PACE Act: What It Means for Access to U.S. Payment Infrastructure

Earlier this week, two members of Congress from California — including my Congressman, Sam Liccardo — introduced the Payment Access and Consumer Efficiency (“PACE”) Act, a bill that would create a pathway for certain nonbank payment providers to directly access Federal Reserve payment systems, including Fedwire, FedNow, and ACH.

If you’re getting excited — good for you — it means you're youthful and full of hope. And if you’re getting deja vu — you should probably schedule your next colonoscopy because it means you’re as old or older than I am.

A Little History on Banking and Payments

Our U.S. banking system is a dual system, in which banks may choose to be chartered at the federal or state level. Banking reforms throughout the late 20th century, such as the ability to branch across state lines and also export rates and fees, have largely given state-chartered banks and federally-chartered counterparts parity from a products and services perspective. The difference largely comes down to who your primary or prudential regulator is — the Office of Comptroller of the Currency (aka, the OCC), or a mash up of the FDIC or local Federal Reserve Bank plus your home-state banking regulator.

Payments started in the domain of banking, and so they used to be part of that dual chartering system. That was until a large swatch of banks decided that payments, particularly cross-border consumer payments and things like merchant acquiring, weren’t efficient uses of capital or profitable enough to keep within the bank’s regulatory perimeter. As banks exited the payments space, mega non-bank payments companies like PayPal, Square and Stripe emerged. Over a period of decades, states responded by wielding and then tightening (and then loosening) state money transmission laws.

One issue that emerged with state payment licenses was time to market. If you speed run the bank formation process, it is possible to open the doors on a de novo bank in about sixteen months (although Erebor seems poised to break those records). The same is not true for money transmission licensing. New York is widely viewed by the industry and its orbit of consultants as the longest tent pole, taking two or more years to approve most applicants. But there are other states that can take more than a year, or who will reject you if they don’t approve of your name because it contains any of the letters b-a-n-k or t-r-u-s-t.

Since there historically was no dual system for payments companies, your choice was to try to find a bank partner to support your activities or wade into the arduous and uncertain timelines of obtaining state licenses.

Past Attempts to Tilt at the Federal Payments Charter Windmills

In the mid-2010s something began to stir in Washington, D.C. Members of the Senate like Gary Peters and Mike Rounds formed the bipartisan Senate Payments Innovation Caucus. And a bipartisan group led by then House Members Kyrsten Sinema and the recently departed Mr. David Scott of Georgia, formed a similar payments caucus in Congress’s lower chamber. These groups introduced various bills, many of them similar to the PACE Act.

Around the same time, the OCC announced an initiative to offer federal payment and lending charters. Many have forgotten, but the OCC has long had the power to charter narrow and specialized banks. One example is special credit card issuing banks, which used to be owned and operated by retailers such as Nordstrom and Target. These entities did not require FDIC insurance, meaning they did not trigger Bank Holding Company Act status and its related requirements that commerce (like selling clothes) and banking (like issuing credit cards) be separate.

In 2016, the OCC held a raging (for regulatory nerds and law firm partners) symposium where it announced an internal office of innovation and also proclaimed the Comptroller was open for business for these new federal payment and lending charter applicants.

With this development, it looked like — at long last — payments companies would also have a dual licensing and chartering system like banks do. However, state regulators sued to block the OCC from issuing any such charters, viewing the OCC’s efforts as encroaching on what up until that time had been the state’s sovereign territory.

Is the PACE Act Exciting?

It’s a valid question and if you’re in the payments or antitrust space, it’s OK to say yes.

Personally, I find it a little funny that Congress created a federal charter for stablecoin payment services before it created one dedicated to fiat card acceptance and ACH services. But the PACE Act is still a good first step in a very long legislative process.

This is because — even with all the fancy state money transmission and narrow banking licenses — access to payment master accounts and major card networks remains largely limited to insured depository institutions. Nonbanks, including many large fintech and payment companies, connect to these systems indirectly through sponsor banks, adding cost, latency, and operational dependency. The PACE Act proposes an alternative: a regulated, federally supervised framework that would allow qualifying nonbanks to connect directly.

The bill is still early. There is no Senate companion, and key implementation details will determine how meaningful it becomes in practice. But unlike prior proposals, this one is relatively specific about who qualifies and how the model would work. And that makes it slightly different from the mid-2010s federal payments charter bills and the OCC’s federal payments charter efforts.

A Defined Path for Nonbank Access

At the center of the PACE Act is the creation of a new category: “registered covered providers.”

Eligibility is not open-ended. To qualify, a company must already operate at meaningful scale and regulatory maturity. For example, a “covered provider” includes firms that:

• Hold at least 40 active state money transmitter licenses, or
• Operate under a state bank or credit union charter

That threshold alone significantly narrows the field. It effectively targets large, nationally scaled payment companies, not early-stage fintechs. Notably, the PACE Act does not require a company to be FDIC insured, meaning special purpose state banks like the ones held by Kraken, Stripe and Fiserv, could all qualify for the new “registered covered providers” designation and the related master account access pathway under the bill.

Eligible firms can apply for federal registration with the Office of the Comptroller of the Currency (OCC). Approval is based on specific criteria, including:

• Financial and operational capability
• Governance and risk management systems
• Compliance with the Bank Secrecy Act
• A demonstrated public benefit (e.g., improving competition or access)

If approved, the firm becomes a “registered covered provider” and can apply for a payments reserve account at the Federal Reserve, which includes access to Fedwire, FedNow, and ACH.

Direct Access, But With Bank-Like Constraints

The bill does not create a lightweight path to Fed access. It creates a parallel regulatory regime.

Registered providers would be required to:

• Maintain 1:1 reserves backing all customer obligations in highly liquid assets (e.g., cash, Fed balances, short-duration Treasuries)
• Comply with capital, liquidity, and risk management standards
• Maintain detailed records of customer balances and obligations
• Segregate customer funds and custody assets
• Submit to ongoing OCC supervision and examination

They would also be subject to fair access requirements, including restrictions on denying service based on political or other protected characteristics.

In effect, the tradeoff is clear: direct infrastructure access in exchange for bank-like oversight, capital requirements and operational discipline.

Why This Is Being Proposed

The policy motivation is straightforward: cost, concentration, and competitiveness.

Today, firms with direct Fed access pay extremely low per-transaction costs (fractions of a cent), while nonbanks accessing indirectly can face markups many times higher through intermediary relationships.

At the same time, access is concentrated. A small number of banks originate a large share of ACH volume, raising questions about competition and resiliency.

The PACE Act frames direct access for regulated nonbanks as a way to:

• Reduce structural costs in the payment stack
• Expand the set of direct infrastructure participants
• Improve speed and efficiency of money movement

It also brings the U.S. closer to other advanced economies, where nonbank payment firms already have some form of direct access to real-time systems.

A Shift in How Access Is Defined

Historically, access to Federal Reserve systems has been tied to institutional form. Specifically, being a bank.

The PACE Act shifts that toward a capability-based model:

• Scale (e.g., 40+ state licenses)
• Regulatory standing
• Operational readiness
• Federal supervision

Access is no longer strictly about being a depository institution. That is a meaningful structural change, even if the number of qualifying firms remains limited.

Implications for Payment Infrastructure

If implemented, the impact would extend beyond the firms that qualify.

1. Economics: reducing reliance on sponsor banks could compress costs and reshape pricing dynamics across the ecosystem.
2. Participation: core payment systems could see more direct participants, increasing competition but also expanding the set of entities responsible for resilience and compliance.
3. System evolution: this fits into a broader shift toward a more flexible, multi-rail payments environment. The PACE Act is not about digital assets, but it reflects similar pressure to decouple access from legacy structures.

The So What for Payments Companies

For most fintechs, this is not an immediate operational change.

The 40 MTL threshold alone means only a subset of large, mature firms would qualify. And even for those firms, the regulatory burden with 1:1 reserves, OCC supervision, and ongoing compliance is substantial.

While the PACE Act’s 180-day OCC review period might appear slower than the OCC’s current 120-day review period for stablecoin focused trust banks, it is actually faster because PACE Act companies will receive full approval to operate within that six-month window. The current 120-day stablecoin focused review period only provides trust bank applicants with a conditional approval, with full approval expected to take an additional 12 months.

For applicants, the 40-state license threshold means companies could look to collect money transmission licenses in more expedient states. If California, Nevada and New York take the longest, it would be possible to obtain licenses in 40 other states and then apply for federal covered status under the PACE Act. A well-organized company could then potentially do business nationwide after receiving OCC approval to be a registered covered provider. This timeline could be between 12 and 18 months, particularly if the applicant had an OCC application prepared to file as soon as the 40th license was granted.

The PACE Act also makes state charters like the Wyoming special purpose depository institution charter more attractive. Today, it is uncertain whether states like New York or California will accept a Wyoming charter as preempting their own digital asset licensing and money transmission laws. The PACE Act’s language focused on payments and monetary value would seem to encompass stablecoins and assets like Bitcoin. This would allow an entity to start with a Wyoming special purpose charter and then use the OCC approval process to have federal law clearly preempt the other state laws, as well as clear up the master account access issues that stifled Custodia Bank.

As a result of this —

• Direct Fed access could become a real strategic option for scaled nonbanks
• Sponsor bank relationships may become more of a choice than a requirement
• Pricing and leverage dynamics across the ecosystem could begin to shift

For companies evaluating long-term infrastructure strategy, this introduces a new dimension: what it would mean to own access directly versus continuing to rely on intermediaries.

But Sir, This is a Wendys

I know and I’m going to go on a regulatory rant anyway. The PACE Act is a really great piece of legislation, but there are a couple of puzzling areas.

One area is the reference to covered companies being subject to the Equal Credit Opportunity Act. This is strange because payments are separate from lending, meaning fair lending laws like the Equal Credit Opportunity Act should never attach to a covered company’s products or services. Let’s say the PACE Act registration process allowed a company to extend credit by issuing charge and revolving credit cards (which I do not think the PACE Act allows), the Liccardo bill wouldn’t need to expressly apply fair lending laws because they attach by virtue of the products themselves. So it’s unclear what the OCC or covered companies are supposed to do with this other than have a paper policy saying they won’t discriminate in lending decisions when they don’t offer their non-existent lending products.

A possible technical flaw in the bill is whether an OCC-approved company needs to keep its money transmission licenses. On one hand, the bill reads like a butterfly journey for payments companies. Start out a state-licensed caterpillar, and emerge after the 180-day period as a federally-registered butterfly and the ability to conduct business nationwide. And the OCC is supposed to conduct exams of registered providers.

So does that mean OCC-approved companies can shed their underlying money transmission licenses? Or do you need to continue to carry the 40-some licenses forward — and all their CVS-receipt-length disclosure requirements, and their 300-some different reports to be filed each year, and their onsite examinations? On top of the new OCC reporting, capital and examination requirements?

It’s logical — and dare I say axiomatic — that an OCC-registered company could shed its state licenses, but without further clarity states may litigate this issue and require companies to carry both.

Related to the question of what happens to an entity’s state licenses — the PACE Act creates a new resolution framework for OCC-approved entities. Oddly — and perhaps a point in favor of the idea that entities cannot shed their state licenses — state regulators have the first option on managing the resolution of these payments companies. But the state regulator can choose to appoint the OCC to resolve the entities.

While the OCC has long had the power to resolve uninsured banks, our research indicates that the authority has been dormant for decades (if not closer to a full century). This is because the FDIC will generally step in to resolve insured banks, and the OCC has the authority to appoint the FDIC when a National Bank encounters financial issues. Whether the OCC wants this new authority or not, it is likely to develop renewed resolution muscles as it works with the uninsured trust banks that are being chartered under the GENIUS Act.

What Still Needs to Be Resolved

The ultimate impact of the bill depends on several open questions:

• How narrowly or broadly eligibility is interpreted in practice
• How stringent OCC supervision becomes relative to bank regulation
• Whether firms view the regulatory tradeoffs as worth it
• How many companies can realistically meet both the licensing and operational thresholds

The framework is defined, but adoption is not guaranteed.

Bottom Line

The PACE Act does not change the system today, but it does make something explicit that has historically been implicit:

Access to core payment infrastructure does not have to be exclusively bank-based.

• Direct access could extend to a small set of highly regulated nonbanks
• The sponsor bank model is being more directly questioned
• Payment infrastructure is moving toward a more capability-driven structure

Even if the bill evolves, the signal is clear: access is no longer a fixed boundary.

Also, thank you Member Liccardo — you made this regulatory nerd’s and constituent’s week with the introduction of your bill.