On June 24th, a hearing titled "Future of Payments: Promoting Innovation and Fair Markets" was held by the House Financial Services Committee. It covered regulatory and compliance requirements associated with charters, access to payment systems and financial infrastructure. The potential for different charter frameworks to enhance safety, foster innovation and reduce compliance costs was also explored. Witnesses from Davis Polk, Stripe, the Bank Policy Institute, Anchorage Digital, and the National Community Reinvestment Coalition provided a range of perspectives from across the financial ecosystem.
Testimony addressed core issues raised by the bipartisan Payments Access and Consumer Efficiency Act of 2026 ("PACE Act"), which was introduced on April 21st by Representatives Young Kim (R-CA) and Sam Liccardo (D-CA). If the bill becomes law, it could significantly change the way nonbank payment companies operate and access the Federal Reserve's payments infrastructure by creating a new type of federally supervised financial institution called the "Registered Covered Provider" overseen by the Office of the Comptroller of the Currency. A payment company that qualifies as a Registered Covered Provider would be able to apply for a Federal Reserve master account which would allow it to directly access the Fed's payment rails, and it would be able to provide payment services nationwide.
Key issues explored in the hearing included:
- Does a regulatory framework built around traditional banks work for fintech and payments companies that do not take deposits or make loans?
- Will the current regulatory framework stifle innovation, and is it possible to accelerate innovation without weakening consumer protection and introducing new risks?
- What type of supervision is needed to protect consumers as digital assets, AI and other innovations reshape the banking and payments landscape?
David Portilla, the co-head of Davis Polk & Wardwell's financial institutions group, testified that banking has historically consisted of three core functions: taking deposits, extending credit, and providing payments, but these functions have been unbundled in today's market and are regulated primarily at the state level. He observed that despite this development, there is no federal non-bank chartering framework, rather the federal framework is oriented around entities that bundle these functions. Portilla asserted that this approach does not match the market or the way consumer preferences and behaviors have evolved, and results in a system where non-bank payments companies must navigate a patchwork of state licensing requirements. When responding to a question by Committee Chairman Rep. French Hill (R-AK), Portilla said that a business needs to operate nationwide under a uniform set of standards once it reaches a certain scale.
Stripe Vice Chair Eileen O'Mara shared the company's perspective, asserting that the current system "makes payments more fragile, more expensive, and slows businesses down." She testified that since there is no federal regulatory framework for a modern payments company and only banks can access Federal Reserve payment systems, every payment must route through a bank intermediary which she said creates a structural vulnerability. O'Mara added that the U.S. is the only nation in the G7 that does not allow direct access to their payment infrastructure and asserted that the public has benefitted in countries that provide direct access and allow payments companies to build products on the payment rails.
Expressing Stripe's support for the PACE Act, O'Mara acknowledged that the risks payments companies manage do require rigorous oversight but asserted that oversight should be designed specifically for payments, not banks. She said enabling payment focused companies to access Fed payment rails directly will promote a more robust payments ecosystem, mitigate potential disruptions, and enable innovation that will benefit American businesses.
The bank perspective was provided by Paige Pidano, Executive Vice President and Senior Associate General Counsel at the Bank Policy Institute (BPI), a nonpartisan policy, research, and advocacy organization representing the nation's leading banks, including universal banks, regional banks and major foreign banks doing business in the U.S. She testified that decades of innovation and investment by the regulated banking sector have provided American consumers and businesses with a wealth of payment options that allow them to make payments worldwide and has increased the speed of payments, clearing and settlement. She added that banks continue to innovate citing blockchain technology, payment stablecoins and tokenized asset platforms as examples. Pidano pointed out that all this innovation has occurred "within the regulatory perimeter," subject to capital requirements, liquidity standards, activity restrictions, and consumer protection standards.
Pidano said the BPI opposes the PACE Act, asserting that statutory reform is not needed as the Federal Reserve is already exploring establishing a special-purpose Federal Reserve account ("Payment Account") intended to serve institutions focused primarily on payment innovation. She said the PACE Act would create undue risk to the payment system by allowing money transmitters, which the BPI feels are not subject to adequate risk management, standards or supervision, direct access to the Federal Reserve. An example she cited was FedACH, which she said requires sufficient sophistication and expertise to manage the clearing and settlement of a high volume of ACH items. Pidano also asserted that the PACE act would cause legal complexity, make it difficult for state regulators to enforce their own laws, and lead to harmful gaps in consumer protection standards.
Rachel Anderika, Head of Global Operations at Anchorage Digital, the first federally regulated digital asset bank, testified that if the U.S. is going to continue to be the financial capital of the world, federal and state regulatory frameworks that allow innovation are needed. To elaborate on that point, she described the evolution of her firm and how it demonstrated that innovation can be achieved safely, responsibly and at scale. She added that Anchorage Digital is proud to be building that future inside the regulated US perimeter. While responding to questions from committee members, she added that the regulatory perimeter should expand to encompass responsible innovators capable of meeting supervisory standards.
Tara Flynn, Policy Director for the National Community Reinvestment Coalition (NCRC), which represents more than 700 community-based organizations, also testified. She said the NCRC believes that to receive access to banking and payments infrastructure, nonbanks such as fintech payment apps, cryptocurrency companies, and other financial technology firms must be subject to strong consumer protections, help meet community needs, and be subject to robust supervision and enforcement on behalf of consumers.
Flynn testified that faster payments are not the same thing as innovation, adding that just because payments are faster, it does not mean they are fair or safe. Flynn asserted that consumer protections need to be strengthened, pointing out that the Electronic Fund Transfer Act grants important protections, but those rights may be limited based on the payment method. Noting that banks operate in a public policy framework designed to ensure financial institutions help meet household, small business, and community credit needs, she said entities that seek special purpose charters to access the banking and payment systems should be expected to demonstrate how they will serve communities fairly, expand opportunity and contribute to the economic well-being of the people and places that rely on these systems. She also testified that regulators must have the capacity to hold companies accountable if they fail to meet regulatory requirements or otherwise put consumers and the system at risk, especially when allowing access to federal payment and banking systems to companies that have never been subject to federal regulatory regimes.
Verisave's Take:
The regulatory framework has not kept up with changes in banking/payment system technology, innovation or evolving consumer behavior, but updating the framework is a major undertaking given the complexity of the system, the critical role it plays and the diverse needs of the parties that work in and rely upon the banking/payment system. This high-level summary of some of the many valid points made by the witnesses only scratches the surface. We encourage you to read the testimony or watch the recording of the hearing to learn more.
