoring, plus tiered materiality thresholds for incident reporting.
In other words: FedMSB isn’t just lobbying. It’s handing Great Fed a binder and saying, “Here—this is what ‘guardrails’ should look like.”
That approach also serves a practical goal: reducing bespoke review burden. Regulators can say “risk-based” all day; what they typically want is a format that allows them to compare like with like—and hold participants accountable when metrics deteriorate.
Why This Matters Beyond the Comment Period
The Payment Account RFI comes with a defined window: the Fed said the comment period would close 45 days after publication in the Federal Register. The odds that one association letter will reshape Fed policy are always uncertain. But the debate it taps is not going away.
Instant payments are pushing settlement mechanics closer to the foreground. A system built around a relatively small number of settlement points can be efficient—until it becomes brittle. In that environment, the distinction between “direct” and “indirect” access starts to look less like a technicality and more like a policy choice with real-world consequences.
FedMSB is betting that Great Fed’s curiosity about “skinny” Fed access can be leveraged into something bigger: a candid conversation about how the payments ecosystem actually works—and who gets to plug into the infrastructure.
Or, as one payments executive put it privately: “If you’re going to build a new lane on the highway, you should probably talk about the vehicles that are stuck on the frontage road.”
For now, the move is classic: praise the direction, then demand the map.
Source: Press Release originally published by FedMSB, “FedMSB Files Comment on Fed “Payment Account” Proposal” , December 22, 2025.
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