Kraken's banking arm becomes first crypto firm to secure payments account with Fed

March 4 (Reuters) - Cryptocurrency exchange Kraken's banking unit has gained access to the Federal Reserve's payments system through a limited-purpose account, the first U.S. digital-asset bank to do so as the sector deepens its reach into mainstream finance.

Through its Fed master account, Kraken Financial can link directly to core U.S. payment systems such as Fedwire, avoiding intermediary banks and enabling faster, more efficient fiat transfers for institutional clients, while reducing operational complexity and costs, the company said in a blog post on Wednesday.

While Kraken would not receive the wider range of privileges granted to banking institutions with a full master account, the move is still a major win for the digital-assets industry as they are increasingly incorporated into traditional markets and attracting more interest from institutional investors.

Digital-asset companies have also benefited under President Donald Trump, who has promised to make America the "crypto capital of the world."

"As we know, the payments landscape is actively evolving," Kansas City Fed President Jeff Schmid said in a statement. "Throughout this transformation, the integrity and stability of the U.S. payments system remain our priority."

The account was approved for an initial one-year term, with services to be introduced in phases, starting with the support for institutional client activity at Kraken.

"This milestone marks the convergence of crypto infrastructure and sovereign financial rails. With a Federal Reserve master account, we can operate not as a peripheral participant in the U.S. banking system, but as a directly connected financial institution," said Arjun Sethi, Co-CEO of Payward and Kraken.

Kraken Financial is the company's Wyoming-chartered bank and Payward is the legal parent.

Kraken was valued at $20 billion in its latest fundraising in November, and has been actively investing to expand into various asset classes and grow its user base. (Reporting by Pritam Biswas in Bengaluru; Editing by Shilpi Majumdar)