There is an alternative. The idea of another kind of federal charter that would allow regulated institutions access to payment systems, but would not allow them to provide credit, seems much more appealing for not only stablecoin issuers but almost all other fintechs as well. Such a charter would separate the systemically risky provision of credit from the less risky provision of payment services, a very different concept to the SPNB charter. The economist George Selgin, Senior Fellow and Director of the Cato Institute’s Center for Monetary and Financial Alternatives, recently posted a similar point on Twitter, arguing for the Federal Reserve to give fintechs direct access to payment systems (instead of having to go through banks). This was the approach taken in the UK when the Bank of England decided to give settlement accounts to fintechs, where examples of fintechs who took advantage of this opportunity to deliver a better and cheaper service to customers range from the $5 billion+ Transferwise money transfer business to the open banking startup Modulr (which just recieved a $9 million investment from PayPal Ventures). Interestingly, Singapore has just announced that it will go this way as well, so that non-banks that are licenced as payment institutions will be allowed access to the instant payment infrastructure from February 2021.
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There is already a bit of drama surrounding the launch. Caitlin Long, founder and CEO of Custodia Bank, tweeted about why Adyen, a public European fintech company, was able to get on the list of participants offering FedNow, when, in her words, “isn’t the Fed keeping #fintechs out???”
In a statement, Adyen confirmed that it had obtained a U.S. banking branch license in 2021 and was “among the first to complete testing and receive certification to utilize the FedNow(R) Service.”
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It still remains relatively rare for non-banks to be given direct access to a central bank’s real-time gross settlement (RTGS) system.
Data from the Payments Benchmarks 2022 shows some central banks allow several hundred institutions to access the core settlement system. But most users did not permit any non-banks to access it directly, and of those that did, typically only a handful of non-banks had such privileges.
From Non-bank access to RTGS systems still rare – Central Banking:
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The Bank of England did this back in 2017, allowing announcing today that a new generation of non-bank Payment Service Providers is now eligible to apply for a settlement account in the Bank’s RTGS system.
Holding their own settlement account at the Bank enables these non-bank PSPs to apply, for the first time, for direct access to the UK’s sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.
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And that’s no good if you’re a new company with an innovative yet compliant business model needing to make Faster Payments or access the payment schemes. Without a reliance on a commercial bank’s policies, there are fewer parties to rely upon.
A smaller tech chain reduces IT failure
With fewer tech players in the chain, there is a reduced likelihood of IT failure, as our own technology stack is less dependent on others. This means we’re now able to divert resources to focusing on our own platform rather than maintaining our technological connection to other parties.
From What direct access to the Bank of England means | Modulr:
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Snippings 