House members sparred at a Wednesday hearing over whether to offer fintechs access to Federal Reserve payments systems under the proposed Payments Access and Consumer Efficiency Act.

During the House Financial Services committee hearing, some House members lauded the bill for potential benefits it would offer small businesses and consumers if fintechs, including those that aren’t banks, gain more access to federal government payment rails. 

Chiefly, payments would happen faster and more easily, regardless of holidays and weekends, those members contended. Some witnesses providing testimony at the hearing, including a representative from digital payments juggernaut Stripe, backed the bill.

Currently, many fintechs that aren’t banks must acquire money transmitter licenses on a state-by-state basis across the country to offer their services.

The bill would create a new payments service provider registration process with the Office of the Comptroller of the Currency that would be available to non-bank entities. Such registered entities could request access to the Federal Reserve’s Fedwire Funds Service, FedNow Service and FedACH Services if the legislation were to become law.

“If the Pace Act were enacted, it would provide a framework for us to work with small businesses and give them a lot more confidence and credibility on the flow of funds,” Stripe Vice Chair Eileen O’Mara testified at the hearing.

“With the patchwork quilt that we have to operate in, a lot of small businesses are challenged with just knowing when that money will clear, and when will they have access to it for the services that they have already delivered” she told the committee.

The hearing was dubbed the “Future of Payments: Promoting Innovation and Fair Markets” under the leadership of the Republican chairman, French Hill, a representative from Arkansas.

Nonetheless, some members of the committee raised red flags about opening the payments system to companies that might be less regulated than banks, or that may prompt new risks for the financial system.

Payments bill arrived this year

The bill was introduced in April by the bipartisan pair Rep. Young Kim, a Republican, and Rep. Sam Liccardo, a Democrat, both from California, with backing from fintech organizations such as the Financial Technology Association, Blockchain Association, The Digital Chamber, and The Crypto Council For Innovation. Notably, Silicon Valley in California is home to many rising fintech companies, including Stripe, which has dual headquarters in South San Francisco and Dublin.

Kim, and other supporters of the bill, argued that the U.S. is at risk of falling behind other developed countries that have already opened their payments systems to fintechs. 

“It's incomprehensible that the United States is the only G7 country without the faster payments regulation, so if we do not act now and take steps to pass this legislation, like my PACE Act, we are at risk of falling behind at the cost of our working families and small businesses,” Kim said at the hearing.

The legislation details the requirements for becoming such a registered provider and the activities that the registrant would be allowed to perform. To meet the prerequisites, the fintech would have to benefit competition and innovation and offer its services broadly to the public.

Importantly, the new registered provider would be allowed to offer services in any state, but it would also need to secure money transmitter licenses in at least 40 states to attain the Fed payment provider registration.

Threats to consumers

Rep. Bill Foster, an Illinois Democrat, provided some backing for improved payments, but sounded an alarm over fintechs becoming as powerful as those in China’s payment system today. Specifically, he noted the dominance of WeChat and Alipay in that country. 

“These super apps find that they can squeeze the manufacturers at one end and the consumers at the other end, because they have market data that's unavailable to ordinary banks,” Foster said. “The free market will deliver our economy into the hands of the super apps if we’re not careful.”

He and other Democrats also noted the diminished protections for consumers in light of President Donald Trump’s administration shrinking the Consumer Financial Protection Bureau.

In addition, Foster pointed to the coming agentic commerce era’s likely impact on payments as “generally positive,” but noted that it stands to create “major challenges” for financial regulation, primarily because of the speed at which payments will happen.

Bank group points to risks

Federal Reserve officials floated the idea of a “skinny” Fed account last year, offering more access to the central bank’s payments services. Ultimately, the central bank proposed only to offer that account to banks and credit unions, despite fintech interest in a new Fed account offering limited access to services.

Banks have criticized the idea, and that opposition was voiced again Wednesday at the hearing by a representative from the trade group Bank Policy Institute. The bank industry has developed and offers extensive payments services, adhering to regulations that ensure “safety and soundness,” noted Paige Paridon, BPI’s co-head of regulatory affairs.

“Banks embrace innovation and welcome competition when it is based on products and services, not the ability to evade regulation and supervision,” Paridon said.

Limited purpose and novel charters at the federal and state levels that have been granted to some companies don’t necessarily require adherence to the same federal safeguards that most national banks follow, she said. 

“Some entities seeking novel charters are doing so to obtain a Federal Reserve master account and access to the Fed's payment services, but central bank account access can also pose considerable risk to individual reserve banks, to the U.S. payment system and its participants, and to financial stability,” Paridon argued.