PACE Act Hearing Revives Fintech Fight for Fed Payment Rail Access

House lawmakers used a June 24 Financial Services Committee hearing to debate the Payments Access and Consumer Efficiency Act, a bipartisan bill that would create a federal route for qualified nonbank payment firms to seek access to Federal Reserve payment services. The issue matters now because the Federal Reserve is separately considering a limited payment-account framework that would not expand legal eligibility and would exclude FedACH, leaving Congress to decide whether fintech access should go further.

For payment companies, merchants and small businesses, the practical question is not whether faster payments are useful. It is whether nonbank fintechs can connect more directly to core payment rails without relying as heavily on sponsor banks, while still meeting safety, fraud, consumer-protection and supervision standards that banks argue are essential to trust in the payment system.

What changed this week

The bill itself is not new. Representatives Young Kim, a California Republican, and Sam Liccardo, a California Democrat, introduced the PACE Act on April 21. What changed this week is that the proposal moved back into the live policy debate at a House Financial Services Committee hearing titled "Future of Payments: Promoting Innovation and Fair Markets."

The committee listed witnesses from Davis Polk, the Bank Policy Institute, Stripe, Anchorage Digital and the National Community Reinvestment Coalition. Payments Dive reported on June 25 that lawmakers sparred over whether fintechs should be able to access Federal Reserve payment systems, with Stripe Vice Chair Eileen O'Mara backing the bill's framework and some lawmakers warning about risks from opening the system to less regulated firms.

Kim's office framed the bill around charter reform, faster settlement times and access to Federal Reserve payment services for small-business payroll and worker payments. The April bill announcement said the PACE Act would enable qualified providers to access federal payment systems directly, with provisions for federal registration, fully backed and segregated consumer funds, oversight and consumer-priority insolvency protections.

Why fintechs care about direct rail access

Most consumers do not see the infrastructure. A payment app, merchant platform or payroll product may feel instant at the user interface while the underlying funds move through banks, card networks, ACH files, clearing windows and compliance reviews. For a nonbank fintech, that architecture usually means depending on a bank partner to reach the Federal Reserve's services.

That dependence is not merely operational. It affects pricing, settlement certainty, product speed, compliance obligations and who has the power to say yes or no to new use cases. A fintech with direct access, if approved and supervised, could reduce some intermediary friction. A bank that currently provides access gains fees, risk visibility and control over customer onboarding.

The PACE Act's market significance is that it treats payment access as a federal supervision question rather than only a bank-partnership question. Payments Dive reported that the bill would create an OCC registration process for nonbank entities and that registered entities could request access to Fedwire Funds Service, FedNow Service and FedACH Services if the legislation became law.

Why FedACH is the pressure point

The Federal Reserve's own payment-account proposal shows why Congress is debating the issue. On May 20, the Fed requested comment on a special-purpose payment account for legally eligible institutions. The Board said the proposal would not expand legal eligibility, would not provide intraday credit or discount-window access, would not pay interest, and would only allow services with automated controls to prevent overdrafts.

The Federal Register notice draws a hard line around FedACH. The Board said it does not believe there is a reasonable way to let Payment Accounts access FedACH and effectively mitigate credit risk to the Reserve Banks without disrupting the ACH network and potentially undermining its efficiency. It also said Payment Account holders could seek a Master Account if they need additional services.

That limitation is commercially important. FedNow is the newer instant-payment rail, and Fedwire handles high-value real-time gross settlement, but ACH remains embedded in payroll, vendor payments, account-to-account transfers, bill pay, refunds and business payments. A framework that excludes ACH may help some use cases while leaving many everyday money-movement products tied to sponsor banks.

Who gains leverage, and who carries risk

If the PACE Act advanced substantially as described, large multi-state payment firms with mature compliance programs would be the clearest potential beneficiaries. The bill sponsor's materials say qualified payment companies could apply for federal registration, and Payments Dive reported that a registered provider would need money transmitter licenses in at least 40 states to attain the Fed payment provider registration.

That threshold matters because it limits the story to scaled operators, not every app that moves money. The likely winners would be payment companies that already carry significant licensing, compliance and operational costs and can convert that infrastructure into a stronger claim for direct access. Smaller fintechs may still depend on sponsor banks, processors or larger platforms.

Banks and credit unions are not passive bystanders. The American Bankers Association told the committee that banks support payment innovation but that expanded access and new chartering pathways must reinforce safety, soundness and trust. America's Credit Unions told members ahead of the hearing to be cautious about expanding master-account access, citing fraud, scams and safety-and-soundness concerns.

The incentive analysis is straightforward. Fintechs want lower friction and less dependency. Banks want to preserve the risk gatekeeping role that comes with direct access. Merchants and small businesses want faster, cheaper, more predictable payments but do not want a weaker fraud or dispute environment. Regulators and lawmakers have to decide which entities can be trusted with direct pipes into public payment infrastructure.

What remains unresolved

The PACE Act is still a bill, not an operating regime. The hearing record and stakeholder statements show the core tradeoff, but they do not settle how examiners would judge registered providers, how liability would work in fraud events, how state money-transmitter oversight would interact with OCC supervision, or how quickly the Federal Reserve would act on access requests.

There is also a product-design question. Direct rail access does not automatically make payments cheaper for end users. The savings, if any, depend on pricing, risk reserves, compliance costs, fraud losses, dispute processes, bank-partner replacement costs and whether payment firms pass any efficiency gains to merchants or consumers.

The strongest reading is therefore conditional. The PACE Act could change bank-fintech bargaining power and make direct public-rail access a real strategic option for scaled payment companies. It could also stall, narrow, or become a framework whose compliance costs keep the practical benefits concentrated among the largest firms.

What to watch next

Watch first for committee movement: amendments, markup timing, changes to the 40-state licensing condition, and any narrowing of which companies can qualify as registered covered providers. Those details will reveal whether the bill is aimed at a broad fintech market or a small group of scaled payment firms.

Watch the Fed's payment-account rulemaking in parallel. The measurable checkpoints are the July 27 comment deadline, whether the final framework keeps FedACH outside Payment Accounts, whether review timelines stay near the proposed 90-day frame for higher-tier requests, and whether the Board changes its position on legally eligible institutions.

Finally, watch bank-partner disclosures, fintech pricing and merchant adoption. If the debate changes real economics, the evidence should show up in sponsor-bank terms, settlement timing, payment fees, fraud outcomes, dispute rates and the number of nonbank firms willing to seek federal registration rather than keep routing through existing partners.