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The newly proposed legislation represents one of the most ambitious attempts to date to break banks’ monopoly over US payments infrastructure by extending direct access to federal payment systems to qualified nonbank firms.
The bipartisan Payments Access and Consumer Efficiency (PACE) Act, introduced by Representatives Young Kim (R-CA) and Sam Liccardo (D-CA), would create a new regulatory framework that allows qualifying nonbank firms to obtain direct access to elements of the FedACH, Fedwire and FedNow payment systems.
At its core, the bill seeks to upend one of the defining features of US federal payments systems: the concentration of direct access among a relatively small number of banks and credit unions.
Under the current model, nonbanks must rely on sponsor banks or intermediary financial institutions to access payment rails operated by the Federal Reserve System.
The bill’s sponsors and supporters say this layered structure introduces unnecessary costs, delays and dependencies into the payments ecosystem, arguing that Americans should not have to pay elevated transaction fees or wait days for funds to settle simply due to the impositions of “legacy bank” gatekeepers.
They also contend that these banks derive substantial and unjustifiable economic and competitive advantages from their privileged access to federal clearing and settlement systems – although banks would argue that they earn these advantages through heavy prudential regulation.
In a fact sheet accompanying the bill, Kim and Liccardo point out that institutions with direct access pay approximately $0.0035 per FedACH transaction, while charging downstream payment firms up to a 100x markup.
They also note that just two banks, Wells Fargo and J.P. Morgan Chase, originate nearly half of all US ACH transactions. This means there is significant concentration risk, given the potential impact on US ACH volumes of a technical failure at either bank, and means that the PACE Act can be framed as a means of increasing the sector’s resilience.
These arguments position the PACE Act both as a payments modernisation proposal and an anti-intermediation initiative.
A new category of nonbank payment firms
The bill would establish a new federal supervisory framework administered by the Office of the Comptroller of the Currency (OCC) for qualifying “covered providers”.
In effect, the proposal would create a new class of federally supervised payment institution that is positioned between traditional banks and state-licensed money transmitters.
Under the bill’s definition, eligible entities would include nonbank firms that hold at least 40 active state money transmitter licences, alongside state-chartered depository institutions and credit unions.
By using the 40-licence threshold, the bill aims to limit eligibility to nonbanks that have already demonstrated operational maturity and regulatory sophistication at scale.
The bill assumes that, to obtain such a broad portfolio of licences, a firm must already have proven its compliance infrastructure, financial controls and examination readiness across multiple jurisdictions.
However, the 40-licence threshold effectively creates a moat for large incumbents such as Stripe and PayPal, locking out smaller start-ups and meaning that only established nonbanks can bypass the traditional banking system.
It also allows firms to gain a de facto national charter for payments, which state regulators such as the New York Department of Financial Services (NYDFS) will likely oppose as it could diminish their authority.
Safeguards and enforcement
The bill aims to address prudential and consumer protection concerns by introducing a range of safeguards that would apply to the covered providers.
For example, they would need to maintain at least 1:1 reserves backing all outstanding payment obligations, and segregate customer funds from company assets. They would also be required to meet capital, liquidity, risk management and recordkeeping standards, and be subject to federal examination and enforcement oversight.
Where a covered provider relies on or contracts a third party for any regulated services, the third party would be subject to the same regulation and supervision as the covered provider.
If a covered provider violates any of the customer protection or risk management provisions of the act, the Comptroller would be authorised to take action under section 8 of the Federal Deposit Insurance Act – “as if such provider was an insured depository institution”, the bill notes.
This is the trade-off for nonbanks: to get bank-like access to federal payment systems, they will need to meet bank-level standards.
Kim and Liccardo state that the safeguards are designed to enable expanded access to core payments infrastructure without introducing excessive operational, liquidity or consumer protection risk.
Strong support from fintech, blockchain sectors
Among the bill’s key supporters are the Financial Technology Association (FTA), the Blockchain Association, the Digital Chamber and the Crypto Council for Innovation (CCI).
This coalition of traditional fintech and crypto shows that direct access is a topic that nonbanks of different types can agree on.
FTA board members include firms such as Amazon Pay, PayPal, Stripe, Block, Remitly and FIS, and regular members include Wise, Revolut, Monzo, Klarna and Shopify.
Penny Lee, president and CEO of the FTA, drew attention to the inefficiencies of the US payments system, noting that consumers and small businesses currently have to “wait days” for direct deposits to clear or for vendor checks to arrive in the mail.
“Allowing regulated payment firms access to federal payment rails will enable faster transactions, lower costs and more seamless experiences on par with other leading economies.” she said.
Summer Mersinger, CEO of the Blockchain Association, added that the PACE Act represents an “important step” towards a more equitable US payments ecosystem.
“For too long, digital asset payment companies have been locked out of the same financial infrastructure that their competitors have access to,” she said.
“The PACE Act allows qualified non-bank providers to obtain direct access to Federal Reserve payment rails, enabling faster, less expensive and more competitive payment services for American consumers and businesses.”
These associations also argue that the Act would increase competition and improve payments system resilience, by reducing concentration among the small number of dominant originating institutions.
Rethinking payment system participation
Alongside the proposed expansion of FedNow to cross-border use cases, the PACE Act demonstrates that questions of access and participation are increasingly shaping the evolution of the US payments system.
The emergence of instant payments has intensified longstanding questions around who may participate directly in core settlement infrastructure, and whether existing access models remain appropriate in an increasingly digital payments environment.
As Kim and Liccardo’s fact sheet makes clear, if the US payments system is to compete with those of its G7 rivals, supervisors must be willing to open it up to innovative nonbank firms.
“In other advanced economies,” say Kim and Liccardo, “payment firms have direct access, the system is safe and secure, and consumers benefit.”
However, the legislation will face tough opposition from the banking lobby, which will present it as a threat to the safety and soundness of the US financial system, with banks seeking to preserve their advantageous position.
Whether or not the bill is adopted in law, the PACE Act highlights a growing debate within US payments policy.
It questions whether direct participation in core payment infrastructure should remain tied primarily to traditional bank status, or whether sufficiently regulated nonbank payment firms should also be permitted to connect directly and potentially deliver time- and cost-saving efficiencies to the wider payments system.
The conversation about whether the bank-centric model promotes stability or represents a constraint on US competitiveness as the payments landscape modernises rapidly is an important one.
We will see the arguments play out as the PACE Act is debated over the coming months, and the outcome could have a huge impact on banks and nonbanks operating in the country.
